WHAT IS MARKET SEGMENTATION AND WHAT DOES IT INCLUDE?!

Welcome back everyone to my marketing blog. Today we are going to be talking about market segmentation and what is needed to successfully market to consumers. Before reading this chapter I had absolutely no ideas as to what was included in market segmentation; so i assume that you have no background on this topic either. We are going to change that; after reading this blog you will have a clear definition of what market segmentation is and what is included in the process.

Lets begin with defining market segmentation. 

                   MARKET SEGMENTATION: The process of grouping prospective buyers into two groups; 1) that have common needs and 2) will respond similarly to a marketing action. 

MARKET SEGMENTS: A market segment is the group of prospective buyers that result from the market segmentation process. In each specific market segment it contains people who are similar to one another in terms of consumption behavior. 

As in every other marketing topic there is a 5 step process. This 5 step process helps one to segment a a market and select a prospective target market. 

I am going to go through the five steps with you to help you understand how the process actually works!

STEP 1: Group potential buyers into segments 

First of all you needs to make sure that segmenting your market is the way that you want to go. Some times segmenting your market is not the best thing to do; but if you do decide to do so there are a few criteria to use in forming your segment.

CRITERIA FOR FORMING SEGMENTS:

1) Simplicity and cost effectiveness of assigning potential buyers to segments: The manger must be able to put the plan into effect. 

2) Potential for increase profit: You want to go with the plan that is going to give you the best return on investment as well as maximizing profits

3) Similarity of  needs of potential buyers within a segment: The people in each segment need to have similar needs

4) Difference of needs of buyers among segments : If the needs of your segments are not extremely different then you are going to want to combine them into one segment. the more segments that you have the greater your cost is going to be.  

5) Potential of a marketing action to reach a segment.: You have to have an effective marketing plan.

Now that we have the criteria outlined to form the segments there are four ways to segment consumer markets: those being 

• Geographical segmentation: Based on where prospective customers live or where they work 
• Region
• City size
• Statistical area 
• Density
  
• Demographic segmentation: Based on some objective physical( gender, race) or measurable(age, income)

• Gender
• Age 
• Race/ethnicity
• Household size 
• Income 
• Education                                                                                                                                                                                                                                                                                                                                                                            
• Psychographic segmentation: Based on some subjective mental or emotional attributes, 

• Personality 
• Values 
• Lifestyles
• Needs
  
  
  
• Behavioral segmentation: Based on some observable actions or attitudes. 

•  Retail store type 
• Direct marketing 
• Product features 
• User status 

All of these different forms of forming segments are very crucial when it comes to figuring out the market in which you are going to target. If you were to not go through this process and segment based on these criteria you would not be a successful company.

STEP 2: Group products to be sold in categories

In this step you want to do exactly what it says. lets take Wendy's for example they sell many different product ranging from your classic hamburgers, fries, frosty' s and more but the main goal for Wendy's is they want to be able to sell these products as meals. There are two ways that this can be addressed; Individual products vs. grouping of products.

Individual products: There are many different products that are sold by Wendy's but each product is not equally targeted to all market segments; it all depends on gender, needs and much more. Someone may come in wanting a hamburger where as someone else may come in wanting chicken nuggets. The purchase that one single product. 

Grouping of products: This is very self explanatory as well; it is finding a mean of grouping the products a business sells into meaningful categories so that customers are going to want to purchase them. If they see that they can get a meal containing a hamburger fries and a drink all in one they are going to purchase that. 

STEP 3: Develop a market product grid 

and estimate the size of markets:

lets begin with defining a MARKET PRODUCT GRID: This is a framework that is used to relate the market segments of potential buyers to products offered or potential marketing actions by an organization.

• when looking at the grid each cell shows the estimated market size for a current product
• Horizontal rows: identifying and labeling the market in which you wish to get into
• Vertical rows: the product groupings 

Now that you have your grid you can estimate your market size; for the grid i have above you can figure out the estimated sales for each kind of meal that Wendy's offers. 

• A (3) represents a large market where as a (0) represents no market at all. 

STEP 4: Select target market 

This is one of the most important steps seeming that without a target market your business is not going to be successful. A firm needs to choose their market very carefully. They need to make sure not to choose a market that is too narrow; because once again they will not be successful. Also when looking in the other direction if you pick a market that is too broad you are not going to be able to satisfy all the customers and you are going to loose sales and profits. 

lets look at some criteria when selecting a target segment. There are  2 kinds of criteria in the market segmentation process, those being 

                                          1) divide the market into segments 

                                                            2) actually pick the target segment  

Under these two ways of selecting a segment that are 5 criteria that can be used to select the target segment

• Market size: The size of the market in the segment is an important factor to consider when you are deciding whether it is worth going through with or not.

• Expected growth: If the size of the market that you choose is small; it may be expected to grow in the future or it is growing as we speak. 

• Competitive position: Looking at if these is a lot of competition in the segment or if there is going to be some competition that is expected to come into the segment 

• Cost of reaching the segment: A firm should not go for a market segment that is inaccessible for the marketing plan.

• Compatibility with the organizations objectives and resources: Take Wendy's for example. if they do not have the equipment to make breakfast then they should not go out of their way and try and reach the breakfast segment. 

STEP 5: Take marketing actions to reach Target Market:

Now that you have created your market product grid you can now take action to increase your sales and profits. There has to be some in charge of executing the plan as well as someone keeping an eye on the businesses that are similar. 

Keep an eye on the competition: The other companies are not just sitting still they are doing exactly what you are; trying to better their company. So you have to be aware of what they are doing as well. For example for Wendy's they have to keep an eye on what McDonald's is doing as well as what Burger King is doing.

This concludes the five steps of the process that is used to target and segment markets. This process can be very successful if it is done correctly but if not done correctly then it can hurt a business in the long run. You need to make sure that each step is done in depth and also that is done to the best ability of the employees of the company.

Lets Recap the 5 steps:

1) Group potential buyers into segment 

2) Group products to be sold into categories 

3) Develop a market product grid and estimate the size of markets 

4) select target markets

5) Take marketing action to reach target markets

Now that you understand what the process is you can implement it in your own business or you can assist others when they are working to segmenting and target markets.

I have given you all a video to watch if things are still a little fuzzy in your minds. Just click on the link and enjoy!

http://education-portal.com/academy/lesson/market-segmentation-why-market-segments-are-important-to-marketers.html#lesson

I hope you guys enjoyed learning about this topic and by now your marketing knowledge should be very deep!!

Until next time!

         Alexis 

Resources used:

Kerin, Roger A., and Steven William Hartley. Marketing. 11th ed. New York, NY: McGraw-Hill/Irwin, 2013. Print.