The market segmentation refers to the technique of dividing the global market into different segments of customers, taking into account some similarities, commonalities or links between them. That is, the members of a subset of the market share something in common.
Therefore, segmentation is the organization of the group of customers who are part of a general market into smaller groups, whose needs and characteristics are similar. For example, among all the people in the United States who follow the NBA, you would divide those who follow the Angeles Lakers, New York Knicks, Boston Celtics, Chicago Bulls, etc.
By doing so, a business can set a target for its marketing efforts and thus better customize its services and products to meet the preferences of those more specific markets.
The objective of segmentation is to be able to concentrate marketing power in market segments or segments, in order to gain a competitive advantage within each segment. For example, for fans of the Los Angeles Lakers, marketing strategies that are different from those of the Chicago Bulls will be put in place.
What is market segmentation?
Market segmentation is when a company or organization divides its customers into subgroups, based on characteristics like tastes, hobbies, personality, income, age, gender, etc. The purpose is to use these segments to improve products or conduct different marketing for each segment.
One of the most common types of segmentation is demographic. Examples of this type of stratification are educational level, family status, age, gender, race, place of residence, or income.
Segmentation involves doing relevant market research and thus can be very costly. Therefore, it is carried out especially by large companies, whether they serve large markets or with highly differentiated product lines.
Small businesses seek to find out their target segment instead through trial and error, engage with their customers and stock the products that are most suitable for their particular customers.
Types of market segmentation
There are four main types of market segmentation. Each type is divided by specific variables. Segmentation means dividing a group of people into different groups according to some specific variable. These variables range from age and gender to factors such as attitude, values, etc.
It allows you to effectively segment your entire customers based on where they are located, which is useful when the location of your customers plays a role in your purchasing decision.
Perhaps the most common form of market segmentation, where the market is segmented to address specific geographic regions. This targeting is popular because most clients are influenced by where they live.
It is ideal for international companies. Customers who live in different countries have different wants and needs, which can be precisely targeted in a marketing campaign.
Examples of geographic segmentation variables:
- Postal code
- Rural or urban area
An example is a company that sells basic cars, which seeks to get closer to customers who live in warm regions, where vehicles do not need equipment for snowy climates.
It is completely focused on who the customer is. This segmentation is very common to use to define a company’s main target audience. It has proven to be useful as it allows you to respond directly to the wants and needs of customers.
It is also easy to get this information. All you have to do is get the census data. Gender, age, income, type of housing, and educational level are common demographic variables.
Some brands may target women only, others only men. This segmentation plays some part in the segmentation strategy.
Examples of demographic segmentation variables:
- education level
- Monthly income
- Marital status
An example would be a car manufacturer that sells a luxury car brand. This company is likely to seek out clients with higher incomes.
This segmentation segments the entire customer based on the past behavior they have shown with the brand.
Examples of behavioral hash variables:
- Shopping habits
- Interactions with the brand
- Product knowledge
- Previous Purchases
- Product qualification.
One example is a luxury car dealership that is looking to focus on people who have purchased a luxury car in the past four years.
lifestyle or psychological targeting
It aims to segment customers based on their lifestyles. It is based on the analysis of attitudes, values, behaviors, emotions, perceptions, beliefs, needs, desires and interests of the consumer.
If suitable targeting variables can be identified, this is a proven method of market segmentation. However, extensive research will be necessary, since defining the population based on their lifestyle is relatively subjective.
Investigative techniques such as focus groups, in-depth interviews, ethnography, etc. are effective. These investigations provide the information and conceptual knowledge to the consumer, required to design this segmentation.
Examples of psychological segmentation variables:
- Personality traits
What is market segmentation? Importance
Market segmentation has many uses:
Better understanding of the market
It enables you to better understand who your customers are, what your business goals should be, and how your marketing campaigns should be organized. Determining which customer segments you can effectively market with helps increase brand loyalty and customer retention.
It is one of the most effective tools to ensure successful marketing. Companies can exploit various marketing opportunities and make maximum use of their advantages, optimally using all available resources.
In addition, it is also an essential tool to counteract the increasing competition in the market, by being able to obtain valuable data on consumers’ needs, preferences and behaviours.
It is effective for the company to focus on allocating its resources to increase the efficiency of marketing to specific segments of specially selected consumers.
Enter the address
It is an essential tool to help identify the consumer segments that will become your target customers. Therefore, it provides direction to be able to take on a potential marketing trend and thus develop a feasible strategy.
Companies can learn better about activity in small market segments, made up of consumers, as well as the global market.
By gaining insight into your customers’ appreciation and preferences, you can better customize your offerings of goods and services to make them valuable to your consumer platform.
As retail facilitates the allocation of consumer segments, which have their own needs, it serves businesses so that they can offer their products in accordance with the desired demand.
Therefore, companies are in a better position to meet the needs and requirements of their target consumers, and to achieve a competitive advantage over the competition.
Real examples of fragmentation
The price segmentation is well illustrated by the different types of cars that have historically been marketed by General Motors. Chevrolet, Pontiac, Buick and Cadillac brands vary in price and prestige across a clearly defined range to appeal to increasingly higher-income groups.
When beauty products are marketed, the market is usually segmented by users’ age, skin type, and occasion. An example of this is Olay.
This company has developed the “Age Defiant” line of products for serving the elderly, as well as the “Clearly Clean” line of products for the youth and adolescents.
Fast food chains like McDonald’s often divide their target audience into children and adults, and develop different marketing plans for both.
The marketing strategy of delivering a toy with every meal works well for kids. On the other hand, serving food in less than ten minutes, offering free Wi-Fi, and refilling unlimited drinks works well for adults.
Sports brands such as Nike, Adidas, Reebok and others. They often segment the market based on the sports they play, which helps them market sports-specific products to the right customers.
If a restaurant has different menus for lunch and dinner, you can compare the shopping pattern of diners to that of lunch.
There may be items on the lunch menu that would be more popular if they were available on the dinner menu. The restaurant can use this data to improve its menus and launch new, more effective menus for each specific customer segment.
Design airline questionnaires for in-depth interviews. There is a section on customer behavior, such as how often they travel, how they buy tickets, who they travel with, the cities they’ve traveled to, where they sit, the airlines they’ve flown on, money spent on airline tickets, etc.
In addition, a section is included on attitudes towards air travel, such as air travel motives, air travel concerns, positive feelings about flying, etc. There is also a section on perception of other airlines.
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- INC (2020). Market segmentation. Taken from: inc.com.
- Vanessa Rizzi (2019). What is market segmentation and is it necessary for your business? Business Directory. Taken from: enterprisehandbook.co.uk.
- University Lab Partners (2020). 4 Main Types of Market Segmentation: All You Need to Know. Taken from: universitylabpartners.org.
- Ares Dutta (2020). Market Segmentation – Definition, Bases, Types, Examples. Fidog. Taken from: feedough.com.
- Tim Book (2020). What are hash variables? Taken from: displayr.com.