Thus, market segmentation means dividing the total market into different sub-markets that have similar characteristics with reference to consumers. The individual buyers within each segment are similar in terms of their wants, expectations and buying power and marketing programme will be drawn for each group in order to enhance consumer satisfaction and sales promotion. This approach of market segmentation is better as compared to the approach of treating the entire market for a product as one entity and use only one marketing mix for the market (market aggregation / mass marketing approach).

Market segmentation is a new customer-oriented philosophy and is consistent with modern marketing concept. It studies needs and expectations of different consumer groups and provides something for everybody. This promotes sales and also offers more satisfaction to buyers of that group. Here, the producer employs a 'Rifle Approach' and not the 'Shotgun Approach'. This means he pinpoints the target (customers group) and draws specific plan to meet their needs rather than fixing broad target (all customers) and preparing one general plan to meet the needs of all customers.

It is an accepted fact that markets are not homogeneous. Consumers differ in their needs and also the manner in which the needs are to be satisfied. For example, clothing is required by all consumers but all consumers do not wear the same type of clothing. The same is the case with shoes, shampoo, soap, cosmetics and so on. Naturally, manufacturers of each product have to produce different varieties as per the requirements of customers of different segments.

Definition

“Market segmentation is the process of splitting customers, or potential customers, in a market into different groups or segments within which customers share a similar level of interest in the same or comparable set of needs satisfied by a distinct marketing proposition”

“Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a market action.”

According to Philip Kotler, market segmentation means "the act of dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes."

According to William J. Stanton, "Market segmentation in the process of dividing the total heterogeneous market for a good or service into several segments. Each of which tends to be homogeneous in all significant aspects."

Need of market segmentation

The marketing concept calls for understanding customers and satisfying their needs better than the competition. But different customers have different needs, and it is rarely possible to satisfy all customers by treating them alike.

Mass marketing refers to treatment of the market as a homogenous group and offering the same marketing mix to all customers. Mass marketing allows economies of scale to be realized through mass production, mass distribution and mass communication. The drawback of mass marketing is that customer need and preferences differ and the same offering is unlikely to be viewed as optimal by all customers. If firms ignored the differing customer needs, another firm likely would enter the market with a product that serves a specific group, and the incumbent firm would lose those customers

Target marketing on the other hand recognizes the diversity of customers and does not try to please all of them with the same offering. The first step in target marketing is to identify different market segments and their needs

Advantages of market segmentation

1. Focus of the Company
Segmentation is an effective method to increase the focus of a firm on market segments. If you have better focus, obviously you will have better returns. Numerous automobile companies have started focusing on small car segments. This is nothing else but a company changing its focus for better returns. Thus companies base their strategy completely on a new segment which increases its focus and profitability.

2. Increase in competitiveness

Naturally, once your focus increases, your competitiveness in that market segment will increase. If you are focusing on youngsters, your brand recall and equity with youngsters will be very high. Your market share might increase and the chances of a new competitor entering might be low. The brand loyalty will definitely increase. Thus market segmentation also increases competitiveness of a firm from a holistic view.

3. Market expansion

Geographic segmentation is one type of segmentation where expansion is immediately possible. If you have your market strategy on the basis of geography, then once you are catering to a particular territory, you can immediately expand to a nearby territory. In the same way, if you are targeting customers based on their demography (Ex – reebok targets fitness enthusiasts) then you can expand in similar products (Ex – reebok expanding with its fitness range of clothes and accessories). Segmentation plays a crucial role in expansion. You cannot expand in a territory when you have no idea of which segment of customers you will be meeting.

4. Customer retention

By using segmentation, Customer retention can be encouraged through the life cycle of a customer. The best example of this is the Automobile and the Airlines segment. You will find major example of customer life cycle segmentation in the Hospitality segment whether they are hotels, airlines, or hospitals. In India, Titan is an example of products which are planned through the life cycle of a customer. From fast track to Sonata and the high range watches, Titan has them by price segment as well as life cycle segment. Thus a watch is available for any customer who enters a Titan showroom, whatever be his age.

