Market Segmentation Strategies and Benefits

Posted on Feb 9, 2025 in Marketing

Market segmentation is the process of dividing a larger market into smaller groups of consumers who have similar needs or characteristics. This allows businesses to create targeted marketing strategies and offer their products or services to specific segments of their audience, ultimately increasing the likelihood of success.

Examples of Market Segmentation

  • Demographic segmentation: by age, gender, income, education. For example, a company that sells luxury cars may target consumers who earn a high income.
  • Psychographic segmentation: personality, lifestyle, values, and attitudes. For example, a company that sells sporting clothes may target consumers who are athletic and value their physical shape.

Benefits of Market Segmentation

Market segmentation can provide numerous benefits to businesses, including:

  • More specific promotion
  • Reliable data
  • Saving financial resources
  • Customer retention
  • Targeted marketing

By targeting specific segments of the market, businesses can better understand the needs and preferences of those consumers and develop products or services that meet their demands. This can lead to increased sales and revenue.

Consumer Segmentation

Consumer segmentation is a marketing strategy that involves dividing a large consumer market into smaller, more homogeneous groups based on common needs, preferences, and behaviors. Some common methods of consumer segmentation include:

  • Demographic segmentation: age, gender, income, education, and occupation.
  • Psychographic segmentation: personality, values, and lifestyle.
  • Behavioral segmentation: consumer behavior such as usage rate, loyalty, etc.

Examples of Breakdown Segmentation

Some examples of breakdown segmentation include:

  • Behavioral: purchase occasion, benefits sought, purchase behavior.
  • Psychographic Behavior: Lifestyle and Personality Profile.
  • Demographic, Socio-economic, Geographic:
    • Upper class (material or experience, quality demand and service).
    • Middle class (quality/price relationship).
    • Lower class (sales, quantity over quality).
  • Lifestyle Routine: health/sustainability issues and social approach.

B2B Segmentation

B2B segmentation is a marketing strategy that involves dividing a business market into smaller, more homogeneous groups based on common needs, preferences, behaviors, or other characteristics. This allows businesses to tailor their marketing efforts to specific segments of the business market and increase their chances of reaching the right businesses with the right message at the right time.

Criteria for Successful Segmentation

To ensure successful market segmentation, businesses should consider the following criteria:

  • Measurability: The segments should be measurable to the business in terms of size and purchasing power.
  • Substantiality: The segments should be large enough to justify the investment required to target them.
  • Accessibility: The segments should be reachable through cost-effective marketing channels.
  • Actionable and effective.

Targeting Strategies

  • Undifferentiated targeting is a marketing strategy that assumes that all customers have similar needs and preferences, and that a single product or service offering can meet those needs. This strategy is commonly used for products such as basic food.
  • Differentiated targeting is a strategy that assumes that customers have different needs and preferences, and that a tailored product or service offering can better meet those needs. This strategy is commonly used for products that have more specific appeal, such as luxury goods or technology products.

Focused and Customized Target Market Strategies

  • A Focused Target Market Strategy involves targeting a specific group of customers based on specific demographics, behaviors, or other characteristics. The goal is to concentrate on a specific segment of the market. This strategy allows businesses to tailor their marketing efforts to a particular audience, which can increase their chances of success.
  • A Customized Target Market Strategy involves producing personalized marketing messages for individual customers. The goal is to create a unique experience for each customer that makes them feel valued and appreciated.

Positioning

Positioning is the process of creating a unique image and value proposition for a product or brand in the minds of consumers. The goal of positioning is to differentiate a product or brand from its competitors and to create a distinct and favorable perception in the minds of target customers.

Factors of Positioning

  • Price (premium, low cost)
  • Quality
  • Mission (transmits image, values)
  • Design
  • Performance and Service

Keys to Successful Positioning

  • Clarity
  • Consistency
  • Competitiveness
  • Credibility

A perceptual map is a graphical representation of how consumers perceive different brands or products in terms of their key attributes or benefits.

Repositioning Options

Changing the image modifies the product. Both product and target market are changed to “tangible repositioning”. It refers to the process of shifting a product, service, or company to a new market segment, target audience, or positioning strategy.

Levels of a Product

The levels of a product are:

  • Core product: includes the basic benefit.
  • Actual: a general description of features.
  • Augmented: an additional value, extra value.
  • Expected: what the consumer expects from the product.
  • Potential: future evolution, changes.

Branding

Branding refers to the process of creating a unique name, design, symbol, and overall image that identifies and differentiates a company, product, or service from its competitors.

Benefits to Organizations

  • Company value
  • Consumer preference
  • Higher profits & loyalty

Benefits to Consumers

  • Reducing risk in purchasing
  • Simplifying purchasing decisions
  • Symbolic Value

It affects consumers’ perceptions. Some products are more known by the brand name than by the product name.

