Market Segmentation – How does it Contribute to Organizational Success ?

Before we go into look at the ways in which market segmentation contributes to  the success of any business it is vital to understand what  market segmentation is in the first place.

What is Market Segmentation?

Market segmentation could be defined as the process of   dividing the market in to different homogeneous groups of consumers who have similar interests. In other words, it could also be defined as a  strategy that involves dividing the market into various subsets of consumers who have common needs and interests regarding the goods and services offered. This is because by splitting the market into various segments it is possible for an organization to offer their marketing mix for specific target markets instead of offering the same marketing mix for the entire market which comprise of vastly different customers. To say, once an organization has identified their specific market segments/s they are able to decide on the marketing mix to the specific group of consumers which will enable them to better satisfy the needs of the customers.

Having said that, it is not just enough splitting the market into various segments, but the identified segments should have certain requirements meaning to say that they should be,

• Measurable ( how many consumers are there, how much do they have to spend and where are they ).
• Accessible by communication  and distribution channels ( segments can be reached and served )
• Different in its response to a marketing mix
• Not changing too quickly
• Sustainable enough to be profitable

By the way, if any of the identified  subsets of consumers lack the above requirements, than it is unlikely that the organizations may get a successful outcome.

What are the bases for Market Segmentation?

Market segmentation could be carried out for both the consumer markets as well as for industrial markets. In other words, both the consumer and the industrial markets could be divided into subsets of consumers on the following basses.

Consumer market segmentation

Geographic segmentation - This means that the consumers in the market could  be segmented or divided according to the region( by continent, country, state or even the  neighbourhood they belong to ), according to the population, according to urban, suburban and rural areas, and also according to the weather patterns unique to certain geographic areas.  

Demographic segmentation - This basically means that the consumers are segmented according to the demographic variables such as age, gender, family lifecycle( bachelor, married with children, married without children etc), income, occupation, education, nationality, religion, social class. ethnicity etc.

Psychographic segmentation - This is when the market is segmented according to the  life styles of the consumers. Some of the psychographic variables used in segmenting include activities, interests, attitudes, opinions and values of the consumers.

Behaviouristic segmentation – When it comes to behaviouristic segmentation, this is based on the actual behaviour of the consumers towards the product. Some of the behaviouristic variables used in segmenting are benefits sought, usage rate, brand loyalty, user status( first time buyer, regular buyer etc), readiness to buy, and occasions etc.

Industrial Market Segmentation

When it comes to industrial markets, usually the customers in there markets are rather fewer in number when compared with the consumer markets. But however, these customers basically look for more information with regard to purchasing goods and services while the decisions taken by them  involves more than one person. For  example, these include manufactures, service providers, resellers and institutions etc. To say, the industrial markets too could be segmented using the bases of the consumer market, but is addition there are some other variable bases used in segmenting the industrial customers. These include,

Location - The business customers could be segmented according their location  as this is an important factor to consider at times, mainly when shipping costs are concerned.

Company type - The business customers can even be segmented according to the company size, industry , decision making unit, etc.

Behavioural characteristics – The industrial customers can also be segmented according to the patterns of purchase behaviour such as usage rate, buying status ( regular, first time buyer etc), or even the purchase procedure ( sealed bids, negotiations etc).

Reasons for Segmenting the market

Having looked at  some of the   bases  in which the markets are segmented upon , it is important to know why  market segmentation is important in the first place. In other words, let us look at some of the reasons why organizations  consider segmenting the market.

• One of the many reasons why organizations segment their markets is because it helps to understand the needs and wants of the customers better. In other words, by dividing the market into various subsets of consumers basically provides and insight to what type of consumers do require what goods and services.

• Another reason for segmenting the market is to help  better target  and position the products of the organization to the exact people who are willing to buy the products or services, rather than trying to try and sell to the entire market. In other words, they are able to target the customers who they are able to satisfy using the proper marketing mix.

• Market segmentation do paves way for a two way communication between the organization and potential buyer.

• Market segmentation basically plays an important part in help maintaining an effective relationship with the customers. To say, because of segmenting the market into various subdivisions, the organizations get to produce goods and services to their selected targets thus satisfying them to their best possible capabilities which on the other hand eventually paves way for a effective long term relationship.

• Another reason why organizations tend to segment the market is due to the fact that it helps to retain their existing consumers while attracting new customers. In other words, because of segmentation,  the organizations are able to provide the customers with value for money thus satisfying them through continuous improvement. As a result, this not only helps to retain the existing customers but also attracts new customers.

• Resources are very limited and it is indeed vital to get the maximum use of the resources available to the organization. As a result, segmenting the market also provides a vital part when it comes to better use of the available resources. To say, this is because once the market is segmented then the organizations are able to use their resources to produce goods and services for their selected targets in order to satisfy their needs.

• Market segmentation also helps to reduce the cost or expenses with regard to various marketing activities and  the  production itself. By producing exactly what the consumers are willing to buy it basically reduces wastage and also the costs related with advertising and promotion. Not only that but also paves way to increase the market share which will eventually increase profits.

Conclusion

It should be said that market segmentation is one of the important strategies that provides an organization with competitive advantage.   However, in spite of one or two disadvantages  such as not concentrating on the entire market at large but dividing the market into small subgroups of consumers, market segmentation contributes  to the success of the organizations in many ways such as helping to better understand the consumer needs and wants,  better target and position the products,  to retain existing customers and win new customers,  maintains effective relationships with the customers, reduce costs and expenses, increase market share and profits and better use of resources etc. Hence so, if the organizations are to face the turbulent, ever changing competitive environment then they obviously have to segment the market before hand, whether it may be consumer or industrial.