Is the process of dividing a market into subsets of consumers with common needs?

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. The segments created are composed of consumers who will respond similarly to marketing strategies and who share traits such as similar interests, needs, or locations.

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Why is market segmentation important for marketers?
Examples of market segmentation in the following topics:
The Importance of Market Segmentation
Evaluating Market Segments
Developing a Market Segmentation
Measuring a Successful Segmentation
Porter's Competitive Strategies
Determining Segmentation Variable(s)
Marketing Data Types
Concentrated Targeting
Estimating the Addressable Market
Identifying the Target Market

Why is market segmentation important for marketers?

Market segmentation makes it easier for marketers to personalize their marketing campaigns.

By arranging their company's target market into segmented groups, rather than targeting each potential customer individually, marketers can be more efficient with their time, money, and other resources than if they were targeting consumers on an individual level. Grouping similar consumers together allows marketers to target specific audiences in a cost effective manner.

Market segmentation also reduces the risk of an unsuccessful or ineffective marketing campaign. When marketers divide a market based on key characteristics and personalize their strategies based on that information, there is a much higher chance of success than if they were to create a generic campaign and try to implement it across all segments.

Marketers can also us segmentation to prioritize their target audiences. If segmentation shows that some consumers would be more likely to buy a product than others, marketers can better allocate their attention and resources.

Market segmentation is defined as ‘the process of dividing a market into distinct subsets of consumers with common needs or characteristics, and selecting one or more segments to target with a distinct marketing mix’ (Schiffman & Kanuk, 2004, p. 33). Segmenting consumers is an essential task for marketers, in their effort to understand their needs and characteristics, and develop targeted marketing strategies (Tapp & Clowes, 2000). Market segmentation can also benefit consumers, as products and services are then designed to satisfy their specific needs. As a result, consumers will receive better quality of services and will realize higher satisfaction levels. Schiffman and Kanuk (2004) identified three main steps in the market segmentation process: 1) segmenting a market into homogeneous subgroups; 2) selecting one or more segments to market; and 3) positioning the product or service to achieve a competitive advantage in the market.

Examples of market segmentation in the following topics:

The Importance of Market Segmentation
- Segmenting example: Kellogg's Frosties are marketed to children, while Kellogg's Crunchy Nut Cornflakes are marketed to adults.
- Market segmentation allows for a better allocation of a firm's finite resources.
- Market segmentation can be defined in terms of the STP acronym, meaning Segment, Target and Position.
- While there may be theoretically 'ideal' market segments, in reality, every organization engaged in a market will develop different ways of imagining market segments, and create product differentiation strategies to exploit these segments.
- Rather, one or more target markets (segments) must be selected.
Evaluating Market Segments
- Segmentation involves classifying people into homogeneous groupings and determining which of these segments are viable target markets.
- Rather, one or more target markets (segments) must be selected.
- Thus, market segmentation is a twofold process that includes:
- An ideal market segment meets all of the following criteria:
- When an organization adopts this strategy, it focuses its marketing efforts on two or more distinct market segments.
Developing a Market Segmentation
- In the concentration strategy, a company chooses to focus its marketing efforts on only one market segment.
- In the multi-segment strategy, a company focuses its marketing efforts on two or more distinct market segments.
- They then develop marketing programs tailored to each of these segments.
- Markets could also be segmented by usage rates.
- Rolex focuses on a single market segment-- those who want a luxury watch.
Measuring a Successful Segmentation
- The key to consumer marketing breakthroughs is often successful and innovative market segmentation.
- The market segment must be stable enough that it does not vanish after some time
- The market segment is internally homogeneous (potential customers in the same segment prefer the same product qualities)
- The market segment is externally heterogeneous, that is, potential customers from different segments have different quality preferences.
- The market segment is able to leverage the appropriate marketing mix to respond to difference in preferences
Porter's Competitive Strategies
- Michael Porter classifies competitive strategies as cost leadership, differentiation, or market segmentation.
- Porter simplified the scheme by reducing it to the three most effective strategies: cost leadership, differentiation, and market segmentation (or focus).
- Segmentation targets finding specific segments of the market which are not otherwise tapped by larger firms.
- Porter explains that firms with high market share are successful because they pursue a cost-leadership strategy, and firms with low market share are successful because they employ market segmentation or differentiation to focus on a small but profitable market niche.
- Discuss the value of using Porter's competitive strategies of cost leadership, differentiation, and market segmentation
Determining Segmentation Variable(s)
- Markets can be segmented primarily according to geographic, demographic, usage, and psychological segments--or a combination of the above.
- Segmenting the consumer market by age groups is useful for several products.
- Gender has historically been a good basis for market segmentation.
- Income seems a better basis for segmenting markets as prices for a product increases.
- So marketers attempt to observe motivation directly and classify market segments accordingly.
Marketing Data Types
- Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives.
- The process of segmentation is distinct from positioning (designing an appropriate marketing mix for each segment).
- Improved segmentation can lead to significantly improved marketing effectiveness.
- Distinct segments can have different industry structures and thus have higher or lower attractiveness Once a market segment has been identified (via segmentation), and targeted (in which the viability of servicing the market intended), the segment is then subject to positioning.
- We segment the market according to the occasions.
Concentrated Targeting
- Concentrated marketing is a strategy which targets very defined and specific segments of the consumer population.
- An organization that adopts a concentration strategy chooses to focus its marketing efforts on only one very defined and specific market segment.
- For example, the manufacturer of Rolex watches has chosen to concentrate on the luxury segment of the watch market.
- This can provide a differential advantage over other organizations that market to this segment but do not concentrate all their efforts on it.
- However, there is no increase in the total profits of the sales as it targets just one segment of the market.
Estimating the Addressable Market
- The market can be categorized into separate groups called segments.
- Any discrete variable is a segmentation.
- Minimally, an existing discrete variable may be chosen as a segmentation, also called "a priori" segmentation.
- When a producer appeals to a market or market segment, the producer must take into account the distinction between the end user or consumer and the purchaser or decision maker.
- Each entity in the delivery chain will have different needs, so a complete market needs analysis must include all potential segments and all entities within each segment.
Identifying the Target Market
- In marketing and advertising, a target audience is a specific group of people within the target market at which a marketing message is aimed at.
- In addition to the above segmentations, market researchers have advocated a needs-based market segmentation approach to identify smaller and better defined target groups.
- Apply a valuation approach - Market growth, barriers to entry, market access, and switching is used to valuate segments.
- Test the segments - A segment storyboard is created to test the attractiveness of each segment's positioning strategy.
- Modify marketing mix - The segment positioning strategy is expanded to include all aspects of the marketing mix.