Types of Market Segmentation

According to Harvard Business study in the US, 85% of 30,000 new product launches failed due to poor market segmentation. This study reveals the importance of market segmentation in present market situations.

What is Market Segmentation?

Market Segmentation is the process of dividing a complete homogeneous market into different segments or markets by considering customers needs, wants, and demands towards the product or service. Market segmentation is a best practice to reach only target customers rather than targeting the entire mass market. Segmentation can be done on the basis of consumer markets and industrial markets.

Segmentation based on Consumer Markets:

Geographic segmentation: This segments the market based on geographic boundaries as:

Regions: continent, countries, states, neighborhoods, etc.

Size of metropolitan area: Segmented according to size of population;

Climate / Weather: weather conditions according to some geographic locations; and

Density of population: divided as urban, suburban and rural;

For Example: Restaurants like Domino’s and KFC etc are located at metropolitan cities depending upon density of population.

Demographic segmentation: This segments markets based on variables such as age, gender, family size, family life cycle, income, occupation, education, ethnicity, nationalism, social class, religion, etc.

Example: Motor cycles (Bikes) like Yamaha YZF-R15, Honda CBR 250R are  targeted to Young men of middle class and upper class.

Psycho graphic segmentation: This segments markets on the basis of activities, interests, opinions, attitudes and values of customer groups.

Example: Event organizing business organizations customize their designs depending upon the customer’s interests and values.

Behavioral segmentation: This segments customers into groups based on their knowledge, attitude, benefits sought, brand loyalty, readiness to buy, seasonal requirements, usage rate and response towards products. Most marketers believe that behavioral segmentation is a good starting point to segment the market.

Example: Seasonal Greeting cards, Crackers etc

Segmentation Based on Industrial Markets:

In contradiction to consumers, industrial customers are lesser in number and buy in large quantities. Industrial or B2B customers include organisations such as manufacturers, service providers, institutions, government agencies and resellers where more than one person might be involved in the decision making process. Many of the aforementioned consumer market segmentation variables can be applied to industrial markets too. Industrial markets are therefore segmented as:

Location: In Industrial markets, customer location is considered as an important factor in some industries. Purchasing products (raw materials, semi finished goods, finished goods) from a distant location will increase the shipping costs (especially for bulk purchases) that will in turn affect the profit margin and ability to reach suppliers and customers.

Company type: Segmenting the market based on the company type includes company size, industry, buying criteria, etc.

Behavioral characteristics:  In Industrial segmentation, the behavioral characteristics include

purchase frequency, buying status (potential, first time, regular, etc.) and purchase procedure (sealed bids, negotiations, etc.).

Therefore business organizations both B2B and B2C need to segregate their mass market into sub markets based on the type of market segmentation that suits your products or services to reach the right targeted audience.

Market segmentation benefits a business with a better market opportunities and helps in understanding the customer satisfaction levels with the current product features and customer needs. It helps in designing the product or service that satisfies the customer demands. It helps a business in media selection and the type of advertising that can reach the target segment and in turn reduces the advertising budget. Market segmentation helps a company in concentrating the marketing efforts to the segmented market and it leads to better understanding of the customer and provide a better service to them. Thus customer satisfaction results in increased sales and customer retention.