In this article we describe Market Segmentation, in which a market gets divided into specific segments of (potential) customers who share a number of characteristics.
What is market segmentation?
Market segmentation is dividing a market into specific segments. A segment is a group of (potential) customers who share a number of characteristics. More on this under the subheading “Executing market segmentation”. Market segmentation is an important concept in marketing.
Why market segmentation?
Consumers differ from each other and also react differently on the marketing mix. In order to give an effective fulfilment to this, segments need to be identified. Thereby different groups of clients can be approached in an effective way.
Executing market segmentation
As discussed above, market segmentation is dividing a market into more specific segments. A segment is a group of (potential) customers who share a number of characteristics. These characteristics can be chosen in different ways.
Splitting a market according to country, region, city or village etc. Example: The Netherlands, Germany, France
Splitting a market according to age, phase of life, sex, religion etc. Example: Man/ Women or young adults / 65+ seniors
Socio-economic segmentation Dividing a market according to income, profession or education etc. Example: MBO (vocational training), HBO (high school), WO (university education)
Behaviour that is not predictable based on the aforementioned segmentation criteria. It is often a behaviour that manifests itself under certain circumstances. Example: personal characteristics and lifestyle
Dividing the market on the basis of product familiarity as well as loyalty, frequency of use, willingness to buy, purpose of use, degree of use and the moment of use. Example: light, moderate and heavy user
From these, client profiles must be made for each segment. These will become different groups that display the same behaviour. To these groups, a short descriptive text is assigned. The following step in the process is to establish the attractiveness of the different client profiles. This can be done by conducting a brief SWOT Analysis or a by combination of available numbers and judgement.
Segmentation criteria are criteria that a segment must fulfill. These are the following characteristics: Homogenous Within a segment, the response towards a market activity must be as homogenous as possible. Sufficient scope A segment must be profitable and too small a segment can not be profitable. Measurable Clients must be labeled so that we can see to which segment they belong. Only then it can then be measured which effects marketing actions have on a segment. Reachable Communicating with a segment must be possible.
Marketing implications of market segmentation
After having charted the client profiles and the attractiveness of the different profiles is shown, a strategy needs to be chosen. There are three different segmentation strategies.
Concentrated marketing, i.e. focus strategy or niche strategy Choosing a (specialised) segment
Selective marketing Choosing more segments
Full market coverage Operating all customer groups by using different combinations in the marketing mix.
Conclusion on segmentation
Segmentation is an important concept in marketing with which an effective combination of the marketing mix and customer can be brought to stand. The marketing segmentation serves as input for positioning a business. Read more about it by clicking on the link. Positioning