What is Market Segmentation?
Market segmentation refers to the process of identifying the major groups in the entire market and formulating products that strive to meet the characteristics of consumers in the market segment. Market segmentation enables a company to develop advertising campaigns that focus on the market segment and campaigns that focus either one or two market segments – also referred to as niches (Dibb & Simkin 2013).
Why is Market Segmentation Important?
Market segmentation enables a company to obtain various benefits as opposed to treating the entire market as a whole. Market segmentation enables a company to increase its focus on a certain market segments. This increases the returns of the company. Market segmentation also enables a company to focus its efforts in a new market segment, which ultimately increases the returns of the company. Increase in focus on a certain market segment also enables an organization to increase its competitiveness. For example, focus on the youth helps in improving the brand of a company among the youth. This increases brand loyalty. Geographic segmentation is also one of the major types of market segmentation. It facilitates the expansion of the market of a company. Once an organization has catered for the needs of a certain region, it can immediately expand to the nearest regions. Using market segmentation enables a company to increase its customer retention throughout the lifecycle of the customer. It enables customers the company’s products regardless of their age. Therefore, customers may start using a certain product in the childhood and continue using the product in their adulthood. Market segmentation also leads to better communication. This is due to the fact that a company must devise spot on communication to its target market. The need for spot on communication necessitates a company to ensure it meets the communication needs of the target market. A company should not use similar communication in products that target children with products that target adults.
Market segmentation also increases the profitability of an organization. This is due to the fact that it increases brand equity, customer retention, and competitiveness of a product. The ability of market segmentation to improve profitability results from the fact that it affects the major features that affect the competitiveness of an organization. Creation of a market segment reduces the need for bargaining or negotiation. For example, it is hard to see people negotiating in Ferrari shows or Gucci stores. This is due to the fact that the products target a specific market segment (Cant, Strydom & Jooste 2009).
Is Market Segmentation Always Good?
Market segmentation is not always a good idea. This is due to the fact that markets and customers are not always homogenous in nature. This necessitates companies to customers who have similar characteristics and needs other customers that have different characteristics and needs. The needs and wants enable a company to determine the most suitable marketing mix that would help in serving the market segment. It is a vital for a company to determine the market segment that would be served more efficiently while offering the greatest opportunity. Market segmentation has three main stages. These include segmentation, targeting, and position. For market segmentation to be efficient, the three stages should be interrelated. Therefore, if a similar market has similar needs, it would be unrealistic for a company to segment such a market. Market segmentation requires a market to be heterogeneous. Diversity is a requirement for market segmentation to be effective. If a market is heterogeneous, a company should aggregate customers who have similar characteristics, needs, and expectations into a certain group. A company should ensure that has the capability of fulfilling the needs of a certain market segment. A company may use different targeting strategies. These include the undifferentiated strategy, differentiated strategy and concentrated strategy. Undifferentiated strategy involves using a single marketing mix to target a certain market segment. This makes the company’s market offerings to have zero differentiation. On the other hand, the concentrated strategy involves focusing the marketing efforts on a certain market segment that is different from other segments. On the other hand, a differentiated strategy involves focusing on different marketing segments using various marketing mixes. The type of focus is dependent on the characteristic of the differentiated markets. Positioning involves the designation of marketing campaigns that would help in meeting the needs and expectations of customers in a certain market segment. It strives to improve consumer perception and brand image. For market segmentation to be effective, the market criteria should not change. If it impossible for the above conditions to be met, a company should not segment the market (Dibb & Simkin 2013).
Can there be Over-Segmentation?
Failure to consider the consider market characteristics, failure to engage in efficient costing, and failure to consider the time required in market segmentation leads to over-segmenting. The nature and products that a company deals in may prevent it from reaping the benefits of market segmentation. For example if the segment is too small, it would unrealistic for a company to segment the market. In addition, market segment is not beneficial in a market that has too many brands. Therefore, it is vital for a company to determine the competition that would be offered by other products in the same market segment. Venturing into a market segment that is already too saturated would increase the costs of a company. This would lead to lower profit margins.
The above factors necessitate a company to consider costing prior to venturing into a certain market segment. This is despite the fact that the target market may be good. Therefore, if a company aspires to venture into market segment A, and does not have funds that would enable it to sell its products in places visited customers in the segment, venturing into the market would ultimately result in failure.
Market segmentation is also time-consuming. It necessitates a company to spend a significant amount of time trying to identify the target market, analyze research data, and developing marketing campaigns that strive to meets the needs and requirement of customers in a certain market segment. Market segmentation also requires companies to determine whether the market segment is large enough for them to earn significant profits from the segment. Therefore, a company should not over-segment its market if it does not have the time to engage in activities necessary in market segmentation (Cant, Strydom & Jooste 2009).
Market segmentation also makes companies omit certain customers. This is due to the fact that a significant number of customers may fall outside the general characteristics of the average customer is a certain market segment. For example, a small clothing company may target people who have low income. In so doing, the company fails to meet the needs of customers who have income. The high income may be the potential customers of the company. Therefore, failure to consider them makes the company lose a potential source of revenue and profitability.
Over-segmenting a market incurs a company additional cost. A company must strive to formulate communication campaigns that meet the needs of the different market segments. In addition, it must conduct several market analyses to determine the needs and expectations of the different target markets. Over-segmenting a market also reduces the sizes of the markets. This reduces the profitability of the market segments, which is one of the major requirements of market segmentation (Dibb & Simkin 2013).