What is market segmentation?

Oranges on slate

Market segmentation refers to the classification of prospective consumer groups, in accordance with their needs and requirements and their tendencies to generate a similar response to a particular marketing action1. Market segmentation is a useful marketing strategy through which businesses may divide a homogenous consumer market of a sizable proportion into more defined segments, to be better able to understand the dynamics of their target consumers2.

Related: What is marketing? 

Ultimately, market segmentation adds to a business’ ability to cater to diverse needs of a considerably sized consumer market, where various sections of consumers may have varied needs, interests and perceptions of different products and services3. Taking into consideration different conclusions derived through market segmentation, businesses can allocate their resources to develop a marketing mix in coherence with the demands and requirements of their target consumers4.

Consumer segmentation

Through market segmentation, businesses direct their operations to be able to satisfy their consumer bases optimally. From the varied needs and requirements of a large consumer market, businesses identify particular consumer segments that may find their offered services and products more valuable. Hence, businesses then apply strategic procedures to understand the approach and mindsets of their target consumer segments, to develop a workable and feasible marketing strategy5.

Strategies and procedures

Market segmentation employs various procedures, to divide consumers with similar characteristics into easily identifiable smaller groups, and businesses need to opt for a segmentation strategy which provides optimum support for the marketing of a given product or service. There are various established alternatives available for the strategic implementation of market segmentation, and businesses may opt for one they find most suitable. They may also innovate to unify two different segmentation strategies if they find it is an ideal solution to identify and classify the diverse needs and requirements of a particular consumer market6.

Classifying factors

Market segmentation has expanded over time and today businesses consider various factors to classify a broad consumer market. However, generally speaking, three main factors are considered elemental for the division and classification of any consumer market. These include:

  • Homogeneity

Homogeneity refers to the common characteristic, needs and requirements of a particular consumer segment.

  • Disparity

Disparity associates with the identification of those particular characteristics of a consumer segment which differentiate it from other consumers in a broad consumer market.

  • Reaction

Reaction concerns the tendencies of a classified, identifiable consumer segment, to respond to a particular market action in a specified and similar manner7.

Birth and development of market segmentation

Market segmentation finds its roots in the marketing practices of the 1950s. It was identified and incorporated in the marketing endeavours during that era, as its importance was recognised by various business circles. Ever since then, market segmentation has only grown in importance and popularity and today, it is one of the most researched disciplines of marketing.

Market segmentation is as important for marketing success in the present times, as it had been at the time of its birth, during the late 1950s, particularly in industrialised nations. Since businesses have come to realise the importance of modifying their products and services in accordance with consumer requirements and preferences, and the need to identify the needs of their specified consumer bases amid the vast heterogeneity of broad consumer markets, markets segmentation has evolved to be recognised as one of the rudimentary principles for the adoption of various marketing approaches.

Industrial revolution and development

Perhaps, the need for market segmentation was first felt as a consequence of the diversity of good and products, that was a result of industrial development. It was during the early twentieth century that marketing segmentation gained a prominent position and was formally acknowledged as an essential marketing component, in the wake of increasing efficiency of mass production and diversity of goods and products.

Surely, industrial revolution and development had had a significant impact on marketing concepts, and philosophies and marketing strategies became more centred on manufacturing, focusing on the applications that were to minimise production cost, with marginal importance being devoted towards consumer satisfaction.

Though, later the with the advancements made with respect to the flexibility of production methods and the diversification of consumer demands, businesses began to shift their focus towards the identification of requirements and demands of particular market segments. Those businesses which focussed on meeting the demands of smaller consumer segments were better able to gauge consumer requirements and preferences and resultantly, their marketing approaches rendered fruitful results, providing them with a competitive edge over others.

Early developments and theories

It was Chamberlain who first directed attention towards the importance of focusing on consumer needs than business requirements for entrepreneurial success. The subject was further elaborated by Robinson in his ‘Economic Theory of Imperfect Competition’. These theories and speculations were what prompted Smith to highlight the importance of market segmentation and discuss the heterogeneity of consumer demand, in 1956.

It was much later in 1974, that Wind and Cardozo presented a more structured definition of consumer segments, in the article ‘Industrial Market Segmentation’. They defined consumer segment as a sub-group of consumers sharing similar requirements and showing tendencies to respond in a similar manner to a market stimuli.

Since then, various experts have highlighted the importance of market segmentation as an effective way to deliver products and services, according to the needs and requirements of the target consumers8.