5. Have better communication

One of the factors of marketing mix which is absolutely dependent on STP is Promotions or communications. The communications of a company needs to be spot on for its TARGET market. Thus if you need a target market, you need segmentation. Communication cannot be possible without knowing your target market. Imagine if you had to make someone across a curtain understand what politics is. You would go on about ruling parties, states, countries and politicians. And when the curtain is taken aside, you find that the person across the curtain is a 5 year old kid. Is there any use talking to him about politics? This shows why communication needs segmentation. If you don’t know your market segment, what is their demography, what is their psychology, where they are from, then how can you form a communication message.

6. Increases profitability

Segmentation increases competitiveness, brand recall, brand equity, customer retention, and communications. Thus if it is affecting so many factors of your business, then definitely it affects the profitability of the firm. Do you ever see people negotiating in a Nike, Gucci or BMW showrooms? You won’t. One of the USP’s of these brands is their segmentation. They are in fact targeting segments which have no need of bargaining or negotiation. Thus their profitability is high.

Buyers in any market differ in their wants, resources, locations, buying attitudes, and buying practices. Through market segmentation, companies divide large, heterogeneous market into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.

Importance of market segmentation

1. Facilitates consumer-oriented marketing

Market segmentation facilitates formation of marketing-mix which is more specific and useful for achieving marketing objectives. Segment-wise approach is better and effective as compared to integrated approach for the whole market.

2. Facilitates introduction of suitable marketing mix
Market segmentation enables a producer to understand the needs of consumers, their behavior and expectations as information is collected segment-wise in an accurate manner. Such information is purposefully usable. Decisions regarding Four Ps based on such information are always effective and beneficial to consumers and the producers.

3. Facilitates introduction of effective product strategy

Due to market segmentation, product development is compatible with consumer needs as there is effective crystallization of the specific needs of the buyers in the target market. Market segmentation facilitates the matching of products with consumer needs. This gives satisfaction to consumers and higher sales and profit to the marketing firm.

4. Facilitates the selection of promising markets

Market segmentation facilitates the identification of those sub-markets which can be served best with limited resources by the firm. A firm can concentrate efforts on most productive/ profitable segments of the total market due to segmentation technique. Thus market segmentation facilitates the selection of the most suitable market.

5. Facilitates exploitation of better marketing opportunities

Market segmentation helps to identify promising market opportunities. It helps the marketing man to distinguish one customer group from another within a given market. This enables him to decide his target market. It also enables the marketer to utilise the available marketing resources effectively as the exact target group is identified at the initial stage only.

6. Facilitates selection of proper marketing programme

Market segmentation helps the marketing man to develop his marketing mix programme on a reliable base as adequate information about the needs of consumers in the target market is available. The buyers are introduced to marketing programme which is as per their needs and expectations.

7. Provides proper direction to marketing efforts

Market segmentation is rightly described as the strategy of "dividing the markets in order to conquer them". Due to segmentation, a firm can avoid the markets which are unprofitable and irrelevant for its marketing purpose and concentrate on certain promising segments only. Thus due to market segmentation, marketing efforts are given one clear direction for achieving marketing objectives.

8. Facilitates effective advertising

Advertising media can be more effectively used because only the media that reach the segments can be employed. It makes advertising result oriented.

9. Provides special benefits to small firms

Market segmentation offers special benefits to small firms. The resources available with them are limited as they are comparatively new in the market. Such firms can select only suitable market segment and concentrate all efforts within that segment only for better marketing performance. Such firms can compete even with large firms by offering personal services to customers within the segment selected.

10. Facilitates optimum use of resources

Market segmentation facilitates efficient use of available resources. It enables a marketing firm to use its marketing resources in the most efficient manner in the selected target market. The marketing firm selects the most promising market segment and concentrates all attention on that segment only. This offers best results to the firm in terms of sale, profit and consumer support as compared to the results available from spending such resources on the total market.

In conclusion, it can be said that market segmentation offers benefits not only to marketing firms but also to customers. The marketing job will be conducted efficiently and the available resources will be utilized in a better mariner. These advantages also suggest the importance of market segmentation and make a case in its favor.

Features of Market Segmentation

• Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference.

• A market segment is a small unit within a large market comprising of like-minded individuals.

• One market segment is totally distinct from the other segment.

• A market segment comprises of individuals who think on the same lines and have similar interests.

• The individuals from the same segment respond in a similar way to the fluctuations in the market