A Business Encyclopedia

Market Segmentation

Definition: The Market Segmentation means, breaking down the entire consumer market into the subdivision of customers who share the similar set of needs and wants and have more or less related characteristics.

The purpose of the market segmentation is to categorize the heterogeneous market into the groups that are homogeneous in nature so that firms can focus completely on a set of customer’s needs and plan the marketing mix (product, price, place, promotion) accordingly.

The market segmentation can be characterized in different ways, and one of the basic kinds is through Preference segments, such as:

  • Homogeneous Preferences: When the customers have relatively the same kind of preferences in terms of their needs and wants, the market shows no natural segments.
  • Diffused Preferences: It is the extreme of the homogeneous preferences, here the customer’s preferences vary significantly. In such scenario, there are several brands in the market that try to fill the space and show the real differences to match the different customer’s preferences.
  • Clustered Preferences: The clustered preferences, refer to the natural segments that get created due to the shared preferences of a group of customers.

There are several bases of market segmentation on the basis of which the customer groups are categorized.

Advantages of Market Segmentation

  1. Through market segmentation, the firms can facilitate a proper choice of the target market that helps in tapping the market effectively.
  2. Segmentation helps in distinguishing one customer group from another within the given market.
  3. Helps in identifying the needs of a group of customers and eliciting more predictable responses from them. A proper marketing mix can be designed in line with the preferences and responses of the customers.
  4. Helps the firms to concentrate their efforts more on the productive and profitable segments rather than wasting their resources on unproductive or unprofitable segments.
  5. The firms can identify the least satisfied segment and can design their product or marketing strategy that pleases them.
  6. Helps in achieving the specialization that is required in product distribution, promotion and pricing, so as to match with the needs of the customer group.

Thus, the market segmentation is characterized by disaggregation of consumers into different segments such that, the members in terms of their needs, buying behaviors, and characteristics vary significantly across the segments and are likely to be homogeneous within each segment.

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