Benefits of market segmentation

Market segmentation has evolved as an essential marketing component and today, it is utilised by businesses operating in different industries to fulfil various purposes and meet diversified marketing requirements.

Provides direction

Market segmentation is relied upon as an essential tool by businesses to help them with the identification of consumer segments that consist of their target customers. Hence, market segmentation provides a direction to the businesses for adopting a feasible marketing approach and developing a workable marketing strategy9.

Value creation

As a result of market segmentation, businesses can develop a better understanding of the dynamics of smaller market segments, comprised of their target consumers, as well as that of a large consumer market as a whole. This helps businesses in making informed decisions with respect to the deliverance of their products or services, to their target consumers. Gaining insight into the perceptions and preferences of their target consumers, they are better able to project their offered goods and services as valuable entities for their consumer bases10.

Competitive edge

Since market segmentation is considered as a facilitator towards the identification of specified consumer segments and their respective needs and requirements, as elaborated earlier, it helps businesses in offering their goods and services in accordance with the acknowledge consumer demands. Consequently, through market segmentation, businesses are better able to fulfil the needs and requirements of their target consumers and attain a competitive edge over others11.

Role of market segmentation in the present era

Today, market segmentation is widely practised as a part of effective marketing endeavours. Modern marketing theories and practices include market segmentation as an elementary and essential component.

Elementary marketing tool

Over time, market segmentation has been recognised as one of the most effective tools for ensuring marketing success. Presently, various companies and businesses rely on market segmentation to exploit diverse marketing opportunities to the most of their advantage and make optimum use of all the resources available to them. Moreover, the modern description of market segmentation also explains it as a fundamental tool that is required for coping up with the intense and increasing market competition.

Businesses rely on market segmentation to gain valuable data and input about consumer needs, requirements, preferences and behaviours and hence their confidence in their ability to adequately cope up with the growing competition which has increased manifolds.

Market penetration

Today market segmentation is considered as an effective tool by businesses to enhance their interaction with the target consumer and focus on the allocation of their resources to increase their marketing efficiencies concerning particularly identified smaller consumer segments. Market segmentation is now acknowledged as a vital factor that paves the way for market penetration. As it allows businesses to identify the consumer pulse and helps them in developing a profound understanding of their consumers’ needs it serves as an essential factor that leads to market penetration12.

Loopholes in market segmentation strategies

Though market segmentation is one of the most acknowledged tools of marketing in the present times, still there are some shortcomings that entail the concept of market segmentation, and for that very reason, it is subjected to widespread criticism.

It is often suggested that market segmentation limits a business’ approach towards the identification of and interaction with target consumers. Hence, many point towards the possibility of businesses missing out on any potential consumers, who may not be a part of the identified consumer segments.

Objective approach and generalisation

Moreover, questions and concerns are raised about the viability of quantitative survey and analysis for market segmentation. Since quantitative studies are more objective in nature, it is possible that relying on quantitative data companies and businesses might not be able to gain some information that may relate to abstract concepts of human behaviour. Individuals essentially show diversity in characteristics and behaviour, and at times it may not be reasonable to generalise and subject a finding to a particular group of people. Hence, it is argued that applications of market segmentation do not confer to the principles of diverse dynamics of a particular consumer segment and varying individual behaviour13.

References

  1. http://www.investopedia.com/terms/m/marketsegmentation.asp
  2. http://www.businessdictionary.com/definition/market-segmentation.html
  3. http://www.investopedia.com/terms/m/marketsegmentation.asp
  4. http://www.businessdictionary.com/definition/market-segmentation.html
  5. http://www.tutor2u.net/business/marketing/segmentation_introduction.asp
  6. http://media3.bournemouth.ac.uk/marketing/07segmentation/04strategies.html
  7. http://www.investopedia.com/terms/m/marketsegmentation.asp
  8. http://kcossin.com/2011/02/16/consumer-segmentation-a-contemporary-historical-perspective/
  9. http://www.segmentationstudyguide.com/understanding-market-segmentation/reasons-to-use-market-segmentation/
  10. http://www.tutor2u.net/business/marketing/segmentation_why.asp
  11. http://www.segmentationstudyguide.com/understanding-market-segmentation/reasons-to-use-market-segmentation/
  12. http://kalyan-city.blogspot.com/2010/07/market-segmentation-importance-in.html
  13. http://www.sparxoo.com/2009/06/04/challenges-of-segmentation/
In this article