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Market segmentation refers to the process of segregating a market of potential customers into different groups based on the certain characteristics. Segmenting a market into smaller groups can be quite useful for an organization, as it enables the firm to easily identify the target customer groups and the market locations that it needs to cater to. Each market segment comprises of customers with identical characteristics and are likely to respond similarly to marketing campaigns and strategies. As a management student, you will often need to propose strategies in your marketing essay, which will require you to use market segmentation strategy to identify your target market, which is most suitable for your given assignment.

Importance of Market Segmentation

In the contemporary business environment, an organization offers its products or services in exchange for a price, which caters to the needs and preferences of the customers. However, it is important for the company to define which particular market it wants to cater to. Market segmentation facilitates in categorizing the market in different groups and then catering to the consumer groups which best fits the value proposition offered by the company.

Segmenting the market also allows the companies to streamline their marketing strategies to the customers who are most likely to prefer their products and services, thereby increasing the chance of sales. Moreover, it also leads to better utilization of the organizational resources to achieve its sales figures.

Before you apply market segmentation in your own college essay, let us first look at a simple example. Harley Davidson is a well-established company, which sales motor cycles in the US, its home country and also in various international markets. However, the company only caters to a particular market segment, which is characterized by high disposable income, middle age group and high enthusiasm towards heavy vintage motorcycles. These specific characters isolate a group of people who are the target customers of Harley Davidson. The product design and the brand image are so designed that this specific customer group is most likely to be attracted by them and will purchase the product. Just like Harley Davidson, almost every company designs their business plan while keeping in mind about which market segment to cater to.

Market segmentation is particularly useful in designing the marketing communication strategies which is mostly likely to resonate with the chosen target customers. The core objective here is to identify which group of people is most likely to prefer the offered product and grow a liking towards the brand.

Types of Market Segmentation

There are four different ways in which a market can be segmented to identify the target customers of a company. The purpose of these four different segmentations is to categorize the customer groups based on four key parameters, thereby making it easier for the organizations identify the right group of customers to serve.

1. Demographic: The demographic segmentation segregates a market based on the demographic factors such as age, educational qualification, occupation, income group, family size, social status, etc. This type of the segmentation is probably the most commonly used among marketers, as it covers the two most vital subcategories such as income group and age. The buying behavior of an individual largely depends on one’s affordability and their current stage of life. For example, an individual about reach his middle age, will prefer to buy a family car, with high utilitarian value. On the other hand, a student who just entered college will not think of buying a family car, but will rather think of buying a value for money laptop. Thus, the age group of an individual, determining their stage of life highlights their buying behavior. Likewise, the affordability of the customer, determined by their income group also governs their purchase behavior. For example, a college student belonging to an affluent family will prefer to buy a premium laptop with high end features and attributes, whereas another college student from a middle-income group family will prefer to buy an affordable laptop that covers all the basic features, without the bells and whistles.

2. Geographic: The geographic segmentation segregates the customer groups based on where they are located. This type of segmentation is quite vital when the location of the customers determine their buying behavior. Geographically, a market can be segmented into cities, countries, and continents. The location of the customers often defines their cultural background, just as different countries have different culture, which determines their buying behavior. A country with an individualistic culture will prefer to buy products which are suitable for small families, whereas people in a collectivist country will want to purchase products for large extended families. Moreover, certain products and services may be more popular in one country than another, proving to be more lucrative for one company than another. Based on geographic segmentation, it can also be stated that the product needs and preferences of the people living in the urban area can vary prominently compared to the sub-urban area. Organizations often conduct thorough market analysis to identify the factors specific to a geographic location which can influence their business operations.

3. Psychographic: The psychographic segmentation segregates a market based on the psychological profiles and the personalities of the customers. It allows an organization to segregate the customers based on their lifestyle, values, beliefs, etc. Based on their personality traits, the purchasing behavior of one individual can vary greatly from another. For example, a person can be thrifty and prefer to purchase commodities with only utilitarian value. On other hand, another individual who is more indulgent may prefer to purchase products that also has certain degree of hedonistic value. The personal values and beliefs also determine one’s buying behavior. A person who is an observant follower of their religion may make purchases required for their religious festivals. Similarly, a person who holds strong personal belief towards the welfare of the animal kingdom may choose to only purchase vegan food and visit vegan restaurants. Therefore, the personality traits and personal values and beliefs can have a strong impact on how they make their purchases.

4. Behavioral: The behavioral segmentation refers to segregation of the customers by specific behaviors. Customers following certain daily behavioral patterns can be segregated into one group, making it easier for the marketers to streamline their marketing campaigns and strategies towards that particular group. These behavioral patterns can be identified to be their post purchase behavior, interaction with their reference group, product and industry knowledge, among several others. For example, a company can choose to target individuals who spend significant amount of time on social media. In this case, adopting social media marketing, or influencer marketing can prove to be beneficial. Likewise, companies often rely on the word of mouth of the customers. This is particularly useful to influence customer groups who are socially active and interact with their peers regularly. The behavior of the customers, also determine their perception towards certain product categories. For example, health conscious customers are less likely to consumer carbonated beverages regularly, but instead that may prefer to drink low calories drinks or healthy fruit juices. For an organization, it is extremely crucial to identify their behavioral patterns to segregate a specific group of customers to cater to.

Market segmentation will play a crucial role when you are working on your marketing report or even a case study. It helps you to identify who exactly is your audience, what are their behaviors and perceptions towards your proposed value. It can enable you to design marketing campaigns which are specifically tailored to a certain group of people only, thereby increasing its chance of success, compared to broad spectrum advertising.

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