Market Segmentation Techniques & Strategies

Market Segmentation Techniques & Strategies
on 23 Jul 2018 09:04 AM
  • Rang Technologies
  • Data Science

Market segmentation is the process of dividing a broad consumer or business market, normally consisting of existing and potential customers, into sub-groups of consumers (known as segments) based on some type of shared characteristics. In dividing or segmenting markets, researchers typically look for common characteristics such as shared needs, common interests, similar lifestyles or even similar demographic profiles (1).

Many ways to segment a market have been identified. Business-to-business (B2B) sellers might segment the market into different types of businesses or countries. While business to consumer (B2C) sellers might segment the market into demographic segments, lifestyle segments, behavioral segments or any other meaningful segment (1).

Market Segmentation Strategy

A key consideration for marketers is whether to segment or not to segment. Depending on company philosophy, resources, product type or market characteristics, a business may develop an undifferentiated approach or differentiated approach. In an undifferentiated approach, the marketer ignores segmentation and develops a product that meets the needs of the largest number of buyers. In a differentiated approach the firm targets one or more market segments, and develops separate offers for each segment.

Segmentation comprises identifying the market to be segmented; identification, selection, and application of bases to be used in that segmentation; and development of profiles. Targeting comprises an evaluation of each segment's attractiveness and selection of the segments to be targeted. Positioning comprises identification of optimal position and development of the marketing program.
Some of the different approaches based on number of segments that might be taken up by the company are as follows (1):

Zero Segments : This type of strategy is known as Undifferentiated strategy or Mass Marketing where no segmentation is done.
One Segment : Also known as Focus Strategy or Niche Marketing which focuses on a small, tightly defined market.
Two or More Segments : Popularly known as Differentiated strategy which has Multiple niches and the efforts are focused on two or more tightly defined targets.
Thousands of Segments : Hypersegmentation is the term that defines this strategy the best. The best example of such segmentation would be One to One marketing where the product is customized as per the individuals need.

Bases for Segmenting Consumer Market

A major step in the segmentation process is the selection of a suitable base. In this step, marketers are looking for a means of achieving internal homogeneity, and external heterogeneity.

In reality, marketers can segment the market using any base or variable provided that it is identifiable, substantial, responsive, actionable and stable (1).

Identifiability refers to the extent to which managers can identify or recognize distinct groups within the marketplace
Substantiality refers to the extent to which a segment or group of customers represents a sufficient size to be profitable. This could mean sufficiently large in number of people or in purchasing power
Accessibility refers to the extent to which marketers can reach the targeted segments with promotional or distribution efforts
Responsiveness refers to the extent to which consumers in a defined segment will respond to marketing offers targeted at them
Actionable-segments are said to be actionable when they provide guidance for marketing decisions.

The following are the most common forms of consumer market segmentation strategies

1. Demographic Segmentation
2. Geographic Segmentation
3. Psychographic Segmentation
4. Behavioral Segmentation
5. Purchase/Usage Occasion Segmentation
6. Benefit-Sought/Need-Based Segmentation
7. Attitudinal Segmentation
8. Generational Segmentation
9. Cultural Segmentation
10. Online Customer Segmentation


References:
1. "Market segmentation", Wikipedia (https://en.wikipedia.org/wiki/Market_segmentation) access on July132018.