Market segmentation is the research that determines how your

organization divides its customers or cohort into smaller groups based

on characteristics such as, age, income, personality traits or behavior

Companies who properly segment their market enjoy significant advantages. According to a
study by Bain & Company, 81% of executives found that segmentation was crucial for
growing profits. Bain also found that organizations with great segmentation strategies
enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a
5-year period.

Firmographic Psychographic Behavioral

Demogra (B2B) (B2B/B2C) (B2B/B2C)
phic
(B2C)
Definition Classification based Classification based Classification based
Classification based
on individual on company or on attitudes, on behaviors like
attributes organization aspirations, values,
product usage,
attributes and other criteria technology laggards,
etc.
Examples Geography Gender Industry Location Lifestyle Personality Usage Rate Benefit
Education Level Number of Traits Values Types Occasion
Income Level Employees Revenue Opinions Purchase Decision
Decision You are a smaller You are a smaller You want to target You want to target
Criteria business or you are business or you are customers based on customers based on
running your first running your first values or lifestyle purchase behaviors
project project
Difficulty Simpler Simpler More advanced More advanced

Types of Market Segmentation

With segmentation and targeting, you want to understand how your market will respond in a
given situation, like purchasing your products. In many cases, a predictive model may be
incorporated into the study so that individuals can be grouped within identified segments
based on specific answers to survey questions.
Geographic Segmentation

While typically a subset of demographics, geographic segmentation is typically the

easiest. Geographic segmentation creates different target customer groups based on
geographical boundaries. Because potential customers have needs, preferences, and
interests that differ according to their geographies, understanding the climates and
geographic regions of customer groups can help determine where to sell and advertise, as
well as where to expand your business.

Demographic Segmentation

Demographic segmentation sorts a market by demographic elements such as age,

education, income, family size, race, gender, occupation, nationality, and more.
Demographic segmentation is one of the simplest and most commonly used forms of
segmentation because the products and services we buy, how we use those products, and
how much we are willing to spend on them is most often based on demographic factors.

Firmographic Segmentation

Firmographic segmentation is similar to demographic segmentation. The difference is that

demographics look at individuals while firmographics look at organizations. Firmographic
segmentation would take into consideration things like company size, number of employees
and would illustrate how addressing a small business would differ from addressing an
enterprise corporation.

Behavioral Segmentation

Behavioral segmentation divides markets by behaviors and decision-making patterns such

as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to
purchase body wash, while older consumer groups may lean towards soap bars.
Segmenting markets based off purchase behaviors enables marketers to develop a more
targeted approach.

Psychographic Segmentation

Psychographic segmentation takes into account the psychological aspects of consumer

behavior by dividing markets according to lifestyle, personality traits, values, opinions, and
interests of consumers. Large markets like the fitness market use psychographic
segmentation when they sort their customers into categories of people who care about
healthy living and exercise.

Advantages of Market Segmentation:

Market segmentation can have many benefits for companies which can benefit their business.
Some are discussed below:
1. Segmenting a market gives focus to company as it helps to understand the market better
2. Unnecessary costs are avoided by efficient market segmentation as only the required
population can be tapped
3. Segmentation can help companies identify newer markets where existing products can be
launched
4. If certain overlapping markets are identified, companies can create new products to capture
them
5. Once proper market segmentation is done, after identifying target groups accurately,
advertising & marketing can be more effective rather than having loosely created ad campaigns
6. Homogeneous groups can themselves promote the products or services even more if they like
it
7. Systematic market segmentation helps in market expansion and also helps in customer
retention

Disadvantages of Market Segmentation:

Apart from the several advantages, there are also certain drawbacks of market segmentation.
Some disadvantages are:
1. A company having multiple segments would have to cater to them separately i.e. more costs
2. Giving products/ services to multiple segments can be a time-consuming process for
companies
3. If a company selects a wrong segment, their entire business can collapse
4. Smaller clusters/ niche markets often get neglected in the bigger scheme of things

Advantages or Benefits of Market

Segmentation
1. Proper choice of target market
2. Tapping a particular market
3. Efficient and economic marketing efforts
4. Benefits to the customers

1. Proper choice of target market: The market for any product is made
up of several segments. A market is the aggregate of consumers of a
given product. Consumers are not a homogeneous lot. They differ a lot
in their characters and buying behavior. Thus, many differing
segments exist in a market. Market segmentation helps the marketer
divide the heterogeneous market. It is possible to distinguish one
customer group from another.

2. Tapping a particular market: Segmentation enables the marketer to

understand the needs of the customers and serve them well.
Prediction of the likely response from each segment is possible. With
homogeneous responses from each segment, marketer finds it easy to
develop an appropriate marketing programme. By tailoring the
marketing programmes to individual market segments, marketers
perform their tasks effectively.
Specialization can be achieved in product distribution, promotion and
pricing for catering to a particular segment.

3. Efficient and economic marketing efforts: Segmentation makes

marketing efforts both efficient and economic. Marketers segment the
market and try to fulfill the needs of that segment. It helps in
designing the kinds of promotional devices that are effective from the
view point of customers.
Marketing efforts are focused on the well defined needs of the
segment. Thus, marketing efforts undertaken by the marketer become
more productive. They help the marketer to evaluate the results of his
marketing programme. Best time to introduce new products,
advertising etc., could be easily determined.

4. Benefits to the customer: Segmentation benefits not only the

marketer but the customer as well. It distinguishes one customer
group from another within a given market. It helps the marketer
concentrate on the fulfillment of the well defined needs of the specific
segment. Now-a-days, segmentation has attained a high degree of
sophistication.
Though market segmentation offers a lot of advantages, it has some
limitations with respect to cost and market coverage.
Disadvantages or Limitations of Market
Segmentation
1. Sometimes, market segmentation becomes an expensive
proposition. A marketer experiences considerable difficulties, as he
has to develop different marketing mixes for different segments.
Moreover, mass production is much cheaper than making a variety of
products.
Even major players like Bata have erred in market segmentation. In
the early 1990s, Bata introduced a few brands with high price tags in
the high end segment of the Indian footwear market. This segment
was not a sizable one for Bata. This segment accounted for a mere 5 —
10 percent of the Indian footwear market. The sales trend could not
facilitate mass production. Having incurred a loss in the high end
segment, Bata had returned to the mass segment.

2. Promotional expenses, costs of keeping adequate inventory of each

variety of goods etc., also go up, eroding profitability.

3. Since the marketer has to implement varying marketing

programmes suiting to the different segments, administrative
expenses increase.