Market Segmentation explained
Market Segmentation: this article explains the concept of Market Segmentation in a practical way. In addition to what market segmentation is, the meaning, the definition of segmentation, the reasons for it, an example and the disadvantages are also explained. Enjoy reading!
What is Market Segmentation?
The definition of Market Segmentation
Market Segmentation is as old as marketing itself; because an organisation aims at specific target groups, they can match their products and / or services even better to the needs of their customers. In marketing, it’s all about conquering the market and maintaining an advantage.
The better the match with the target groups, the bigger the chance of successful trade. Market Segmentation is the process in which the entire market population is divided into multiple, meaningful segments based on market variables.
It identifies a range of homogeneous segments with comparable needs, properties and demands, which a company can use to sell its products and/or services more effectively.
What is segmentation?
Segmentation literally means dividing something into parts. This also happens on the sales market. A segment is a group of (potential) customers that share a number of characteristics. For example, when a group of approximately 50 people gathers, one can ask who is over 25 years old.
Subsequently, one can ask who’s older than 50. Finally, one can ask if there are people in the group over 75. This creates 4 segment groups; the first up to 25, the second between 26 and 50 years, the third between 51 and 75 and the fourth older than 75. In this example, market segmentation is based on age.
Going even further, all four groups may be asked who wears glasses or contact lenses. A new segmentation is created.
Businesses require this information to make their products comply with their customers’ wishes. The more they know about their customers, the better they can serve them.
When a complete population has been divided into market segments, a company can approach them more precisely and adjust their positioning to this. This entire process is known as STP; segmentation, targeting and positioning.
Reasons for Market Segmentation
Consumers differ from each other and therefore also respond differently to the entire marketing mix: the combination of 5 Ps, product, price, place (distribution), promotion, people (of your business). To use this effectively, it’s helpful to identify the segments, so different customer groups can be approached effectively.
There’s another valuable aspect to segmenting customer groups. Organisations can put themselves in the shoes of their customers better, and representatives and sales people can approach customer groups more effectively. The application of advertising and communication can also be used more specifically for approaching the segmented target groups.
Through Market Segmentation, organisations can consider the basic needs of their customers more effectively. Instead of producing products for random groups, it becomes easier to service a specific target group.
In this way, businesses can align, their product range, differentiation strategies, marketing strategies and price strategies etc. with their customers. This decreases the chance of company taking unnecessary risks.
Practical Example of Market Segmentation
The various C&A brands are a perfect example of Market Segmentation. According to C&A (international fashion warehouse), the company offers ten different clothing brands for ‘every phase in life’. These different brands also have different styles. The following segments are differentiated:
- The Babyclub intended for the babies and toddlers target group
- Palomino intended for the target group 2 – 6 years
- Here + There intended for the target group 7 – 14 years
- Clockhouse intended for the adolescents target group
- Rodeo intended for the sporty women target group
- Canda intended for the men and women with a classical style target group
- Yessica intended for the women with a casual-chic look target group
- Your Sixth Sense intended for the women with an exclusively classical style target group
- Anglo Litrico intended for the modern men with a casual look target group
- Westbury intended for the men with high demands for fashion and style target group
Thanks to its versatility, C&A has managed to hold its own in a highly competitive fashion market. By segmenting their range, they spread the risk. When, for example, ‘Your Sixth Sense’ is performing less well, they compensate this with the increased turnovers from ‘Clockhouse’.
Market Variables
Target groups can be differentiated, and therefore segmented, in many ways. The most common market variables can be found below:
Geographical
The market is divided into regions; this may be per country, province, region, city or even per neighbourhood. For example, the supermarkets in the neighbourhoods with more ethnic diversity offer a different product range than the neighbourhoods that are less diverse. This is one of the reasons why ‘hipsters’ travel to more diverse neighbourhoods to do their food shopping.
Demographically
The market is segmented based on the characteristics of the target group; are they men or women, in which age category, are they religious or not and if so, which religion do they have? C&A mainly aims at demographic Market Segmentation.
Socio-economic
The market is segmented based on the target group’s level of education, their profession or the sector in which they work and their income. More expensive car brands, for example, target the higher income segment.
Psychological
The market is segmented based on choices and taste of the target group and their lifestyle. Why does one person prefer to drink coffee at home and the other at a cafe? This behaviour can’t be predicted, but it can be analysed by means of questionnaires and surveys. The ‘why’ question is often asked. One may work with open questions or answers that have already been included in a choice.
Behaviour
his section is similar to the psychological Market Segmentation. Here too, the market is segmented based on the choices people make.
The buying behaviour is considered mostly; how often do consumers buy a specific product, how many do they buy and are they willing to stay loyal to the brand they buy? Here it’s also important to ask the ‘why’ question to the target group.
Market Segmentation disadvantages
Despite the many reasons for businesses to partake in Market Segmentation, it also has a number of disadvantages. One that’s frequently mentioned first is that it costs money. Each target group has to be approached individually. The C&A example demonstrates this well.
For all 10 subcategories, a season collection needs to be introduced four times a year. The second disadvantage is that it’s very time consuming to develop different products for diverse target groups. Additionally, if a business chooses a wrong segment, it can have a negative effect on business operations.
Finally, smaller segments also deserve attention. For example, smaller niche markets are often neglected and don’t get the attention they deserve.
Now It’s Your Turn
What do you think? Are you familiar with the explanation of Market Segmentation? Do you use Market Segmentation in your company or are you planning to? What are your experiences with Market Segmentation? Do you have any tips or additional comments?
Share your experience and knowledge in the comments box below.
More information
- Dickson, P. R., & Ginter, J. L. (1987). Market segmentation, product differentiation, and marketing strategy. The Journal of Marketing, 1-10.
- Moorthy, K. S., & Png, I. P. (1992). Market segmentation, cannibalization, and the timing of product introductions. Management Science, 38(3), 345-359.
- Wedel, M., & Kamakura, W. A. (2012). Market segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.
How to cite this article:
Mulder, P. (2019). Market Segmentation. Retrieved [insert date] from Toolshero: https://www.toolshero.com/marketing/market-segmentation/
Published on: 02/04/2019 | Last update: 05/08/2023
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