The Basis of Market Segmentation Essay

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1) Introduction Marketing has become vital ingredient for every business success. It has almost become difficult for every competitor to survive in market for a prolonged period because competition is cut to throat. That is why development of right marketing strategy over time is required. Right marketing strategy is something that helps companies to achieve marketing objectives. The strategy of dividing the market in homogenous group is known as segmentation. Market segmentation was first put forward in the middle of 1950s by Wendell.R.Smith, an American professor of marketing. “Market segmentation is to divide a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes.” (Charles W. Lamb 2003).

2) Steps in marketing segmentation The first step in segmenting market is to ‘select a market or a product category for study’. It may be a market in which the firm has already occupied a new but related market or product category, or a totally new one. The second step is to ‘choose a basis or bases for segmenting the market’. This step requires managerial insight, creativity and market knowledge. A successful plan includes four basic criteria: “substantiality, identifiably, accessibility, and responsiveness. The third step is ‘selecting segmentation descriptors’. Descriptors identify the specific segmentation variables to use. The fourth one is to ‘profile and analyze segments’.

The information we get from the analyses can be used to rank the potential market segments by profit opportunity, risk, consistency with organizational task and objectives, and other factors which are important to the company. The fifth step is to ‘select target markets’. This is not a part a part of segmentation process but a natural result of it. It is the major decision that affects and often directly determines the firm’s marketing mix. The sixth and last step is ‘designing, implementing and maintaining appropriate marketing mixes’. The marketing mix has been described as product, distribution, promotion, and price strategies which are used to bring about mutually satisfying relationships with target markets. Bases of market segment strategy:

Some examples Geographic segmentation are Region (by continent, country, state or by neighborhood also). Size of metropolitan area (segmented according to population size). Population Density and Climate. Demographic Segmentation variables include Age, Gender, Family size, Family life cycle, Income, Occupation, Income, Generation, Ethnicity, Nationality, Religion, Social class. Psychographic segmentation includes Interest, Activities, Opinions, Values and Attitudes. Behavioral segmentation is based on actual customer behavior and it includes Benefits sought, Usage rate, Brand loyalty, User status, Readiness to buy and Occasions. Most techniques of market segmentation rely only on descriptive factors pertaining to purchasers and are not efficient predictors of future buyer behavior.

3) Benefits of market segmentation Companies who segment their markets match their strengths and offerings to the groups of customers most likely to respond to them. * Differentiate products and services to meet customer’s needs and desires. * Identifies behaviors and buying motives of the products. * Helps avoid unprofitable markets.

* Find markets where prices can be increased. * Optimizes marketing resources and get the most impact for investments etc…

4) Theoretical and empirical evidences in favor of market segmentation There are many factors which can be responsible for market segmentation traditional as well as modern or new. Michel wedel (2002) in his editorial article states that market segmentation has now become the necessity of marketers. One to one marketing is no feasible as it needs more money and efforts that affects the profit of markets. Amandeep singh (2010) in his study highlights the need of using a new ion theoretical foundation of market segmentation which will help the FMCG companies to segment the market in competition oriented marketing to gain profit. Some specialized method of market segmentation 1) Finer and Hyper-segmentation 2) Progressive profiting 3) Addressable marketing method.

5) Challenges to the future research There are millions of consumer all around the world with different needs and wants (Kotler & Armstrong 2001). It is impossible for companies to design a marketing mix that would suite every consumer’s needs, that will say that the same product, with the same price, place and promotion technique would appeal to every consumers. Marketing segmentation is important in order for a company’s marketing strategy to work properly (Weinstein 1994, Gunter & Furnham 1992). This is because old traditional class patterns no longer exist and consumers have more income to spend. Thus it is important to divide consumers into segments that are more manageable and based on the needs of the segments. This enables the further development of the product to the right direction. Demographic may prove as good basis for segmentation but things depend on the psyche of the consumers.

6) Conclusions In the literature there is dominance of demographic and psychographic factor for segmentation but critically it can be observed that there is great influence of extraneous variables as price, trends, and market conditions on the purchase of the consumers. Research about the segmentation would add some value to the literature in the area of segmentation. Segmentation is completely based on all four traditional bases and not on any single one.

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