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Why is market segmentation important?

“Why is market segmentation important?” is a question that may be going through many minds. This article explains the importance of market segmentation. So let us look at what the term means.

What is market segmentation?

Market segmentation is a logical strategy that a company uses to divide the target market into vivid and smaller categories. Here, a large homogeneous market of potential customers is divided into segments that are clearly identifiable. Customers are divided on the basis of meeting certain criteria or possessing similar characteristics that lead to them having the same product needs. Segments comprise customers who will respond similarly to marketing strategies. In essence, they share common interests, needs, wants, lifestyles, and demands.

Most companies lack enough resources to target a mass market. By implication, they need to target the specific market segment that is in need of their product. Through market segmentation, they divide the market into similar and identifiable segments. Therefore, a company should determine the needs of customers and serve them by categorizing and distinguishing their segments in appropriate ways.

Market segmentation is completely an approach that is related to consumers and most organizations employ it. Various segments of market segmentation require diverse marketing programs to satisfy various customers.

A company targets diverse individuals through different offerings, promotional strategies, prices, and some other variables of marketing. For instance, phone companies launching mobile phones in different ranges of price and with various specifications is the market segmentation strategy they are using not to lose diverse consumers.

Customers have their own preferences. While some will focus on good quality services, some will be sensitive to prices, and so on. It is necessary for businesses to keep track of the preference of customers as well as their wants to perform the market segmentation wisely. The overall aim of segmenting markets is to find the mos;t yielding segment.

Types of market segmentation

  1. Demographic segmentation
  2. Behavioral segmentation
  3. Geographic segmentation
  4. Psychographic segmentation

Demographic segmentation

Demographic segmentation is the most common type of segmentation. Here, the target audience is divided on the basis of qualities such as age, gender, occupation, education, income, and nationality. This is the easiest way of dividing a market. Mixing demographic segmentation with another type of market segmentation with another type of market segmentation can be helpful in narrowing down the market even further.

The required information for demographic segmentation is easy to gather and does not cost a company too much to obtain. For example, a common product being segmented on the basis of demographics is body wash. Generally, you will find b ody wash for men and for women.

Behavioral segmentation

A company can segment its market on the basis of consumer behavior. A company dividing its target audience on the basis of its behaviors allows it to create specific messaging that will accommodate those behaviors. This is dependent on factors such as certain purchase behavior, the volume of purchase, shopping frequency, etc. Obtaining this information is relevant because it has a direct relationship with how the consumer interacts with the company’s products. Knowing the behaviors of consumers therefore helps marketers to market more effectively to customers.

Geographic segmentation

Geographic segmentation is the act of splitting or dividing a market based on location. Although it is not a basic form of segmentation, it is highly effective. Having a knowledge of where a customer is located helps a company to have a better understanding of the needs of its customers. Also, companies can then target consumers with ads that are specific to locations.

A company can divide a market on the basis of location such as town, region, and country. It is possible to also identify customers based on the climate they live in or the location’s population density. Segmenting a market on the basis of the characteristics of the location allows marketers to be more specific with their targeting and messaging.

While targeting different segments, it is important for marketers to take into consideration certain elements such as language. Language is bound to change depending on the region a company is targeting.

Psychographic segmentation

Psychographic segmentation is similar to demographic segmentation. However, it deals with characteristics that have a close relationship with mental and emotional attributes. Psychographic segmentation divides a group of customers on the basis of their personality traits, values, interests, attitudes, and lifestyles. Demographics are easier to observe than psychographics. However, psychographics allow marketers to have valuable insights into the motives, preference, and needs of customers. By having this understanding, it becomes easy for marketers to develop content that is more relatable to their customer segments. Psychographic information tells a company why people purchase or do not purchase a product or service.

Why is market segmentation important?

Why is market segmentation important? An infographic describing why market segmentation is important.
An infographic describing why market segmentation is important.
  1. Greater company focus
  2. Market competitiveness
  3. Market expansion
  4. Targeted communication
  5. Create appealing marketing campaigns
  6. Better service to customers
  7. Efficient use of time & resources
  8. Product design

Greater company focus

When a company identifies specific market segments, they are able to focus on the segments they want to target with specific products, services, contents, blogs, and campaigns. When a company focuses on specific segments, they make sure that they are targeting the right segment with the right product that will yield the greatest returns on investment (ROI).

Market competitiveness

As a company focuses on a specific segment, the market competitiveness increases. In turn, higher returns on investment is being achieved. The company focuses on specific segments and learns everything it needs to know regarding the segment in order to market their products to them. This helps a company to improve on its competitiveness.

Market expansion

Geographic segmentation was discussed earlier, this facilitates market expansion. A company having a clear understanding about its segments and how to market to a segment in a particular location helps in expanding immediately into another nearby location. If segmentation is on the basis of demographics, then a company can expand in that segment with similar products.