Trademark

A trademark is a symbol, word, phrase, or design that distinguishes a company’s products or services from those of its competitors. It serves as an important marketing tool that helps businesses build brand recognition and loyalty. Trademarks can take many forms, including logos, slogans, and brand names. Some famous examples of trademarks include the Coca-Cola script and Apple’s apple with a bite taken out of it. Legal protection for a brand name or trade character is provided through the registration of trademarks.

Brand Positioning

Brand positioning is the process of creating a distinct image and identity for a brand in the minds of consumers. It involves defining the unique value proposition of the brand and communicating it effectively to the target audience. Effective brand positioning helps businesses create a strong brand identity that customers can easily recognize and remember, which can lead to increased brand loyalty and customer engagement. It also helps differentiate from its competitors.

Co-branding and Brand Extension

A popular strategy today is Co-branding: two brands combined.

  • Product-based co-branding involves linking two or more brands from different companies to form a product in which both brand names are visible to the consumer.
  • Parallel co-branding is when two independent brands join.
  • Ingredient co-branding is when one supplier chooses to position its brand as an ingredient of a product.
  • Brand extension: use of an established brand name on a new brand within the same market.
  • Brand stretching: when an established brand name is used for brands in unrelated markets.

New Product Development

New product development is an important aspect of marketing that involves creating, testing, and launching a new product or service in the market. It is a process that involves various stages, including idea generation, screening, testing, and commercialization. It requires careful planning, research, and execution to ensure the product’s success in the market.

  • Product replacement (45% revisions and improvements to existing products)
  • Additions to existing lines (25% added to a company’s existing product line)
  • New product lines (20% represent a move into a new market)
  • New to the world products (10% create an entirely new market).

The Four Vs

  • Volume: This refers to the vast amount of data that is generated every day from various sources such as social media and others.
  • Velocity: This refers to the speed at which data is generated and needs to be processed in real-time or near real-time.
  • Variety: This refers to the different types of data that are generated from various sources.
  • Veracity: This refers to the quality and accuracy of the data.

Types of Research

  • Ad hoc research: Specific marketing problem. Collection of data at one point in time from one sample (customer satisfaction study).
  • Continuous research: Conducting the same research on the same sample repeatedly to monitor the changes that take place over time. Assessing trends.
  • Custom research: Conducted for a single organization to provide specific answers to the questions it has.
  • Syndicated research (omnibus research): Collected by firms on a regular basis and then sold to other firms.

Qualitative and Quantitative Research

  • Qualitative research is a method that uses non-statistical analysis to gather data. It includes benefits such as specialized information and cons like being expensive and missing a general view.
  • Quantitative research is a method that uses statistical analysis to gather data. Structured study of small or large samples. It includes a Focus group (6-12 people).

Private Businesses vs. Business-to-Business

  • Private businesses: consumers have flexible channels of distribution, premium price could be an option, promotion, plenty of options, placement, online, specific location and target market: diversified.
  • Business-to-business: Short channel of distribution, no intermediaries, profit margin key aspect, quality, technical aspects, promotion: face-to-face, knowing the firm, placement: facilities of consumers to show the product, target market: focused specialization.

Maslow’s Hierarchy of Needs

  • Physiological: Basic needs must be satisfied (water, air, shelter).
  • Safety security: Stability, order, protection.
  • Belonging: Social interaction, friendship, intimacy.
  • Esteem & Status: Self-respect, recognition.
  • Self-actualization: Personal growth, fulfillment.

Influencer Marketing

Influencer marketing is a marketing strategy that involves partnering with individuals who have a large and engaged audience on social media to promote a brand or product. Influencer marketing typically involves collaborating with influencers to create sponsored content that promotes a brand or product. This can include sponsored posts on social media, sponsored blog posts or videos, or even product reviews or endorsements. The goal of influencer marketing is to reach a wider audience and promote a brand or product.

Advantages of Influencer Marketing for Firms

  • Increased brand awareness: Partnering with influencers can help companies reach a broader audience and increase their brand awareness.
  • Trust and credibility: Influencers are considered experts in their fields and have built trust with their followers.
  • Sometimes cheaper cost, multiplier effect, reference group, avoid barriers to entry difficult and specific target market.

Disadvantages of Influencer Marketing

  • Loss of control over brand image.
  • Bad selection of influencers (may not share the same philosophy).
  • Difficult to find a match.
  • Decreasing sales.
  • The influencer that has been hired may lose popularity and therefore have a negative impact.
  • Cost is another factor.
  • Lack of exclusivity since the influencer might be working with more brands.