Is the pet rock a perfect birthday gift for everyone? How about a football or lipstick? Products need to be tailored to a specific customer who makes up a target market. A market is people or organizations who have the ability to purchase a product or service. A market can be further broken down into segments.
A market segment is a subgroup of people or organizations that have one or more characteristics in common that cause them to have the same product needs. Everyone needs water to drink, but does everyone need bottled water? For companies to successfully reach their precise customer, they need to divide a market into similar and identifiable segments through market segmentation.
Purpose and Concept of Market Segmentation
The main reason companies divide markets into identifiable groups is so that the marketing team can create a custom marketing mix for the specific group. For example, Farmer Joseph realized early on that not everyone would purchase his expensive organic produce. He did not want to exhaust his financial budget by advertising to the masses. Instead, he identified his target market and created a specific marketing plan to communicate effectively with his prime customers.
His target market consisted of females age 18-65, with an income of $50,000+, who have healthy eating habits and who are concerned about pesticides. His plan consisted of ad placement in local women's magazines, newspapers and also email blasts to a list that he formulated with age and income specifics. Lastly, he advertised with a local gym about his healthy produce. Marketers have numerous choices in how they can segment a market.
If the farmer had planned on targeting everyone, then the type of segmentation would have been called no market segmentation. The opposite type of segmentation would be if he decided to target based on every individual factor available. This would be called a fully segmented market. Other choices include segmenting just by gender, income, lifestyle, ethnicity, family life cycle, age group, or even a combination-type.
Importance of Market Segmentation
Companies will not survive if the marketing strategy is dependent upon targeting an entire mass market. The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. In the long run, this benefits the company because they are able to use their corporate resources more effectively and make better strategic marketing decisions.
For example, Farmer Joseph will not waste his advertising dollars on cable television or with far-reaching campaigns when he knows that his organic product target market is very specialized. His advertising and marketing dollars are used effectively, and he is able to communicate with his specific target market by sticking with a segment that has been qualified as a heavy user of organic products. Even Walmart has created specific segments for their store offerings. They have decided that the segments of rural, baby boomer, Hispanic, multicultural, urban, and suburban/affluent are the key segments in their retail target marketing strategy.
Criteria for Successful Segmentation
Not every single segment would be a valid group to target for a company. There are some basic rules in developing an appropriate segmentation target. In order for a company to consider a segment of the market for business, the segment must be substantial, identifiable, measurable, accessible and responsive. Farmer Joseph must examine his potential segments and see if they are large enough to be worthy of advertising dollars. He must also feel confident that spending marketing dollars on promoting to a segment will result in enough sales.
Farmer Joseph also must be able to identify his segment. For example, in the beginning of his segment research, he had difficulty identifying which consumers were interested in eating healthy and buying organic produce. It took his in-store surveys to cultivate a list and type of customer for him to later segment. He was then able to find a measurable group to conduct a weekly email blast to.
Fortunately, his segment was easily reachable through local women's newspapers, gyms, and emails. If his target market was senior citizens, he might have had to eliminate gyms or emails and instead find other ways to reach his segment.
Lastly, Farmer Joseph has been very successful in reaching many segments of the market that are interested in organic foods. All age groups have been responsive to his marketing tools, with the common thread being that they are concerned about pesticides.
A market segment is a subgroup of people or organizations that have one or more characteristics in common that cause them to have the same product needs. Companies need to identify the correct segments that are substantial, identifiable, measurable, accessible, and responsive in order to have a valid target market segment.
After watching this lesson, you should be able to explain the importance of market segmentation and describe specific criteria.
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