Market Segmentation: Customer Segmentation

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(Refer our High Quality Management Encyclopedia “Management Universe” at: http://management-universe.blogspot.com/)

For write-ups on other topics of marketing and sales management, refer: (Marketing Management Overview) http://marketing-management-overview.blogspot.com/, (Marketing Orientation) http://marketing-orientation.blogspot.com/, (Marketing Management Tasks) http://marketing-management-tasks.blogspot.com/, (Market research) http://market-research-function.blogspot.com/, (Advertising) http://advertising-mass-communication.blogspot.com/, (Sales Promotion) http://sales-promotion.blogspot.com/, (Sales/Selling Process) http://selling-process.blogspot.com/, (Negotiation Skills) http://negotiating-skills.blogspot.com/, (Negotiation Tactics) http://negotiation-tactics.blogspot.com/, (Objection Handling) http://objection-handling.blogspot.com/

Market Segment

Group of people or organizations with same or similar products/services needs. Also refer: http://selling-process.blogspot.com/
In this group of people or organizations, certain characteristics are common and that may lead them to have similar products/services needs.
By studying the needs of a segmented group, product development can be guided.
One market segment responds to the products and services in more or less in a similar way.
The segmented group may respond to marketing strategies, price, features of products/services etc in similar fashion.

Market Segmentation

Process of classifying the prospective/existing customers into sub-groups that will respond to the product ranges (product models, product classifications) in a similar fashion.
For example, one class or range of a particular product may appeal to one segment or sub-group of customers where as other class or range of the same product may appeal to another segment or sub-group of customers.

Purpose of Market Segmentation

To take better decisions on product development, product design and product features.
To facilitate positioning your products/services for a particular segment of customers.
To facilitate decisions on pricing the products/services.
To design your marketing/sales strategies and plans based on the requirements of the market segments of your products/services and to allow them to focus on that group (segment) of customers which is most likely to buy your products/services.
To minimize the cost of marketing/sales vis-a-vis the number of customers gained, market shared captured, revenues earned and most importantly the extent of contribution added to organization's profits.

Basis of Market Segmentation

Geography: by location.
Demography: income, disposable income, age, gender or any other such measurable factors.
Psychology: likes, dislikes, attitudes, life styles, preferences, tastes etc.
Behavior: studied history of responsiveness, loyalty etc.
Combination of all the above-mentioned four factors and drawing a matrix.

Criteria for Effective Segmentation

Measurable: Parameters used for segmentation should be quantified and they should be measurable.
Relevant: It should be relevant in terms of it's potential for profit and growth maximization.
Accessible: Segmented group of customers should be approachable and it should be possible to reach them to sell your products/services.
Distinguishable: Different segments should be distinguishable based on their identifiable different responses to different ranges of products.
Feasible: Based on such market segmentation, the organization should be capable of drawing effective marketing/sales programs.

Advantages of Market Segmentation

Minimum expenses and maximum gains in terms of various performance measures like profitability and profits, sales volumes, market shares, revenue earned etc.
Better need analysis of customer needs and expectations from products/services.
Reduction in "time to market" (lead time from conceptualization of product to bringing it into market).
Better product development, design and features.
Better targeting and positioning of products/services.
Optimized prices.
Improved customer communication, service levels, delivery and relationship.

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