Market segmentation process
|Market segmentation process|
Market segmentation is the process of describing and separating huge homogeneous market into group of smaller segments, which are having corresponding needs, wants or attributes. This process is an essential part of business strategy (Päivi Kannisto 2016, p. 174). Strategy of market segmentation is able to help companies acknowledge more informations about their customers for example needs and preferences. Thanks to that, enterprise can create different methods for choosed segments in order to enhance customer's satisfaction and intensify income (Jiapeng Liu et al. 2018, p. 1).Other definition of market segmentation is that it is a strategy of choosing, which products should be made from a group of already existing or possible products (Xu Xu 2013, p. 1).
Process of market segmantation
- General definition of segmented market,
- Formulating needs of potential customers,
- Defining segments by creating combinations of needs that are fulfilled,
- Making detailed characteristic of segments,
- Defining relative size of segments.
Actual methods of market segmentation can be divided into two main streams (Jiapeng Liu et al. 2018, p. 1):
- the priori approaches,
- the post-hoc approaches.
In the priori approach companies had to choose the type and the total number of segments beforehand, based on their knowledge or speculation determinants that are connected with customers, products or services. On the other hand, the post-hoc approach implement the decision bessed of analyzed market data.
Methods of market segmentation
There are few methods of market segmentation (Diana L.Huerta-Muñoz 2017, p. 76):
- Descriptive market segmentation methods (k-means; hierarchical clustering; p-median clustering; case based reasoning and self-organizing map).
- Predictive market segmentation methods (clusterwise regression methods; clusterwise logistic and mixture regression methods).
- Multi-objective market segmentation methods (multi-staged approach; transformation approach; modification of traditional descriptive clustering and predictive clusterwise methods).
Market segmentation criteria
Some criteria for market segmentation:
- Demographic - age, gender, education, marital status, religious beliefs.
- Geographic - location (city, suburbs, village), climate, population, political system.
- Economic - profession, earnings, assets.
- Socio-psychographic - lifestyle, social class, personality.
- Conditions - type of shopping place, frequency/time/scale of shopping.
- Patterns - loyalty, frequency of use.
- Benefits - product knowledge, customer's predisposition.
- Athanassopoulos, A. D. (2000). Customer satisfaction cues to support market segmentation and explain switching behavior, Journal of business research, vol. 47, no. 3
- Huerta-Muñoz Diana L. (2017). An iterated greedy heuristic for a market segmentation problem with multiple attributes, European Journal of Operational Research, vol. 261
- Kannisto Päivi (2016). “I'M NOT A TARGET MARKET”: Power asymmetries in market segmentation, Tourism Management Perspectives, vol. 20
- Liu Jiapeng, Liao Xiuwu, Huang Wei and Liao Xianzhao (2018). Market segmentation: A multiple criteria approach combining preference analysis and segmentation decision, Omega
- Xu Xu (2013). Product market segmentation and output collusion within substitute products, Journal of Economics and Business, vol. 77
Author: Olga Marmuszewska