Market Segmentation- Bikram Adhikari

New marketing concept is totally based on customer-oriented philosophy. Fundamental principles of the customer-oriented philosophy are:

i. Target market focus,

ii. Customer orientation,

iii. Integrated marketing and,

iv. Profitability.

If our objective is to satisfy the customer profitably, we must first identify the needs of the customer and we cannot satisfy the need of the customer by producing a single product. Thus, we should adopt market segmentation approach properly.

Market segmentation is the process of dividing a market of potential customers into groups, or segments, based on different characteristics. The segments created are composed of consumers who will respond similarly to marketing strategies and who share traits such as similar interests, needs, or locations. In another words, market segmentation is the process of dividing heterogeneous markets into distinct homogeneous subsets/segments that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy. That is, they are likely to have similar feeling and ideas about a marketing mix comprised of a given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way. Small segments are often termed niche markets or specialty markets.

The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to priorities the groups to address; to understand their behaviour; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment.

The concept of market segmentation was coined by Wendell R. Smith in his article “Product Differentiation and Market Segmentation as Alternative Marketing Strategies” observed “many examples of segmentation” in 1956. Present day market segmentation exists basically to solve one major problem of marketers; more conversions. More conversion is possible through personalized marketing campaigns which require marketers to segment market and draft better product and communication strategies according to needs of the segment.

Market segmentation is one of the most efficient tools for marketers to cater to their target group. It makes it easier for them to personalize their campaigns, focus on what’s necessary, and to group similar consumers to target a specific audience in a cost-effective manner. Market segmentation is being used by marketers since late 1900’s. Simple though it may be, it is of vital use while forming any marketing plan

According to Philip Kotler, “Market segmentation is the subdividing of a market into homogeneous subsets of customers, where any subset may conceivable be selected as a market target to be reached with a distinct marketing mix.”

According to Stanton, “Market segmentation is the process of taking the total heterogeneous market for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.”

Market segmentation is of interest to marketers because not all customers are alike. Treat them like they are alike, and most will be less than well satisfied. That's the theory popular today. In the past, marketers were raving about mass marketing. The rationale behind mass marketing included the economies of scale they achieve in both manufacturing and communication by reaching a large group of people with the same product and message. Over time, however, marketers discovered that if the mass market was divided into smaller, more homogeneous groups (segments) these smaller segments could be better satisfied. If we put customers into groups based on the similarity of the benefits that meet their needs, we will have relatively homogeneous groups. Each group will be unique in some important benefit-related way. So finally, we get back to the rationale of market segmentation: It is easier to satisfy a smaller group than a larger group. In another word, smaller, more homogeneous groups are easier to satisfy than larger, less homogeneous groups. And, we will recall, that we achieve our organization's objectives by satisfying customers. Anything we can do, then, to satisfy customers better is of direct benefit to our organization.

The smaller the group the easier it is to satisfy customer in the group. That makes intuitive sense because a group of ten is generally more homogeneous than a group of 1,000. Enter the concept of viable segments. A viable segment is one that the organization can satisfy and is large enough to be worthwhile for the organization to attempt to do so. Let’s look at some examples Think of a garment, a piece of clothing. First, assume no segmentation whatsoever. The result would be that we would have one garment for everyone in the world without regard to size, gender, colour, style, etc. We know immediately that the price would be low because of economies of scale in production and distribution. But we also know that satisfaction would be horrible (it would be too big for most people, some wouldn't like the colour or style, etc.). Thus, customer satisfaction is impossible in that situation.

Now, assume the ultimate in segmentation: products designed for each individual. We pick the style, colour, size, fabric, etc. We know immediately that we would love it - after all, it would be designed for each of us individually so why wouldn't we like it? But we also know that it would be so expensive that we couldn't possibly afford it. Reality is somewhere between these two extremes.

Education