Market Segmentation

Market segmentation is the fundamental component of a market-based strategy. A market segment is a specific group of customers with distinctive customer needs, purchase behaviours and different descriptive characteristics. (Best, 2000) By categorizing markets into sub sectors, targeting marketing effort in such a way as to meet the technical and other requirements of each of these, organisations maybe able to secure greater competitive position than if they attempted to satisfy the general requirements of the market as a whole.

There are four criteria that have to be satisfied in order for market segmentation to be effective. A market segment should be identifiable, substantial, accessible and stable. Identifiable, at which there should be observable indicators that enable the segment to be defined and quantified. Substantial, meaning that the segment should be of enough size to make the effort involved in segmentation worthwhile. Accessible, that is, it should be probable to target specifically the segment using existing communication and distribution channels. Stable, so that after classification of the segment there should be sufficient time to capitalize on the investment implicated in segmentation. (Baker, 1995)

Markets can be segmented using a variety of philosophical approaches. In terms of operationalizing these approaches, demographic approaches, geographic approaches, socio-economic approaches and psychographic approaches are commonly used.

There are a number of demographic-related bases for segmenting markets such as age, the stage in the family life-cycle, gender, ethnic group and household composition. Age segmentation is one of the most widely used bases for market segmentation which is generally easy to measure the size of segments. Individuals usually go through a number of family roles, and that at each stage of development, an individual’s buying behaviours are likely to change as well as their ability to pay for those purchases will also change. Gender is also a very commonly used basis for segmenting markets as it is an easy one to measure and the firms can have a reasonably good idea of the gender-specific market in any given area. There is evidence that various ethnic groups retain distinctive preferences in their purchases which distinguishes them from the native community. Households differ in their size and composition in which these differences are associated with varied buying behaviour.

The geographic approaches have usually used as a basis for market segmentation. Very often, there have been very good geographical reasons of why the product preferences should vary between regions. Many companies have managed to adapt their product offer to meet the needs of various regional segments.