Targeted communication

Even when the features and benefits of a product are the same, it is expedient for companies to target segments with specific communication. For example, if a company’s segment is senior engineers, they may respond better to technical information about a product in the form of white papers and infographics. A project manager may respond to information that has to do with cost savings, efficiencies, etc. in the form of a blog , case study, or video. As earlier pointed out, it is important for messaging to be different for different segments. In the same vein, the platforms used to target different segments should be different also.

The key is to have an understanding on the segments and target communication relevant to them on the relevant platforms.

Create appealing marketing campaigns

When a company segments its target market, it becomes easier to discover opportunities to create personalized campaigns. The data obtained allows one to understand the needs, preferences, and reasons for customer behavior. Through this way, a company can build strategies that market towards the need of different segments rather than adopting a strategy for the entire market that may not yield fruitful results.

In essence, companies can develop marketing programs, campaigns, and budgets on the basis of a clearer idea of the response characteristics of specific market segments. They can budget funds to different segments which depends on their buying response.

Better service to customers

When a company understands its customers better, it can focus on tailoring efforts that satisfy a particular segment of the market. Here, the right product, service, and content are being delivered to the right audience thereby making the journey smooth. This inturn facilitates satisfaction. In essence, a company is able to satisfy the variety of customer needs by offering different bundles and incentives.

Efficient use of time and resources

Running targeted campaigns is better than targeting a broad population with a one-size-fits-all campaigns. Here, a company is able to create effective strategies that target the right segments that resonates with their needs. This in turn saves time and resources from offering products and services that customers do not want.

Product design

Having a better understanding on each segment helps a company to design better products. Here, the brand can design a product that matches the demand and needs of each segment. Products that have a high market potential can be personalized as well as targeted to cater to the specific target market.

What are the benefits of segmenting a market?

Looking at market segmentation in general terms, it makes it easier for marketers to develop highly targeted and effective marketing campaigns and plans. In other words, when marketers make use of market segmentation, it becomes easier for them to execute their campaign plans. The company can focus on certain groups instead of targeting the mass market.

In terms of time and the use of resources, segmentation helps marketers to be more efficient and learn more about their customers. They are able to gain a better understanding with regard to the needs and wants of the customers and with this, they can tailor campaigns to customer segments that are most likely to purchase the products.

In essence, marketers will be able to personalize campaigns. Here, it is possible to avoid offering products that will never be in the interest of the audience. In turn, this saves the brand from running campaigns that will turn out to become unsuccessful.

Other benefits of market segmentation

  1. Greater company focus
  2. Determining market opportunities
  3. Adjustments in marketing appeals
  4. Media selection
  5. Timing of marketing efforts
  6. Helps in fixing prices
  7. Assists in distribution strategies

Greater company focus

When an organization segments its target markets, it will be able to focus on the segments they want to target when it comes to specific products and services. If the consumers prefer a certain product to another, the firm can yield a good amount of profit from manufacturing the most wanted one.

Determining market opportunities

Through market segmentation, a company is able to identify market opportunities as the needs of each segment are being studied in light of current offerings by the competitors. From each of the studies, the marketer can find out the current satisfaction of customers.

Segments that have low levels of satisfaction from present offerings may be a representation of excellent opportunities. For example, customers may not gain satisfaction from the current offering of water purifiers in terms of product or after-sale service. In this situation, a marketer can launch a new range of water purifiers and market them well.

Adjustments in marketing appeals

Through segmentation, sellers can make the best possible adjustments to their product and marketing appeals instead of a single marketing program aimed at drawing in all potential buyers, sellers can create separate marketing programs designed to satisfy the needs and wants of different customers. Here, a company can make proper advertising and sales promotion depending on the target audience.

Media selection

Market segmentation helps in the selection of advertising media more intelligently and in the allocation of funds to various media. Still depending on the target audience, a company allocates funds to various media. This is also dependent on the impact that the media creates, competitor advertising, etc.

Timing of marketing efforts

Market segmentation helps in timing promotional efforts in order to place more emphasis during those periods when the response is likely to be at its peak. for example, a company can heavily advertise consumer goods to Christians during the Christmas season and to Hindus during Diwali time.

Helps in fixing prices

Marketing segmentation also enables a company to fix the prices of goods and services. Because the perceptions of different market segments differ, adopting different pricing strategies for the markets is necessary. For example, it is important for the prices for the lower-income group to be lower as well as the promotional efforts to be adjusted accordingly.

Assist in distribution strategies

Splitting the market into different segments assists in the adoption of suitable distribution strategies. Different market segments may require different distribution or marketing mix. For example, if the product is of very high quality with the intention of targeting the upper class, then it has to be distributed at prestigious outlets located in selective places.