Market segmentation is the practice of dividing a population into segments based on a variety of factors. These segments can then be targeted more specifically in terms of research and resulting marketing strategies. Benefits include being able to better satisfy wants and needs when focusing on a smaller population with similar characteristics but drawbacks include missing out on potential markets.

Demographic segmentation is the practice of dividing a target market into distinct groups based on observable characteristics such as age, gender, income, family structure or body type.

An example of segmenting by body type is at Lululemon, an athletic apparel brand originating from Canada. In Asian markets, they have launched the ‘Asian fit’, where the sizing is tailored to meet local preferences and body types.

Geographic Segmentation is the practice of dividing the population into segments based on the characteristics of the location where people live such as country, city or area people live in, the climate in that area, population densities and local cultures. 

An example of segmenting by local cultures is McDonalds, a global fast food brand. They sell different products in different parts of the world based on local preferences such as the McAloo Tikki burger in India, the teriyaki McBurger in Japan, the Picanha burger in Brazil and poutine in Canada.

Psychographic segmentation is the practice of dividing a target market into distinct groups based on psychological characteristics, such as their values, beliefs, interests, lifestyles, and personality traits.

An example of segmenting by lifestyle is Red Bull, an energy drink brand. They target people who enjoy adventure and extreme sports with their advertising themes and sponsorship of sports events such as cliff diving.

Behavioral Segmentation is the practice of dividing the population into segments based on  behaviours, actions, and interactions with a brand or product. This includes how often they buy the product, their purchasing patterns, how often they use the product, loyalty status, when they make purchases and what their priorities are in terms of product benefits (e.g. price or quality). 

An example of segmenting by usage is Netflix, a video streaming platform. Gathering data on the shows they watch, how often they watch, how long for and what time of day or week are most popular allows them to make recommendations tailored to their behaviour increasing further engagement.

Benefits and Drawbacks of Segmentation

Benefits of Segmentation

Clarity in market research: Grouping consumers by their characteristics helps generate more clarity in market research results. This leads to a better understanding of each group, enabling more targeted marketing strategies that effectively address their specific needs.

Customer Satisfaction: Understanding the wants and needs of target groups helps companies innovate effectively. This increases the chances of creating popular products and services and more engaging promotion, leading to higher customer satisfaction and loyalty.

Identifying potential markets: Firms can use market segmentation to uncover niche markets or markets where there are needs not being met by existing brands. This can open up opportunities for growth.

Efficient resource allocation: Segmentation helps companies identify which groups are most profitable. By concentrating on these profitable segments, businesses can invest more resources where they’ll get better returns and cut back on less profitable areas.

Drawbacks of Segmentation

Limited market size: Focusing on specific market segments instead of the entire market means a business reaches fewer customers with each product. This limits potential sales and, consequently, the revenue the business can earn.

Lack of economies of scale: Making different products for various market segments lowers the number produced of each item. This means businesses miss out on economies of scale, such as negotiating better prices with suppliers when buying raw materials in bulk.

Risk of segment reliance: If a business depends too much on one market segment, it risks losing all its customers if market conditions change or consumer preferences shift.

Increased complexity: Marketing to multiple segments with different products and strategies adds complexity. This requires more resources for research, promotion, and distribution, which can lead to misunderstandings about customer needs.

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