Definition of Market Segmentation & 4 Main Types of Market Segmentation

Market segmentation is simply the process of breaking your market down into two or more different subgroups or subcategories.

What is Businesses Market

Businesses Market is the people that you might really think might be attracted to your product. For instance, the automobile business market would only be people over the age of 17 because people under the age of 17 won’t have a driving license.

People in a market don’t necessarily share universal needs and wants. If we were a manufacturer of jeans, not every customer looking to buy a pair of jeans has the same tastes and preferences, and needs. Girls might have different needs from boys; people of higher incomes might have different wants than people on more modest incomes.

If they launch one generic product for the entire market to purchase, businesses may lose some customers looking for something tailored a little bit more specifically to their needs.

What businesses do is segment the market.

They work out what groups of customers in their markets and try and clump them together into categories. They can then try and tweak or launch different varieties or modifications of their products aimed at different groups of people who share in need or share a characteristic to try and maximize their sales.

4 Main Types of Market Segmentation

A Demographic Market Segmentation.

When we split a market up demographically, it means we’re breaking customers down into groups according to one of their characteristics. A straightforward way of doing it could be, according to their gender.

We launch a different variation of our products aimed at males and a variety aimed at females because they might not share the same needs.

And another effortless way of breaking the market down demographically is to do it according to people’s age or age category.

Children might not necessarily have the same needs or want out of a certain product as perhaps people in their twenties or middle-aged or people who are retirees.

We can break a market down split or segment customers to different demographic categories like their age or their gender, or another aspect to the demographic characteristics.

Geographically Market Segmentation

Another way we can break out mark it down is to do it geographically, so that could be that customers from certain parts of the country might have certain needs.

People who live in rural areas might have slightly different needs and wants from our product than people who live in urban or inner-city areas. It might be if we’re selling on a global scale, that according to where people live around the world, they might have different needs to others.

For example, suppose we were selling cars. In that case, people who live in geographic areas with hot climates might have different needs from a car to customers in very cold climates. In warm climates, they want might want modifications like extreme air conditioning in colder climates.

They might want deeper tread on the tires to drive more regularly in icy conditions, so we can see that they both want the same product. They both want a car, but they want to be slightly more specific based on their geographical area.

Income Market Segmentation

It may well be that people in higher socio-economic groups people in higher income brackets may have different needs and wants than those in more middle-income brackets.

They may have different needs that want to more budget-conscious people. Imagine a supermarket selling stable food like bread. Their customers with the very highest incomes may have needs and want to be associated with ingredients and quality on the product’s taste.

People on more middle incomes want to balance quality and taste and ingredients, but still being slightly more value-conscious on people on the most modest incomes.

There may be prepared to sacrifice individual taste and quality elements if they can get that product at a bargain price.

Their needs slightly differ based on the income categories or the socio-economic groups that might fall into the final way.

Consumers Behavior Market Segmentation

That we can segment, a market is, according to consumers’ behavior. There’s a couple of different aspects that that term covers. One way we can break customers down into subgroups based on their behavior is to have a look at their lifestyles.

For example, if we were selling holidays, people’s lifestyles may affect the holidays they’re looking for when a travel agency.

Knowing that we can break customers down into different behavioral lifestyle groups might mean that they can target them with holidays that are more specific to that needs and wants.

For example, some people might be looking for sporting holidays. Other people might be looking for adventure holidays.

Other people who are hectic lives might be looking for relaxing Asian beach holidays.

We can try and break our product into different styles or genres, if you will, to target people who might have different consumer behavior lifestyles.

Another kind of aspect of behavior that we can try and break customers down according to is their consumer habits—the reasons why they’re looking to buy a product or the reasons that govern their consumer behavior.

For example, a product such as toothpaste has different reasons why they are looking to buy toothpaste.

They behave differently; people are looking to buy toothpaste because they have sensitive teeth and want a product that matches that need.

Other people might be looking to buy toothpaste because they want a whitening agent. After all, they want that award-winning smile.

Other people might be looking to buy toothpaste because they are looking for gum protection.

Others might be smokers and are looking for toothpaste to help combat some of these side effects of nicotine consumption, but it’s their aspects of their behavior governing the kind of product they’re looking for.

We might be able to tweak variations of our product; Have one for whitening, have one for smokers, have one for sensitive teeth to make sure that we’re hitting customer needs.

We could also maybe break our market down segment, segmenting by behavior according to the frequency with which people are looking to buy our products on the frequency of purchases, another aspect of consumer behavior.

We can split them down into different segments to try and launch a tweaked variation of that product to meet everybody’s different needs.

The advantage to Market Segmentation

Now the main advantage of market segmentation is precisely to do with needs by recognizing that not all consumers in the marketplace have the same needs. Breaking them down with other customers that might share a characteristic or a desire or want. We might be able to tweak our product offering to meet their needs more precisely.

We can meet their needs more specifically, think about the kind of benefits that that is going to invoke;

• We’re going to be looking to secure greater brand loyalty.
• We’re looking to be able to secure greater repeat custom.
• We might be able to provide greater added value in charge.
• Higher prices, if we’re meeting needs more specifically, sell something generic that only loosely fits the customer’s requirements.
• If we can add that little bit more value in charge, slightly higher prices, it will have a knock-on impact on our revenue and our profits for the organization.

There are benefits to segment in the market down and zeroing in on what different customer groups might desire.

Disadvantage to Market Segmentation

The drawback of segmentation is that by breaking your market down, you might be just increasing your firm’s expenses.

Launching different versions of products will involve greater market research to work out what different groups people might fall into on people’s different needs in those groups.

But then we’re going to have additional production costs associated with researching, developing slightly different variations or incarnations of our product.

Maybe we’ve got to have different components or different ingredients or different styles or parts to products to meet.

The needs of different market segments that will have a cost implication may also influence our ability to benefit from economies of scale.

Launching different versions of the products for different market segments will make the company miss out on economies of scale than if we just launched one generic version of our product, but all types of customers to purchase.