A Market Segmentation Theory

A market segmentation theory is a modern theory that tries to explain the relation of yield of a debt instrument with its maturity period. This theory brings together potential buyers into segments with common needs, that will respond to a marketing action.

The first and most important point of market segmentation theory is, that there is no point in spending money for marketing of your product to certain people, if these people will not buy the product. You need to decide who is your target group and they try hard to promote/market your product to that particular group. This is market segmentation. You would gain many more sales if you would market it only to potential buyers.

To summarise, market segmentation theory is all about seperating the market into smaller groups of consumers and then marketing your product only to the group of people that are your potential buyers.

? Market Segmentation Process

When we have a look at the market structure of a given goods or service, it is evident that the entire market can be divided into segments through a specified process. Such a process is known as the market segmentation process.

Market is a place where buyers buy and sellers sell. In such a case, buyers and sellers both are at an advantageous position. However, to maximizing sales, which eventually leads to increase in profit, is the very lasting objective of any seller/producer. For the purpose of sales maximization, sellers employ marketing, which is a process of commercially promoting, distributing and advertising a given product or service. Market segmentation process is one such technique that has been innovated by marketing professionals.

What is Market Segmentation?

The process of market segmentation, involves the creation of market segments or parts or sub-sets. A segment of the market is basically a sub-set, in terms of goods, service or product, of the entire market and is identified or created by the marketing department in such a manner that the individuals (or organizations) in that very segment would demand a certain set of goods and services that have similar features. In short, a segment is a division of market, the elements of which depict common needs. The meritorious features of a market segment includes the following:

1.Geographically or product-wise or even need wise, a single market segment is distinct from other segments, though one can also count on the existence of some minute similarities.

2.Products that are demanded by the consumers are homogeneous and in some cases also tend to have similar price levels.

3.A product introduction into such a segment stimulates similar and almost congruent reactions from a majority of consumers.

? Market Segmentation as a Process

There are some specialized theories based upon which markets can be easily segmented into different sections. Market segmentation can be positive segmentation, negative segmentation or top-down segmentation. Companies also derive separate segmentation techniques for every product and brand. Market segmentation process is usually done with the help of past data, on filed surveys and consumer interactions. Volumes of goods supply in every segment is made with the help of economic indexes and average income and demand figures.

Steps for Market Segmentation Process

One of the basic objectives of market segmentation is to maximize sales and profits. Hence, the three important objectives of any segmentation process is to gain new customers, sustain the existing consumers and introduce newer products into the market for the existing consumers and there by gain new consumers.

The five step process of market segmentation are:

1.The first step in the market segmentation process is to establish the market and targeted consumers. This process involves tremendous paper work and surveys. Economic and demographic factors are also analyzed in the process. In addition to that this step might also include advertising about the product.

2.The second step is often termed as market mapping and involves structuring the entire marketing procedures based upon the need of the said market. Logistics cost, retail and whole sale cost, etc, are some important parameters that are set up during this stage. Another very important factor involved in this step is the targeting of consumers who are also known as decision makers. The remaining three steps are derived on the basis of this step.

3.The third step is entirely dependent upon the consumers as the demand by consumers and their suggestions are largely viewed, surveyed, taken into consideration and in many cases implemented.

4.In this step, the actual segment begins to take shape as like minded consumers having same demands are placed together and are analyzed as a group. Launching of a parallel or a totally new product is viewed in this situation. This segregation is often based upon economic indexes, demographic, geographic situations.

5.The last step is catering to the needs of existing consumers and finding new markets. This step is purely the first step towards a new 5-step-cycle that begins with finding a new market.

? Market Segmentation Analysis

The act of dividing target markets into various segments based on a number of factors, and then devising individual market strategies for each segment is a commonly carried out practice. The task of market segmentation analysis is imperative for the success of the marketing activities of every company.

When the producer of a specific commodity decides to undertake the marketing and promotional activities for that commodity, what makes him decide how to approach his potential customers? The base of his customers is obviously vast and varied and contains people from all walks of life and belonging to different income groups. Each of these different groups of customers require an altered and unique approach. The basis for this approach is arrived at by carrying out market segmentation analysis.

One of the most widely used concepts in marketing management is that of STP, that is: Segmentation, Targeting and Positioning. What this implies is that the potential customer base is studied by the marketer by carrying out market segmentation analysis, the most approachable and profitable segment is chosen and targeted, and the necessary marketing and promotion steps are taken.

Why Segment Your Market?

The primary reasons for carrying out market segmentation for market trend analysis are :

1.To avoid wastage of precious company resources.

2.To divide the market into various segments, or target groups.

3.To target each profitable segment in a unique way that suits that particular segment, and provides adequate returns.

4.To avoid overlapping and redundant information to one particular segment.

5.To get maximum response and sales from each segment.

Basis for Market Segmentation

When it comes down to practical application of market segmentation analysis, there have to be some fixed parameters that must adopt and enforce in order to achieve the best results and maximum profits. The following are the different factors that determine how the different market segments are arrived at.

Geographic Segmentation: This segmentation is done on the basis of the physical location and boundaries of the customers. The following considerations are necessary here:

�Which country the customer resides in.

