Market Segmentation

Market Segmentation is the process of dividing a broad, heterogeneous market into smaller, more homogeneous groups of consumers who have similar needs, preferences, characteristics, or buying behaviours. Each segment consists of customers who are likely to respond in a similar way to a given marketing strategy or marketing mix (product, price, promotion, and place).
This process allows marketers to focus resources more efficiently, design targeted marketing strategies, and deliver greater value to specific customer groups rather than attempting to serve the entire market with a single offering.

Definition

According to Philip Kotler,

“Market segmentation is the process of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviours and who might require separate products or marketing mixes.”

Thus, segmentation helps businesses to identify distinct customer segments and tailor marketing efforts to suit their unique demands.

Objectives of Market Segmentation

1. To identify and understand customer needs more precisely.
2. To develop targeted marketing strategies for specific consumer groups.
3. To optimise marketing resources by focusing on profitable market segments.
4. To achieve competitive advantage by serving a niche or specialised market effectively.
5. To enhance customer satisfaction through customised products and communication.
6. To discover market opportunities by identifying underserved or emerging segments.

Importance of Market Segmentation

• Enables efficient resource allocation by focusing marketing efforts on promising segments.
• Helps in better product positioning and brand differentiation.
• Facilitates pricing strategies that align with customer affordability and perceived value.
• Assists in designing effective promotional campaigns aimed at specific audiences.
• Encourages product development based on the distinct needs of different consumer groups.
• Leads to higher customer retention and brand loyalty through personalisation.

Bases of Market Segmentation

Market segmentation can be carried out using several criteria, broadly classified into four categories:

1. Geographic Segmentation

Divides the market based on location or geographical factors such as region, climate, population density, or city size.
Examples:

• A clothing company designs winter wear for North India and summer wear for South India.
• FMCG brands like Hindustan Unilever adapt product sizes and packaging for rural and urban markets.

Variables:

• Region (North, South, East, West)
• Urban vs. Rural markets
• Climate (tropical, temperate, arid)
• Population density

2. Demographic Segmentation

Segmentation based on demographic factors such as age, gender, income, occupation, education, religion, family size, or social class.
Examples:

• Toothpaste brands offer products for kids (Colgate Kids) and adults (Colgate Total).
• Automobile companies offer entry-level models for middle-income groups and premium cars for high-income groups.

Variables:

• Age (children, youth, adults, seniors)
• Gender (male, female, unisex)
• Income (low, middle, high)
• Education and occupation
• Religion and family size

This is one of the most commonly used and measurable bases for segmentation.

3. Psychographic Segmentation

Divides the market based on lifestyle, social class, personality traits, attitudes, interests, and values.
Examples:

• A brand like Nike targets individuals with an active lifestyle and fitness-oriented mindset.
• Luxury brands such as Rolex or Mercedes-Benz appeal to status-conscious consumers.

Variables:

• Lifestyle (modern, traditional, adventurous, eco-conscious)
• Personality (ambitious, conservative, outgoing)
• Social Class (upper, middle, working class)

Psychographic segmentation helps in understanding the motivations and aspirations that influence buying decisions.

4. Behavioural Segmentation

Divides customers based on their knowledge, attitude, usage, or response to a product.
Examples:

• Airlines segment customers as regular, business, or leisure travellers.
• E-commerce websites identify “frequent buyers” for loyalty programmes.

Variables:

• Purchase behaviour (regular, occasional, first-time buyer)
• Benefits sought (quality, convenience, economy)
• Loyalty status (brand-loyal, switcher)
• Readiness to buy (aware, interested, intending to buy)

Behavioural segmentation is dynamic and often used in digital marketing for personalised targeting.

Requirements for Effective Segmentation

For segmentation to be meaningful and actionable, it must satisfy certain criteria:

Steps in the Market Segmentation Process

1. Identify the Market: Determine the overall market for the product or service.
2. Identify Segmentation Bases: Select appropriate variables (geographic, demographic, psychographic, or behavioural).
3. Develop Market Profiles: Describe the characteristics of each identified segment.
4. Evaluate Segments: Assess each segment’s size, growth potential, and compatibility with company objectives.
5. Select Target Market(s): Choose one or more segments to focus marketing efforts on (target marketing).
6. Design Marketing Mix: Create a customised combination of product, price, promotion, and distribution for the selected segment(s).

Examples of Market Segmentation in Practice

• Coca-Cola: Offers multiple products (Diet Coke, Coke Zero, Sprite) to different consumer segments based on taste and lifestyle.
• Maruti Suzuki: Targets different income groups and lifestyles with models ranging from Alto (budget) to Nexa models (premium).
• Patanjali: Appeals to consumers who prefer natural and Ayurvedic products, based on psychographic segmentation.
• Amazon: Uses behavioural segmentation by analysing user data to offer personalised recommendations.

Advantages of Market Segmentation

• Enables better customer satisfaction through personalised offerings.
• Improves competitive positioning by focusing on niche markets.
• Enhances marketing efficiency by directing resources toward profitable segments.
• Provides a basis for product differentiation and innovation.
• Facilitates accurate forecasting and decision-making.

Disadvantages of Market Segmentation

• Increased costs due to multiple marketing strategies and product variations.
• Risk of over-segmentation, leading to fragmented markets and reduced profitability.
• Difficulty in identifying the right segment, especially in complex markets.
• Possibility of market saturation in highly competitive niches.