Importance of Market Segmentation

Importance of Market Segmentation

The importance of market segmentation cannot be overstated. Without it, companies may find it difficult to survive. In many cases it is impractical and expensive to target entire population when marketing a product or service. Thus, market segmentation is done to determine the size of a firm’s customers as well as to forecast future demand for the firm’s products and services. Also, market segmentation helps a firm study its potential customers in order to design the appropriate products or services that suit the group. Market segmentation can also be used to monitor competitors’ activities.

Table Of Contents

What is Market Segmentation

Market segmentation is a marketing tactic of dividing people into a subgroup that have similar characteristics. That way, companies can assess each group of people with the same product needs. In order for companies to reach their ideal customers they need to segment the market into groups that have similar responses to specific products and services. The importance of market segmentation cannot be overemphasised because it enables the firm to create a custom marketing mix that is ideal to a specific group of customers.

Geographical Segmentation

Geographic segmentation refers to the division of prospective consumers into geographic units such as cities, provinces or countries. The importance of market segmentation can be seen when it comes to geographical segmentation. This way a market is divided into separate locations. Normally, consumers that live in the same location have needs and wants that are similar. Such needs and wants may be different from those of consumers in other locations. This is shown by the high demand of specific products and services in one region, which may not be the same in other regions. Certain brands may be favoured in some areas and disliked in others. By segmenting markets into different regions, a company can determine the geographic biases on various products and services and tailor their products accordingly.

Demographical Segmentation

Demographic segmentation consists of demographic factors such as age, gender, ethnicity and nationality among other personal attributes. It is important in market segmentation because it helps companies decide the type of consumers they can accommodate. Organisations that want to sell to millennials can target people from the age of 18 to 30 years, whilst companies that want to serve the older group can focus on the appropriate age groups. Through demographic segmentation, a firm can understand its target consumers in depth and provide the right products and services. In today’s global market, the importance of marker segmentation especially when it comes to demography is important in order to survive the intense competition.

Behavioural Segmentation

Behavioural segmentation is another important aspect of market segmentation. It is also important in market segmentation. Organisations collect data regarding consumer behaviour and study the behaviour and attributes of customers that are most likely to use their products and services. That way they can adapt their products and services in order to satisfy their customers. Also, instead of marketing to all consumers an organisation can focus on a specific group of people.

Psychographic Segmentation

This is a type of segmentation that was developed by marketing researchers to correlate personality with brands. Its importance in market segmentation is shown by what it reveals to a firm about its customers or potential customers. Psychographic segmentation reveals the personalities, attitudes, values, interest and lifestyle of consumers to the firm. Such information is critical not only in designing a product or service but in advertising and in developing a marketing strategy. It is important for an organisation to know and understand a consumer’s attributes in order to connect with them and for the consumer to easily identify the company’s products. The importance of market segmentation with respect to psychology cannot be underestimated because it helps companies manage  customers who may be from different segments.

Other forms of market segmentation

  • Customer type

When an organisation needs to influence a certain type of consumer it can divide the market by consumer type. Instead of targeting all types of consumers an organisation can divide consumers by certain characteristics on the basis of age, occupation or household composition. This is important in market segmentation because a firm can create a new competitive advantage. An organisation can better understand that segment of the market and meet their needs better than its competitors.

  • Product Usage

Another form of market segmentation that is used by firms is product usage. A company can divide and assess its current customers based on product usage. This information can be obtained from surveys and questionnaires. Product usage is important in market segmentation as it is behavioural based. Such market segmentation uses attributes such as product awareness and past usage. That way an organisation can plan for and predict future usage.

  • Socio economic

Socioeconomic segmentation is also used in dividing the market. Consumers or potential consumers can be divided into groups based on spending power, income, occupation and educational level. Socioeconomic segmentation’s importance in market segmentation is seen by how it helps companies determine the correct pricing structure and apply the correct product positioning strategy. Thus, a product and marketing plan that will appeal to each specific group can be developed.

Benefits of Market Segmentation

In addition to the above forms of market segmentation with their benefits, the importance of market segmentation can be seen in its effects, which are, greater company focus, meeting customer needs and wants, competitiveness and expansion among other benefits.

  • Greater Company Focus

Greater company focus shows the importance of market segmentation. If a company is able to identify the correct segment for its products or services, it can better focus on that particular segment. Costs can be reduced significantly and if the firm manages to meet the needs of that segment the firm can grow in revenue and enjoy a positive return on Investment (ROI).

  • Market competitiveness

When a company focuses on a particular segment their market competitiveness increases. Having defined segments allows companies to offer their customers different bundles and incentives. Various forms of promotional activities can be applied to each segment.

  • Market Expansion

Market expansion is possible especially with geographic expansion. Understanding each geographic location makes it easier for firms to expand in other cities and countries.

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