Market Segmentation
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The document discusses market segmentation as a marketing strategy that divides a broad market into subsets based on common needs, interests, and priorities, detailing various types such as geographic, demographic, behavioral, psychographic, occasional, cultural, and multi-variable segmentation. Additionally, it explores price discrimination in monopolistic markets, where different prices are charged to different segments based on their willingness to pay, emphasizing the implications for competition authorities. Overall, it highlights the significance of understanding target customers and market dynamics to enhance marketing effectiveness.
Market Segmentation
- 2. Introduction Market segmentation is a marketing strategy which involves dividing a broad target market into subsets of consumers, businesses, or countries that have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them. Market segmentation strategies are generally used to identify and further define the target customers, and provide supporting data for marketing plan elements such as positioning to achieve certain marketing plan objectives. Businesses may develop product differentiation strategies, or an undifferentiated approach, involving specific products or product lines depending on the specific demand and attributes of the target segment.
- 3. Types of market segmentation Geographic segmentation Demographic segmentation Behavioral segmentation Psychographic segmentation Occasional segmentation Segmentation by benefits Cultural segmentation Multi-variable account segmentation
- 4. Geographic Segmentation Marketers can segment according to geographic criteria — nations, states, regions, countries, cities, neighborhoods, or postal codes. The geo-cluster approach combines demographic data with geographic data to create a more accurate or specific profile. With respect to region, in rainy regions merchants can sell things like raincoats, umbrellas and gumboots. In hot regions, one can sell summer clothing.
- 5. Geographic Segmentation A small business commodity store may target only customers from the local neighborhood, while a larger department store can target its marketing towards several neighborhoods in a larger city or area, while ignoring customers in other continents. Geographic segmentation is important and may be considered the first step to international marketing, followed by demographic and psychographic segmentation
- 6. Demographic Segmentation Segmentation according to demography is based on variables such as age, sex, generation, religion, occupation and education level or according to perceived benefits which a product or service may provide. Benefits may be perceived differently depending on a consumer's stage in the life cycle. Demographic segmentation divides markets into different life stage groups and allows for messages to be tailored accordingly.
- 7. Demographic Segmentation A variant of this approach known as firmographic or feature based segmentation is commonly used in business-to- business markets. Under this approach the target market is segmented based on features such as company size (either in terms of revenue or number of employees), industry sector or location (country and/or region).
- 8. Behavioral Segmentation Behavioral segmentation divides consumers into groups according to their knowledge of attitude towards, usage rate, response. Many marketers believe that behavior variables are the best starting point for building market segments.
- 9. Psychographic Segmentation Psychographic segmentation, which is sometimes called lifestyle, is measured by studying the activities, interests, and opinions of customers. It considers how people spend their leisure, and which external influences they are most responsive to and influenced by. Psychographics are very important to segmentation, because psychographics identify the personal activities and targeted lifestyle the target subject endures, or the image they are attempting to project.
- 10. Psychographic Segmentation Mass media has a predominant influence and effect on psychographic segmentation. Lifestyle products may pertain to high involvement products and purchase decisions, to specialty or luxury products and purchase decisions.
- 11. Occasional Segmentation Occasion segmentation focuses on analyzing occasions, independent of the customers, such as considering Coke for occasions of being thirsty, having dinner or going out, without taking into consideration the differences an affluent and middle-class customer would have during these occasions. Occasional customer segmentation merges customer-level and occasion-level segmentation models and provides an understanding of the individual customers’ needs, behavior and value under different occasions of usage and time.
- 12. Segmentation by Benefits Segmentation can take place according to benefits sought by the consumer or customer.
- 13. Cultural Segmentation Cultural segmentation is used to classify markets according to cultural origin. Culture is a strong dimension of consumer behavior and is used to enhance customer insight and as a component of predictive models. Cultural segmentation enables appropriate communications to be crafted to particular cultural communities, which is important for message engagement in a wide range of organisations, including businesses, government and community groups.
- 14. Cultural Segmentation Cultural segmentation can also be mapped according to state, region, suburb and neighborhood. This provides a geographical market view of population proportions and may be of benefit in selecting appropriately located premises, determining territory boundaries and local marketing activities. Census data is a valuable source of cultural data but cannot meaningfully be applied to individuals. Cultural segmentation can be applied to existing customer data to measure market penetration in key cultural segments by product, brand, channel as well as traditional measures of recency, frequency and monetary value.
- 15. Multi-variable Account Segmentation In Sales Territory Management, using more than one criterion to characterize the organization’s accounts,such as segmenting sales accounts by government, business, customer, etc. and account size or duration, in effort to increase time efficiency and sales volume.
- 16. Price Discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market The price can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic.
- 17. Price Discrimination The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment.
- 18. This behavior is rational on the part of the monopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Areas in which this price discrimination is seen range from transportation to pharmaceuticals. Price discrimination may be considered price-fixing under the control of an oligopoly or consortium in certain circumstances of deregulation and leisure. Price Discrimination