Market Segmentation and its Benefits
Market segmentation helps in optimizing the marketing mix for a segment. In this unit, we will examine the concept and bases for market segmentation.
All corporate marketing activities are done in such a way that they lead to the generation of surplus funds. Even in the case of non-profit and non-manufacturing set-ups, it becomes crucial to achieve marketing goals in the most economical way. This is so primarily because of budgetary constraints in such organizations.
One of the ways to obtain economies in marketing is to concentrate and focus the marketing efforts in respect of a well-defined homogeneous cluster of potential customers. That is, to choose its markets and serve them through target marketing.
In target marketing, sellers distinguish the major market segments, target one or more of these segments, and develop products and marketing programs tailored to each segment.
The Concept of a Market
Unless you know the exact market(s) to which your organization wants to cater, your focus will be wrong, and your planning will be faulty.
To identify the target market, let us first define the term market. The term market has more than one meaning:
A market is where people gather to transact business, sell and buy commodities, and other physical goods.
It is used in respect of the network of institutions like wholesalers and brokers dealing in a product.
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It can also be used to refer to the nature of demand for the product, as when we speak of the market for soap. A market can be referred to as people with needs and wants, with enough disposable income to spend on goods and services provided to satisfy their needs and wants, and the willingness to expend their income on these goods and services.
Stanton (1981:65) defines a market as people with needs to satisfy, money to spend, and willingness to spend it.
The Concept of a Segment
The previous discussion must have helped you to understand the term ‘market’. On the basis of the market definition given earlier, we can reiterate that buyers in the same market seek products for broadly the same function.
But different buyers have different evaluative criteria about what constitutes the right choice for performing the function. As a consequence, distinct offerings will attract various buyers.
For example, all brands of color television sets will appeal, to some degree, to those in the market for a color TV, but some brands will appeal to some groups more than others.
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If there was only one brand of the color TV set, the buyers would have no choice but buy. But as the market develops, manufacturers seek to cater more closely to some groups than to others, and buyer’s choice widens as a result.
At the most detailed level, the buyer is a market in himself, for every buyer’s want is probably distinct in some way. But on the basis of similarities and differences, such unique wants can be grouped into sub-classes.
Wants within a sub-class are more related to each other than wants between sub-classes. Based on the above discussion, we can now attempt to explain Market Segments and the Process of Market Segmentation.
Market Segmentation
Market segments refer to the sub-classes of the market reflecting sub-classes of wants, and the process of conceptually distinguishing segments is known as market segmentation.
A market segment consists of a large identifiable group within a market.
Stanton (1981) defines market segmentation as dividing the total, heterogeneous market for a product into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.
Akanbi (2002) defines it as dividing the consumers in a given economy into target markets.
Segmentation is a midpoint between mass marketing and individual marketing.
Market segmentation is a customer-oriented philosophy. The consumers attributed to a segment are assumed to be similar in their wants and needs. Yet they are not identical.
Some segment members will want additional features or benefits not included in the offer, while others may gladly give up something they dislike.
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For example, in buying a car, some consumers may purchase those windows with manual winders, while others may reject them.
Again, in a hotel, some may want to find more items in their room(s), such as a fan, machine, cable TV, etc. Others may prefer fewer amenities and a lower price.
As part of the strategy of segmenting its markets, a company will frequently develop different products for each segment. However, market segmentation is done with no change in the product, but rather with separate programs, each tailored to a given market segment.
A producer of pain relief drugs such as ‘Panadol’ can market the product to the youth market, and a different product for the old-people market. Here, the promotional programs for the two markets will differ.
Benefits of Market Segmentation
Segment marketing offers several benefits, which include the following:
The company can create a more fine-tuned product or service offer and price it appropriately for the target audience. The choice of distribution channels and communication channels becomes easy.
Segmentation helps a company exploit its market better by selecting market niches (suitable segments) compatible with its resources. Segmentation helps in focusing strategies more sharply on target groups.
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