What Is Market Segmentation and Why Do Marketers Do It?

Introduction

A market segment refers to a cluster of organizations that offer similar services to people. A market segment ought to be different from other sectors since every segment has its own different functions. It follows then that market segmentation is the process where an organization splits the market into sections that have different needs. Market segmentation can not be likened to the process that a company uses to spot which part of the market to put more concentration on. On the contrary, the central intent for market segmentation is to spot customers with different needs. This makes it easier for the company to understand which section of the market to give preference to. (Dibb & Simkin, 1996)

Main Body

Market segmentation is divided into different groups. One of these is geographic segmentation. This is where certain regions are considered to have some common traits that influence people’s attitude to product buying. When marketing products internationally, such aspects as the population of a certain country, income generation and the prevalent trade are taken into consideration. (Dibb & Simkin, 1996)

On the other hand, demographic segmentation entails arranging out the market in terms of age, gender or the size of families that people have. Demographic segmentation is mostly practiced in the clothing industry where companies have to understand the preferences of their customers. It’s understood that different age groups have different preferences and tastes. The occupation of a community is also considered in demographic segmentation. (Croft, 2004)

Behaviourist segmentation on the other hand looks at the pattern of the people’s behaviour. Some consumers have been known to be loyal to a certain product despite there being an existence of other similar products. Psychographic segmentation deals with recognizing the personality traits and making out the different characteristics in diverse groups of the community. This is best brought about in the nature of music that appeals to the old or the young. (McDonald & Dunbar, 2004)

There are different reasons that make marketers adopt market segmentation. It’s been found out that segmentation leads to effectiveness in marketing. This in turn leads to increased profits for the company. There are many things that are considered in market segmentation. Some of these include location, technology, and age among many other things. Since almost every sector is looked at in creating market segmentation, it leaves no loopholes that may result in loss of revenue. (Croft, 2004)

Companies also use market segmentation to build programs meant to retain customers. This makes them committed to retaining those customers considered to be more profitable. It also enables a company to come up with incentives that are able to retain the profitable customers. (McDonald & Dunbar, 2004) Market segmentation also helps to identify new business opportunities for the company. It’s been proved that it’s not only in selling a product to a customer that a business can make profits. Market extension, market penetration, product development and diversification also play a major role in bringing profits to an organization. Companies can therefore make more profits by identifying new markets for their products. Market segmentation plays this crucial role. (Croft, 2004)

Market segmentation also brings about a competitive gain. A marketer is able to choose which markets are more productive. This in the long run gives him an edge over his competitors. This comes from the fact that market segmentation gives a company an exact description of those who use its products. It also shows us who the true competitors are. Lastly it gives us guidelines on how we can stay ahead of them. (Steenkamp & Ter Hofstede, 2002)

In order to better understand the effectiveness of market segmentation, it is important to look at examples of companies that have practiced the process successfully. General Motors is an example of a company that has been successful in market segmentation. In the early years of the 19th century, GM changed its marketing strategy by pooling car buyers into value/superiority groups. They then divided their products to meet the different classes of their buyers. This gave birth to the world known General Motors products. Their strategy was so effective to an extent where their main competitor Ford had to close shop for close to a year. (McDonald & Dunbar, 2004)

Car manufacturer Ford is another such example. After being put out of business for close to a year in the early 1920’s by their competitor GM, there was a need for them to come up with an effective strategy in order to stay in market. Therefore in 1964, Ford came up with a new car model called Mustang. Within a period of two years time, the brand had sold well over two million cars. This was a big breakthrough in motor vehicle sales since the car industry was not doing as well back then. Unlike its predecessor cars T and the Thunderbolt, the Mustang made in 1964 was a car that fitted the needs of that time. Compared to other models of cars made back then, the Mustang has lasted for the whole time unlike the other cars that went out of market almost immediately. (100 Years of Ford, 2003, June 14)

The period preceding the invention of the Mustang was characterized by an economic boom. The manufacturers took in to account people’s appeal. The car was specially made to appeal to those people who were economy minded, single people and those people who were enthusiasts in performance. Above all, its pricing was fair to the pockets of many people. These are still the driving force in peoples lives hence the reason that has made the car outlast others of its generation. (100 Years of Ford, 2003, June 14)

In the example of GM it is clear that a company does not have to come up with new products for the market. On the contrary, what a company can do is to divide the market into different segments taking into account the different needs of different groups of people. This will make a company to stay ahead of its competitors especially at a time where the world is going through a period of economic recession. (McDonald & Dunbar, 2004)

Conclusion

An effective market segmentation policy is a valuable tool for increasing sales in an organization. Though most companies support the idea of market segmentation, it is imperative to note that many have not fully grasped the full potential of this tool. Many companies found their market segmentation on feelings other than doing research on the preferences of their target groups. This has left many companies fighting losing battles economically.

Those companies that have realized the full impact of market segmentation continue to be market leaders in their respective fields. It’s therefore of paramount importance that different companies learn the effectiveness of market segmentation and exploit it fully for their economic gain. Firms that fail to do this will find themselves locked out of business by their competitors. This can best be seen through the case of GM and Ford in the motor vehicle industry.

List of Reference

Croft M, J. (2004). Market segmentation: a step-by-step guide to profitable new business marketing for managers. London: Routledge.

Dibb, S., & Simkin, L. (1996). The Market Segmentation Workbook: Target Marketing for Marketing Managers. London: Routledge.

McDonald, M., & Dunbar, I. (2004).Market Segmentation: How to do it, how to profit from it. Butterworth-Heinemann.

Steenkamp & Ter Hofstede. (2002). “International market segmentation: issues and perspectives”, Intern. J. of Market Research, 19,185-213.

100 Years of Ford. (2003). Market segmentation that succeeded.Torontostar Canada.

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