A number of businesses and marketers pursue market segmentation as part of their marketing strategy to deploy specific marketing tactics and action plans tailor-fitted to their identified groups within a target market or consumer base.
There is an assumption that heterogeneity or diversity permeates within an entire target market. For example, consumers of laptops do not merely include those individuals looking for a portable alternative to desktop computers. Some of them might want a cheap entry-level laptop while others want those expensive high-performing ones.
On the other hand, there are also those who might consider larger screen displays while others prefer those ultra-portable variants that they can easily carry around. These examples illustrate heterogeneity and diversity based on variety in product preferences.
Differences in demographics and psychographics create Nonetheless, the dissimilarities within and across the members of a broad target market require market segmentation to aid businesses or marketers develop and deploy tactics and action plans that would best appeal to the sensibilities of different groups of consumers.
Defining Market Segmentation as a Concept and as a Part of Marketing Strategy
Market segmentation is a marketing strategy. In her paper “Market Segmentation and Branding in the Hotel Industry with Special References to Hilton Corporation: Seminar Paper,” Nora Burkard defines it as the process of dividing or splitting a broad target market into various subgroups or market segments by categorizing them according to common needs, wants, and priorities, and based on the likelihood of exhibiting similar purchase behavior.
Note that Michael Wedel and Wagner A. Kamakura, in their book “Market Segmentation: Conceptual and Methodological Foundations,” mentioned that segmentation should satisfy six criteria to include identifiability, substantiality, accessibility, stability, responsiveness, and actionability. The purpose of these criteria is not only to define a market segment but also to make sure that such remains an optimum and profitable market in which business organizations or products can make considerable profits.
Based on these definitions and explanations, it is easy to consider the fact that segmentation helps in creating focus and direction in marketing, especially in instances when a broad and all-encompassing marketing strategy seems ineffective in reaching and persuading a broad and diverse target market. These focus and direction are possible because segmentation help in defining and understanding the target market.
Some marketers go as far as considering segmentation as the bedrock of marketing and marketing strategies. Malcolm McDonald and Ian Dunbar explained that market segmentation is central not only to marketing but also to every function of a business organization. For the reason that segmentation helps in defining and understanding the target market, it thereby helps a business organization align its corporate objectives with its marketing objectives. It is also important to note that segmentation reveals important data and information not only about the market and customers but also the competitors and the competition.
Explaining Further the Importance of Market Segmentation in Marketing
Nevertheless, because the process of segmenting a broad target market helps in defining and understanding the target market, it fundamentally helps a business organization to align its marketing objectives with the needs and wants of its target consumers. It is also important to note that segmentation reveals important data and information not only about the market and customers but also the competitors and the competition.
To illustrate better the importance of market segmentation in marketing and subsequently, the importance of marketing in corporate strategies, it is better to look once again at the aforementioned examples about laptop computers.
Suppose a company specializing in manufacturing consumer electronic devices decided to enter the laptop market and thereby compete with the likes of Apple, Samsung, Microsoft, Hewlett-Packard, Toshiba, and Lenovo, among others. Given that manufacturing and technological capabilities are not factors, the company is ready to enter the market.
The importance of market segmentation comes into play by acknowledging the diversity of the entire market for laptops. Acknowledging that there are entry-level casual consumers, professional consumers, and high-performance consumers would compel the company to produce three separate lines of laptop products—each catering to the different categories of consumers based on product specifications and preferences.
Note that the segments can also guide the company in defining the price ranges for its line of laptop computers. As an example, the entry-level laptop would retail at a price that is suitable for the profile of the consumers within the entry-level market segment, as well as in consideration of the retail prices of entry-level laptops from the competitors.
It is also important to highlight the fact that the company can also focus on manufacturing laptops for the high-performance market segment, instead of catering to different market segments. Doing so would allow the company to establish its specialization. Market segmentation comes into play as part of its market research and new entrant strategy. Of course, the company can still segment the specific market for a high-performance laptop
Based on the scenario mentioned above, segmenting the target market can help in the product development strategy, defining the unique selling proposition of the particular product or its market position, the pricing strategies for the product line, determining and building competitive advantage, as well as in designing and implementing marketing promotion strategies.
Notable Real-World Examples of Market Segmentation From Selected Organizations
Exploring the Approaches of Technology Companies
A number of individuals would agree that the products from Apple are relatively expensive, especially when compared to counterpart products from its competitors. However, while it is true that the company seems to cater to high-end and luxury market segments, it is worth reiterating the fact that it takes into consideration different income levels and user-level preferences as part of its market segmentation and product development strategies.
