Answer to Question #252865 in Marketing for Kyky

Question

When should a company pursue market segmentation?

Answer 1

Discussion

Market segmentation is the practice of dividing the target market into approachable groups. Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psycho-graphic or behavioral criteria used to better understand the target audience. Market segmentation helps one send the right message, every time, by efficiently targeting specific groups of consumers. By understanding the market segments, a company can leverage this targeting in product, sales, and marketing strategies. Market segments can power the product development cycles by informing how to create product offerings for different segments.

Behind every successful company is a good market segmentation model that guides them during every stage of the commercialization process. Companies segment their markets to increase their competitiveness and profitability by setting prices that fully optimize the balance between profitability and demand per segment. Market segmentation is an important part of any company's marketing plan to successfully reach their ideal customer.

Most companies don’t have enough resources to target a mass market. Which is why they need to target the specific market segment that need their product. They divide the market into similar and identifiable segments through market segmentation. Below are some types of market segments that a company can have;

• Demographic segmentation

This is the most common type of segmentation. A target audience is divided based on qualities such as, age, gender, occupation, education, income and nationality. Demographic segmentation is the easiest way to divide a market. Mixing demographic segmentation with another type of market segmentation can help to narrow the market down even further. The information required for demographic segmentation is easy to gather and doesn’t cost a company too much to obtain.

• Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision making patterns such as purchase, consumption, lifestyle, and usage. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach because companies can focus on what they know customers are more likely to buy.

• Geographic segmentation

Geographic segmentation creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand the business.

• Psycho-graphic segmentation

Psycho-graphic segmentation deals with characteristics that are related to mental and emotional attributes. It divides a group of customers based on their personality traits, values, interests, attitudes and lifestyles. Psycho-graphics give marketers valuable insights into customer’s motives, preferences and needs. By understanding psycho-graphics, marketers can develop content that is more relatable to their customer segments. It is psycho-graphic information that informs why people purchase or don’t purchase a product or service.

Market segmentation makes it easier for marketing teams to develop highly targeted and effective marketing campaigns and plans. Below are some several market segmentation potential benefits to a business;

• Greater company focus

When a company has identified specific market segments, it helps them to focus on what segments they want to target with specific products/ services/ content/ blogs and campaigns. When a company has a focus on specific segments, they ensure they are targeting the right segment with the right product which will see the greatest return on investment.

• Better serve a customer’s needs and wants

Having defined segments enables companies to satisfy a variety of customer needs by offering different bundles and incentives. Different forms and promotional activities will be used for different segments based on that segments needs/ wants and characteristics.

• Market competitiveness

When a company is focusing on a specific segment, their market competitiveness increases. Which in turn will lead to a higher return on investment. The company is focused on specific segments and learns everything they need to know about that segment, to market their products to them.

• Market expansion

With geographic segmentation, market expansion is possible immediately. When a company understands their segments and how to market to a segment in a particular location, they can expand immediately into another nearby location. If segmentation is based on demographics, then once the company knows their demographic segment they can expand in that segment with similar products.

• Targeted communication

Even when product features and benefits are the same, it is important for companies to target segments with specific communication. Messaging will be different for different segments. Platforms which are used to target different segments will be different also. The key is to understand the segments and target communication relevant to them on the relevant platforms.

Conclusion

Market segmentation is fundamental to increase sales and achieve marketing objectives. It directs efforts and assets to the relevant target audience. When marketers use market segmentation it makes planning campaigns easier, as it helps to focus the company on certain customer groups instead of targeting the mass market. Segmentation helps marketers to be more efficient in terms of time, money and other resources. It also allows companies to learn about their customers. They gain a better understanding of customer’s needs and wants and therefore can tailor campaigns to customer segments most likely to purchase products.

Reference

Tynan, A. C., & Drayton, J. (1987). Market segmentation. Journal of marketing management, 2(3), 301-335.