�Are there any limitations on the usage and promotion of the product in the country.

�What is the size of the country and what is the density of the population there.

�What are the climate conditions in that country.

Demographic Segmentation: This process of analysis comes into play when the quality and other characteristics of the general population are taken into consideration.

�The age and the gender of the target audience needs to be considered.

�The common occupations and income levels of the population also play a part.

�The religion and language that the people follow also needs to be kept in mind.

�The family size and quality of education are also important here.

Psychographic Segmentation: In this category ,are consideredthe attitudes and lifestyle of the consumers . Also known as the IAO (Interests, Activities and Opinions) model, it plays a major part in devising successful marketing strategies.

�The general personality traits of the customers

�The values of the people and the attitudes that they have towards certain products are crucial pieces of information for a marketer.

�The hobbies and the perception of the selling company are also necessary to be obtained.

Behavioral Segmentation: Here the marketer takes into account the general behavioral patterns of the customers and tries to forecast what reactions they would possibly have to the adopted marketing strategies.

�The benefits that the customers are looking for, and the value they seek and derive.

�The degree of brand loyalty and brand satisfaction.

�The willingness to buy a product, and also the rate of its usage.

�The profitability of marketing there and also the income level of the targeted customer base.

? Demographic Segmentation

Demographic segmentation is one of the easiest segmentation strategies to tap the potential market without wasting the resources.

In marketing, it is very difficult for a single organization to satisfy the needs of all consumers, and hence the organization has to resort to market segmentation. Through market segmentation, the organization fulfills the needs of all consumers belonging to a particular niche instead of trying to fulfill the needs of the entire market which is virtually impossible.

Demographic Segmentation: Definition

Demographic segmentation is basically market segmentation executed by taking various demographic factors, such as age, gender, social class etc., into consideration. This helps to divide the market into several groups, each having a common variable, and target each of these groups to enhance the performance of the organization. This market segmentation strategy aims at understanding the prospective market, and taking necessary steps to ensure that the consumer needs of a targeted group is fulfilled.

Demographic Segmentation Variables

Segmentation variables are basically factors which help the organization to determine the target group. Variables mainly consist of demographic factors such as age, ethnicity, occupation etc. Below are the variables which are commonly used to divide the market into smaller segments.

�Age

�Gender

�Family size

�Family life cycle

�Income

�Occupation

�Education

�Ethnicity

�Nationality

�Religion

�Social standards

Based on these variables, an organization can decide which group would they cater to.

Demographic Segmentation Advantages

Demographic segmentation has some benefits which make it the first choice in the marketing strategies of various organizations, that are :

�An organization can easily categorize the needs of the consumers on the basis of demographic factors such as age, gender etc.

�Demographic segmentation variables are much more easier to obtain and measure compared to the variables of other segmentation strategies.

�It helps an organization in understanding the customers and satisfying their needs.

? Geographic Segmentation

Geographic segmentation is a marketing strategy, whereby the prospective buyers are divided on the basis of geographic units, like cities, states, countries, etc.

What is Geographic Segmentation?

Marketing segmentation can be based on any factor, like culture, economic status, geographic differences, etc. If the market segmentation is based on geographic units, it is called geographic segmentation. Market segmentation strategy whereby the intended audience for a given product is divided according to geographic units, such as nations, states, regions, counties, cities, or neighborhoods.

Geographic segmentation and profiling are very vital processes of marketing strategy, as they are formulated after conducting detailed studies of the customers who belong to different regional units. This type of market segmentation can be beneficial to identify the preferences and needs of customers in a particular region, as per the weather conditions, lifestyle, culture, etc.

? Psychographic Segmentation

Psychographic segmentation is a method of dividing markets on the bases of the psychology and lifestyle habits of customers.Marketing a product requires a deep understanding of the customers psychology, along with their needs, in order for the product to be accepted.

Psychographic Segmentation :Definition

When a producer decides to market a product, he has to realize that there are a lot of differences between customers of different localities, ages and nationalities. So he has to divide the market into various segments, and target each segment individually so as to maximize sales. These segments are divided on a variety of factors like age, sex, lifestyle, income level and psychology. Psychographic segmentation plays on the psychology of the potential customers and helps the seller determine how he must approach customers belonging to a particular segment.

Psychographic Segmentation: Variables

�Interests

�Activities

�Opinions

�Behavioral patterns

�Habits

�Lifestyle

�Perception of selling company

�Hobbies

Using these factors as a base, a marketer can determine how a particular group of customers will respond to the launch of a new product.

Psychographic Segmentation :Advantages

Apart from the obvious advantage of increased sales, there are a few other intricate advantages of psychographic segmentation as well:

�Increased brand value of the company in the eyes of the customer.

�Greater usefulness of the product for the customer.

�Better inputs for the design of new products that the customer will like.

�Lesser amount of money spent on marketing, as it is now more specific.

�Easier to target a specific type of customer base.

�Simpler to derive effective and efficient marketing strategy.

�Greater degree of customer satisfaction and customer loyalty, resulting in higher amount of customer retention.