A market is a place where buyers buy and sellers sell. In such a case, buyers and sellers both are at an advantage. However, the lasting objective of every seller/producer is to maximize sales increase profit.
For the purpose of sales maximization, sellers employ marketing, which is a process of commercially promoting, distributing, and advertising a given product or service. Market segmentation benefits the company or business to dedicate a specific service or product to each segment of the market, thereby increasing sales and profits.
What is Market Segmentation?
The process of market segmentation, involves the creation of market segments or parts or sub-sets. A segment of the market is basically a sub-set, in terms of goods, service or product, of the entire market.
The segment is identified or created by the marketing department in such a manner that the individuals (or organizations) in that very segment would demand a certain set of goods and services that have similar features.
In short, a segment is a division of market, the elements of which depict common needs. The meritorious features of a market segment includes the following:
- Geographically or product-wise or even need wise, a single market segment is distinct from other segments, though one can also count on the existence of some minute similarities.
- Products that are demanded by the consumers are homogeneous and in some cases also tend to have similar price levels.
- A product introduction into such a segment stimulates similar and almost congruent reactions from a majority of consumers.
Market Segmentation as a Process
There are some specialized theories upon which markets can be easily segmented into different sections. Market segmentation can be positive segmentation, negative segmentation or top-down segmentation. Companies also derive separate segmentation techniques for every product and brand.
Market segmentation is usually done with the help of past data, on filed surveys and consumer interactions. Volumes of goods supply in every segment is made with the help of economic indexes and average income and demand figures.
Steps for Market Segmentation Process
One of the basic objectives of market segmentation is to maximize sales and profits. Hence, the three objectives of any segmentation process is to gain customers, sustain the existing consumers and introduce newer products into the market for the existing consumers and thereby gain new consumers. The five-step process of market segmentation are as follows.
The first step in the segmentation process is to establish the market and targeted consumers. This process involves tremendous paperwork and surveys. Economic and demographic factors are also analyzed in the process. In addition, this step might also include advertising about the product.
The second step is often termed as market mapping, and involves structuring the entire marketing procedures based upon the need of the said market. Logistics cost, retail and wholesale cost, etc., are some important parameters that are set up during this stage.
Another very important factor involved in this step is the targeting of consumers who are also known as decision makers. The remaining three steps are derived on the basis of this step.
The third step is entirely dependent upon the consumers as the demand by consumers and their suggestions are largely viewed, surveyed, taken into consideration, and in many cases, implemented.
In the next step, the actual segment begins to take shape, as like-minded consumers having same demands are placed together and are analyzed as a group. Launching of a parallel or a totally new product is viewed in this situation. This segregation is often based upon economic indexes, demographic, and geographic situations.
The last step is catering to the needs of existing consumers and finding new markets. This step is purely the first step towards a new 5-step-cycle that begins with finding a new market.
Segmentation of market is in no way an easy task, as you need to consider several factors that range form current fashion, economic conditions, demographics, and even simple logic that is used by consumers.