Consider its iPhone and iPad line of smartphone and tablet devices as a collective example. Apple has a “pro” variants of the iPhone marketed as flagship devices and toward users with higher income levels. The standard variants of this device are positioned as mid-tier devices aimed toward users with a middle-income level. The same is true for the iPad. However, its “pro” variant is positioned for professional-level users while the regular or “classic” variant is marketed for entry-level users with constraints in budget.
The same is true for Samsung. However, when compared to Apple, it has a wider selection of product variants within the same product line or product category to cater to different segments within the broader target market. The Samsung Galaxy line of smartphones and tablet computers is a prime example of its approach to market segmentation.
Within the Galaxy line, the company has two major segments for the smartphone market and the tablet market. However, within these two major segments, it has more specific segments for different types of users. The Galaxy smartphone line includes a wide selection of devices for entry-level, mid-tier, and premium-level or flagship-grade consumers. The same is true for its Galaxy tablet line. These segments are evident from the wide price ranges, as well as from the different hardware and technical specifications across different devices.
Microsoft approaches segmentation based on use case categories. Note that the different release versions of its Windows operating system correspond to home-level and enterprise-level use cases. The same is true for some of its software and services such as its Microsoft Office Suite, Microsoft Teams, and Azure. Each of these products has different price tiers or subscription plans and configurations that correspond to predefined user cases.
Segmentation in Apparel and Food and Beverage Companies
Remember that there are different manners in which companies segment their broad target markets. Another prime example is Nike. Of course, the company belongs to the overall apparel industry and the more specific sportswear market. However, there are different products and product categories under these greater industry and market.
Nike primarily segments its broad target market based on demographical information such as gender and age. It has specific products for male and female consumers, as well as for children. In addition, it further segments its market based on the types of physical activity or sports its customers are into. There are specific shoes for football, basketball, tennis, skateboarding, running, and cross-training. The company also has casual products such as fashionable shoes, hoodies and sweatshirts, accessories to include caps, and bags and backpacks.
McDonald’s provides another interesting case of market segmentation. Although it caters to the overall fast-food market, part of its marketing strategy is to appeal to families and children. Hence, this is the reason why it also sells licensed toys along with its Happy Meal food bundles. To address the different preferences of its geographic markets, this fast-food giant offers specific food items unique to a particular region. McDonald’s restaurants in the Philippines offer rice meals while in Japan and other countries, it offers fast food meals inspired by Japanese cuisine.
It is also worth mentioning that The Coca-Cola Company segments its broad market based on geographical groupings. The company rolls out different promotional strategies in different countries. However, it also approaches segmentation based on unique consumer preferences as evident from its diverse product offering and brands.
Coca-Cola produces and markets sugar-formulated and non-sugar-formulated carbonated beverages such as the Regular Coke and Coke Zero, healthy non-carbonated beverages to include the Enviga green tea and Minute Maid brands, sports beverages under the Powerade brand and Burn energy drink brand, and alcoholic beverages.
In A Nutshell: The Importance of Segmenting the Target Market and its Role in Marketing
The discussions and examples mentioned above collectively illustrate the importance of market segmentation in marketing, as well as its specific roles in the overall strategy of organizations. Note that product development, positioning strategies, pricing strategy, and differentiation strategy are all concepts that fall within the principles and practices of marketing. Segmentation can guide a company on how to approach these specific marketing concepts.
Furthermore, by segmenting a broad target market into categories or subgroups based on demographics, geographical information, and psychographics, business organizations can gather insights that can help them understand further the needs and wants of their target customers, as well as their own needs and wants.
Segmentation provides these organizations with a direction. Nevertheless, its two-fold impact and influence can help a particular business find its place within a particular market characterized not only by the presence of a heterogenous or highly diverse population but also the existence of competitors and the probability of new entrants.
FURTHER READINGS AND REFERENCES
- Burkard, Nora. 2003. Market Segmentation and Branding in the Hotel Industry with Special References to Hilton Corporation: Seminar Paper. Norderstedt, Germany: Grin Verlag
- McDonald, Malcolm and Dunbar, Ian. 2012. Market Segmentation: How to Do it and How to Profit From it. NJ: John Wiley & Sons
- Wedel, Michael and Kamakura, Wagner A, 2000. Market Segmentation: Conceptual and Methodological Foundations. MA: Kluwer Academic Publishers