Importance of market segmentation

Importance of market segmentation
See also
Customer needs Market segmentation process Relationship selling Consumer orientation Customer driven DAGMAR model Segmentation and targeting Analysis of customer Heavy users

Market segmentation is fundamental aspect of marketing. We can describe all markets as heterogeneous, meaning that they all consist of many different individuals, whose preferences and personal needs may vary. Segmentation's main purpose is to address those differences by separating customers into sets based on variety of factors. Nowadays, even the most niche products are accessible by customers all over the world - addressing them in relevant may be a key to success of one's company. It is growingly difficult to a deliver a highly desirable product due to market saturation and well-established competition - focusing on a particular subset of customers and adapting our marketing to fit their expectations seems to be a valid approach. Market segmentation can also affect and even form the basis for the rest of marketing strategies and techniques - knowing the specific target group on the early stage may influence (and improve) other aspects of it.

Advantages of market segmentation

• precise targeting of markets/customers reduces cost of marketing activities and leads to more optimal resource utilization - aiming at specific subsets can cause the developed mechanisms to be reusable and minimizes the chances of dramatically changing the previous, possibly mismatched approaches
• provides technique for better strategic decision – when more specific cases are taken into consideration, the inaccuracies of some assumptions may become emphasized and some particular practices may turn out to be clearly non-applicable
• employees can better understand customer, its needs and reflect to overall atmosphere and concerns among the group, they can also provide more immediate response to constantly changing expectations
• R&D department can create new products for specific segments of the market – within a smaller range of product users the field for improvements and innovations may be more distinguishable
• competition in smaller market segments can be less strong
• various marketing activities can be more focused – with the knowledge of target market sector the demands and requirements (and therefore relevant techniques) are more apparent and clear
• effective market strategy leads to higher customer satisfaction
• specialization on smaller market is easier to achieve
• brand-awareness is easier to build within a smaller group of clients
• segmentation improves functioning of marketing information system
• communication with customers is more effective - various forms and channels of communication are relevant, depending on the target group
• all aforementioned increase the performance and profitability of other marketing activities

Importnace of different types of segmentation

Different types of segmentation may have different impact on company's marketing strategies. Examples include:

• Geographic segmentation - customers preferences and distribution issues may vary in different locations
• Demographic segmentation - perhaps the most natural - customers of different age and gender clearly have different habits and expectations
• Psychographic segmentation - considering particular groups of people divided by lifestyle may provide a lot of information about their doubts and attitudes towards our product and its field

Examples of Importance of market segmentation

• Market segmentation allows businesses to better understand their target market and tailor their products, services, and marketing message to the specific needs and wants of that segment. For example, a beauty company may segment their market by age and gender, then customize their products and marketing messages accordingly.
• By segmenting the market, businesses can identify which segments are the most profitable. For instance, a clothing store might find that their teenage customer segment is the most profitable, so they can focus their marketing efforts on that segment.
• Market segmentation enables businesses to better allocate resources and put their efforts into segments that have the highest return on investment. For instance, a company might find that their customers in a certain region are more likely to buy their products, so they can focus their marketing efforts in that region.
• Market segmentation allows businesses to create more personalized experiences for their customers. For example, a car dealership might segment their customers by income level and preferences, then create special offers and services tailored to each segment.
• Market segmentation can also help businesses develop more effective pricing strategies. For instance, a hotel might find that their customers in high-income areas are willing to pay higher prices, so they can adjust their prices accordingly.

Limitations of Importance of market segmentation

Market segmentation is an essential aspect of marketing, but it does have some limitations. These include:

• Time and resource constraints – Segmentation can be a very time-consuming and resource-intensive process, requiring a large amount of data and research in order to effectively identify target segments.
• Difficulty in predicting customer behavior – It is difficult to accurately predict how customers will behave in response to a particular product or service offering.
• Lack of predictability – Even after market segmentation is completed, there is no guarantee that any particular segment will respond positively to a product or service.
• Difficulty in determining customer needs – Different customer segments may have different needs and preferences, making it difficult to accurately identify and understand these needs.
• Difficulty in accessing certain segments – Depending on the target audience, it may be difficult to access certain segments, such as those in a different geographical location or those with different levels of income.

Other approaches related to Importance of market segmentation

One of the key approaches to market segmentation is understanding the importance of targeting different customer segments. Other approaches related to the importance of market segmentation include:

• Identifying customer needs and preferences – Market segmentation helps marketers to identify the needs and preferences of different customer segments, allowing them to create tailored products and services that meet the needs of each segment.
• Increasing the efficiency of marketing efforts – By segmenting the market, marketers are able to target their marketing efforts more efficiently, reducing costs and increasing the return on investment.
• Enhancing customer experience – Market segmentation enables marketers to create personalized experiences for different customer segments, based on their needs and preferences.
• Enhancing customer loyalty – By targeting different customer segments with tailored products and services, marketers can increase customer loyalty and create long-term relationships with customers.

In summary, market segmentation is an essential tool for marketers to identify customer needs and preferences, increase the efficiency of marketing efforts, enhance customer experience and build customer loyalty.

References

• Smith, W. R. (1956). Product differentiation and market segmentation as alternative marketing strategies. Journal of marketing, 21(1), 3-8.
• Martin, G. (2011). The Importance Of Marketing Segmentation. American Journal of Business Education Volume 4, Number 6
• Wind, Y and Bell, D. (2007) Market segmentation. The Marketing Book pp 222-244
• Thomas, JW. (2017) Market Segmentation. Decision Analyst
• Lynn, M. (2011). Segmenting and targeting your market: Strategies and limitations. Cornell University, School of Hospitality Administration
• Tynan, A. and Drayton, J. (1987) Market segmentation: organizational archetypes and research agendas. European Journal of Marketing, Vol 31, No 1
• Premkanth, P. (2012) Market Segmentation and Its Impact on Customer Satisfaction with Especial Reference to Commercial Bank of Ceylon PLC. Global Journal of Management and Business Research Volume 12, Issue 17

Footnotes

Author: Izabela Pyszczek