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Market Segmentation

By Rupal Jain

Market Segmentation is defined as the process of splitting customers, or potential customers, in a market into different groups, or segments, within which the customers share a similar level of interest in the same or comparable sets of needs satisfied by a distinct marketing proposition; it is also explained as a marketing technique that targets a group of customers with specific characteristics, i.e. a particular group that has its own distinct customer profile and buyer characteristics so that for marketing purposes, it can be targeted separately from other segments of the market.

It is a key ingredient for successful marketing as it simplifies the targeting, positioning and the planning process. Wikipedia explains Market Segment as a sub-group of people or organizations sharing one or more characteristics that cause them to have similar product needs.

A true Market Segment meets all of the following criteria: it is distinct from other segments (heterogeneity across segments), it is homogenous within the segments (exhibits common attributes), it responds similarly to a market stimulus and it can be reached by a market intervention. Market Segmentation simplifies the firm’s product, pricing, promotion and distribution strategies and also facilitates planning and organizing function of management more easily and cost effectively; but it requires a thorough understanding of the customers needs. It is referred as a tool for defining markets and thereby allocating resources; it uses statistical techniques called factor analysis and cluster analysis to combine attitudinal and demographic data to develop segments that are easier to target.

Market Segmentation can be done on the basis of the location (Geographic Segmentation); on the basis of age, income, gender and other measurable factors (Demographic Segmentation); on the basis of lifestyle, likes, dislikes, taste and preferences (Psychological Segmentation); and according to the history, loyalty and responsiveness (Behavioral Segmentation).

A business must analyze the different needs of the market segments; their internal strengths and weaknesses; external opportunities and threats; and various others factors like the mission, vision, values, beliefs, attitudes, norms and standards of the organization; as well as the competitors strategy, social and cultural factors, economic environment, global perspective, demographic environment, technological and political / legal aspects before deciding their own niche.

Philip Kotler mentioned five criteria for an effective segmentation which states that Segmentation should be: -

1. Measurable: - it should be possible to determine the values of the variable used for the segmentation.

2. Relevant: - it should justify the expected profits and the growth potential.

3. Accessible: - the target customers must be reachable and servable for the organization.

4. Distinguishable: - the target audiences must be diverse and able to show different reactions to different marketing mix.

5. Feasible: - the firm must have an ability to draw an effective marketing program for its customers.

The following are the advantages of Market Segmentation for a firm:

a) Helps in better understanding of the customers’ needs and wants. b) Better targeting and position of the product. c) Encourages two-way communication among the potential buyer and the organization. d) Maintaining effective relationship with the customers. e) Retaining the existing customers and attracting new ones. f) Improving service delivery standards. g) Reducing cost / expenses on various marketing activities and increases market share; resulting in higher profits.

Finally, Market Segmentation is rightly referred as a marketing term referring to the buyers into groups (segments) that have common needs and will respond similarly to a marketing action, it is an identifiable group of individuals, families, firms, or organizations, sharing one or more characteristics or needs in an otherwise homogenous market. Market Segmentation generally responds in a predictable manner to a marketing or promotional offer.

“As the burring of distinctions among firms increases in electronic markets, survival requires identifying your unique role in the market place in terms of value to the customers” – Kalakota and Whinstone.

Written By: Rupal Jain, Lecturer, Atharva Institute of Management Studies (MUMBAI) She can be reached at  jainrupal@sify.com

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