We often tend to associate psychographics, lifestyles, values, behaviors, and multivariate cluster analysis routines to the term market segmentation. Interestingly, market segmentation is a much broader concept that penetrates into the practice of business throughout the world. In today’s business scenario, where customers expect a high amount of customization and personalization in their goods and services, market segmentation is highly beneficial.
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What is market segmentation?
In a nutshell, market segmentation refers to diving and subdividing a company’s target market based on certain commonalities or similarities that they share. It is the process of defining a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. It determines how the company divides its customers or cohorts into smaller groups based on characteristics including income, age, personality traits, or behavior. These segments can be used to optimize products and advertising to suit the needs of different customers.
What are the key types of market segmentation?
The following are the key types of market segmentation:
Geographic segmentation: One of the most common types of market segmentation. In this method, companies segment the market by attacking a restricted geographic area. Here, different target customer groups are created based on geographical boundaries.
Demographic segmentation: In this type of segmentation, customers are grouped based on various demographic factors. These include age, family size, gender, education, income occupation, and nationality.
Behavioral segmentation: This involves dividing customers based on various decision-making patterns including purchase, consumption, lifestyle, and usage. Segmenting the market based on the purchase behavior of the customers enables marketers to develop a more targeted approach.
Psychographic segmentation: This method of segmentation considers psychological aspects of consumer behavior by dividing markets according to personality traits, lifestyle, values, opinions, and interests of consumers. Psychographic segmentation is a legitimate way to segment a market if the proper segmentation variables can be correctly identified.
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What are the steps involved in the market segmentation process?
Some of the key steps involved in the market segmentation process include:
Identify the total market
The first step in segmenting the market is to define the total market for the product. An important factor to consider here is the purchasing patterns of the target customers.
Choosing the criteria for segmentation
Understanding the reason for various behavioral patterns of customers helps identify the needs the company should satisfy in the market. Different types of buyer characteristics such as age, income, and education are used. Demographic information is easily available and much simpler to compile.
Profiling and selecting segments
After selecting the segmentation criteria, the next step for companies is to develop segment profiles. A segment profile consists of the generalized characteristics of the typical consumer in a given segment.
Determining positioning strategies
Positioning creates a particular image of the product in the minds of the target customers. Emphasizing the value of the product in terms of price, quality, or both is one of the most common ways to position the product.
Why is market segmentation important?
Here are some of the key factors why market segmentation is important for businesses:
Saves time and money
Builds better relationships with the customers
Helps identify the brand’s strengths, weaknesses, and opportunities
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