What is Market Segmentation?

What is Market Segmentation?

Segmenting the market is the result of dividing a market into smaller groups. This process is derived from the recognition that the market represents the total number of groups with distinct characteristics, which are called segments.

Depending on the similarities of consumers that make up each segment, they tend to respond similarly to a given marketing strategy. That is, they tend to have similar feelings and perceptions about an array of marketing, made for a particular product.

The process of segment comprises four steps:

1. Choice of targeting criteria

a. Criteria demographic, geographic, economic and social.

b.Critérios personality and lifestyle.

c. Performance criteria over the product (Segmentation depending on the status of consumers and their loyalty, targeting over the decision-Targeting the quantities purchased; segmentation according to their profitability, segmentation according to situations or events; Segmentation in function of the usage habits;

d. Criteria for psychological attitudes regarding the product;

e. Targeting multi-criteria

2. Description of the characteristics of each segmentation

3. Choose one or more segment:
- Size of the different segments
- Permeability of the segment to new competitors
- Resources Company

4. Definition of marketing policy for each selected segment
Segmented the market, the question arises whether all segments are advantageous for the company, so there you choose the most attractive - the ones that best fit the company and the product. Thus, should have the following characteristics:

Uniformity: the segment should have a set of characteristics that are common to all the elements that compose it. If the market segment is homogeneous, allow only a single form of action by the company before him.

Measurability: there must be statistics on the market segment (EX: use of market surveys)

Accessibility: the thread must be used in practical ways, choosing the channels of communication and distribution that allow reaching it the right way.

Substantiality: the segment should have such a dimension that provides a profitable operation. Note that it may be permissible to have a market segment with only a consumer, if he has special needs (eg aircraft industry, etc.).
Where segments the market is confronted with the need to evaluate the different segments identified. Are three major rating factors:

Size and growth of the segment: the segment size has to be according to firm size, so a large company can operate nationally and internationally, as an SME has to limit the size of its scale of values naturally that in terms of net results, both situations are likely to be highly rewarding. There can be segments which have a size too large and need to be, therefore, not considered; conversely, one segment may have a size too small to be worth working it and not be so considered interesting.

When a segment is growing the company must take this into consideration and see whether it has the capacity to respond to that growth. When a market is at the beginning of its life cycle, usually targeting is still fairly crude and just as the market evolves targeting will be more accurate.

Degree of attractiveness of segments: it is also necessary to analyze the degree of attractiveness of the segments identified. Examples:

Segments where there is keen competition may be of little interest, as would, indeed, a very large investment;
Segments where barriers to entry are relatively negligible, lose much of their interest since the short or medium term the firm will be faced with direct competition.

Market segments where there are plenty of substitutes are also less interesting, although they may have a reasonable size and growth. The segment of young people for leisure products segment is difficult, given that young people have many centers of interest, all of them function as substitutes of each other.

Another factor in the analysis concerns the bargaining power of customers, market segments where customers have weak negotiating directly are more attractive. Large companies, public agencies or large distribution centers are customers with high bargaining power and the work becomes necessary to have a structure capable of facing the bargaining power.

Finally, a point also take into consideration concerns of the bargaining power of suppliers and their reliability; to make the decision to serve a segment becomes necessary to evaluate the suppliers for such. For example, a supermarket decides to work the segment of the wine lovers and investing in a broadening in width and depth of its assortment. Will have to do that, to ensure their relationship with suppliers, so the stock does not present major disruptions or price changes.

Objectives and resources of the company: even if a segment is attractive because of its size, it is still necessary to evaluate the objectives and the resources the company possesses. It may happen that some segments have to be abandoned, not because they are intrinsically evil, but why not match the goals of the company. It can also happen that, while meeting the objectives, not in accordance with the resources and expertise of the company

What is the advantage of targeting?

Rationalize the means to achieve a given product segment by adjusting the prices / costs of distribution and communication in order to achieve equilibrium.

Allows a specialization of the company playing with the strategic variables - price, product, distribution and communication - avoiding waste.

The market is heterogeneous and therefore it is desirable to its target. Thus, the attitudes of these segments may be different.


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