Market segmentation identifies market portions that are different from the other. For a given products and services, market can be segmented into different parts, and accordingly, the company can develop their strategies to meet the needs of the potential customers.
Need for Market Segmentation:
To address the needs for competition better, understanding customers’ needs is very important.
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Market segmentation facilitates adoption of suitable customers’ specific or segmented market-specific strategies and accordingly customizes the products and services and remains competitive in the market.
It is not possible for any organization to meet every customer’s needs; therefore, clustering customers’ needs based on market segmentation provides opportunity to the organization to increase their customer reach and increase profitability. Treating all customers alike, with a mass marketing approach, may ultimately weaken the organization’s competitive strength.
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Mass marketing means considering market as a homogenous group and offer the same products and services to all customers. Mass marketing in one way cost effective for organization, as it allows economies of scale. Economies of scale are achieved not only in production, but also in distribution, advertising and sales promotion.
However, mass marketing cannot address the differing needs and preferences of customers. Such failure ultimately leads to loosing of market opportunities and reduces organization’s profitability. This is why market segmentation approach for target marketing is so important for organizations.
Requirements of Market Segments:
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After understanding the importance of market segmentation, it is now important for us to know the requirements for market segmentation. Effective market segmentation approach requires understanding of the following criteria:
i. It should be identifiable so that organizations can measure the differentiating attributes of market segments.
ii. It should be accessible so that the customers in segmented market can be reached through communication and distribution channels.
iii. It should be substantial so that the segmented market size is adequate enough to target, else it may not be economical for the organization to address the needs of a small section of customers.
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iv. It should be capable to address the unique needs so that each segmented offerings is different.
v. It should be durable so that the segmented market is relatively stable enough to optimize the cost of frequent changes.
A segmented market is internally homogenous but externally heterogeneous, i.e., within a given segmented market, it is homogeneous but between segmented markets, it is heterogeneous.