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Director & Professor in Management Studies, JNTU K, Kakianda.
e-mail: Mobile: 9618845555


Research Scholar, JNTUK, Kakinada &
Lecturer in Commerce, V.S Lakshmi Women’s College, Kakinada
e-mail: Mobile: 9248626756


Market segmentation is used as a strategic marketing tool for defining markets and

thereby allocating resources. Segmentation studies use statistical techniques called factor

analysis and cluster analysis to combine attitudinal and demographic data to develop

segments that are easier to target. In many situations it is better to identify your target groups

and aggressively market to smaller, more defined segments.

From a marketing management viewpoint, market segmentation is the act of dividing

a market into distinct groups who might be attracted to different products or services. This

technique is widely accepted as one of the requirements for successful marketing. By

dividing the market into relatively homogenous subgroups or target markets, both strategy

formulation and tactical decision making can be more effective.


There are many different kinds of people, and they display about as many different

buying patterns. That simple truth is well understood by those responsible for market

research, product development, pricing, sales, and strategy. But they haven’t been getting

much help from a venerable technique-market segmentation-which, if properly applied,

would guide companies in tailoring their product and service offerings to the groups most

likely to purchase them.

Market segmentation is the segmentation of markets into homogenous groups of

customers, each of them reacting differently to promotion, communication, pricing and other

variables of the marketing mix. Market segments should be formed in that way those
differences between buyers within each segment are as small as possible. Thus, every

segment can be addressed with an individually targeted marketing mix.1

The concept of market segmentation is pursued by the organisations when mass

marketing does not yield the desired results or when the firm aims at greater penetration in

the market. Market segmentation is considered as one of the most important approaches

available to the marketing managers. Market segmentation means dividing the heterogeneous

market in to parts (segments) in such a way that each segment is homogeneous in all

significant characteristics. Thus heterogeneity is the first condition to pursue segmentation of

the market.2

The term “market segmentation” refers to subdividing a market along some

commonality, similarity, or kinship. That is, the members of a market segment share

something in common. The purpose of segmentation is the concentration of marketing energy

and force on the subdivision (or the market segment) to gain a competitive advantage within

the segment. It’s analogous to the military principle of “concentration of force” to overwhelm

an enemy.3

When it comes to marketing strategies, most people spontaneously think about the 4P

(Product, Price, Place, Promotion) – may be extended by three more Ps for marketing

services (People, Processes, Physical Evidence). Market segmentation and the identification

of target markets, however, are an important element of each marketing strategy. They are the

basis for determining any particular marketing mix.4

Steps in Segmentation Procedure

Danier Yankelovic and Davidmeer, Rediscovering market segmentation,http:/
K Rama Mohana Rao, Services Marketing, Pearson Education, New Delhi.
Jerry W. Thomas, Market Segmentation,,06/08/2010
Dagmar Recklies,,06/08/2010
Roger Best proposed the seven-step approach. The seven steps are presented in Figure 1.

Need based segmentation

Segment identification

Segment attractiveness

Segment Profitability

Segment Positioning

Segment ‘Acid Test’

Marketing Mix Strategy

Figure 1: Segmentation Procedure

1. Need – based segmentation: Here, marketer has to group the customers in to segments

based on similar needs & benefits sought by the customers. The customer segment

performs a need to solve a particular consumption problem.

2. Segment Identification: For each need based segment we can determine the

demographics, life styles usage behaviour etc. by which a segment can be distinct enough

and identifiable.

3. Segment attractiveness: Segment attractiveness is identified on the basis of market

growth, competitive intensity and market access etc.

4. Segment profitability: In each segment based on the market potential we have to

determine the profitability of the market segment.

5. Segment positioning: For each segment marketer has to create a value position and price

positioning strategy. These are based on segments (or) customer unique needs and

6. Segment ‘Acid test’: In this step market has to create segment story boards to test the

attractiveness of each segments positioning strategy whether it perfectly match with the

customer needs (or) wants.

7. Segment marketing mix strategy: Here marketer has to expand positioning strategy to

include all aspects of the marketing mix i.e., Product, Price, Place and Promotion.

Criteria for Market Segmentation

There are a huge number of variables that could be used for market segmentation in

theory. They comprise easy to determine demographic factors as well as variables on user

behavior or customer preferences. In addition, there are differences between private

customers and businesses. Table 1 shows the most important traditional variables for


Geographic Segmentation

This is perhaps the most common form of market segmentation, wherein companies

segment the market by attacking a restricted geographic area. For example, corporations may

choose to market their brands in certain countries, but not in others. A brand could be sold

only in one market, one state, or one region of the India. Many restaurant chains focus on a

limited geographic area to achieve concentration of force. Regional differences in consumer

preferences exist, and this often provides a basis for geographic specialization. For example,

a company might choose to market its redeye gravy only in the southeastern India.

Geographic segmentation can take many forms (urban versus rural, north versus south,

seacoasts versus interior, warm areas versus cold, high-humidity areas versus dry areas, high-

elevation versus low-elevation areas, and so on). These examples also reveal that geographic

segmentation is sometimes a surrogate for (or a means to) other types of segmentation.

Demographic Segmentation

Demography means study of Population. Gender, age, income, housing type, and

education level are common demographic variables. Some brands are targeted only to
women, others only to men. Music downloads tend to be targeted to the young, while hearing

aids are targeted to the elderly. Education levels often define market segments. For instance,

private elementary schools might define their target market as highly educated households

containing women of childbearing age. Demographic segmentation almost always plays some

role in a segmentation strategy.

Table 1: The market segmentation variables

Region North, East, South, West, North-East, North-West, South-East,
South-West States and Union Territories.
City Towns, Cities, Metropolitan cities
Density Urban, Semi-urban and Rural
Climate Northern, Southern, North-Eastern, North-Western

Age Under 5, 6-10, 11-16, 17-25, 26-35, 36-45, 46-55, 56-65, 66+
Family size 1, 2, 3, 4, 5, 6+
Family life cycle Young, Single: Young, married, no children. Young, married,
youngest child under 6. Young, married, youngest child 6 or over.
Married with children. Older, married, no children under 18. Older
singles. Others.
Gender Male/Female
Income Below Rs.10,000, Rs.10,000 – Rs.20,000, Rs.20,000 – Rs.30,000,
Rs.30,000 – Rs.50,000, Rs.50,000 – Rs.1,00,000, Rs.1,00,000 and
Occupation Employees, Businessmen, Agriculturists, Professionals etc.
Education Primary, Secondary, Under-graduate, Graduate, Post Graduate
Religion Hindu, Muslim, Christian, Sikh, Jain, Buddhist and so on.
Social class Lower Lower, Lower Middle, Lower Upper; Middle Lower, Middle
Middle, Middle Upper, Upper Lower, Upper Middle, Upper Upper.
Lifestyle Principle-oriented, status-oriented, action-oriented
Personality Dogmatic, inner directed, social oriented, variety seeker, materialistic

Occasions Regular, special
Benefits Quality, economy, speed
User status Non-user, ex-user, potential user, first time user, regular user
Usage rate Light user, medium user, heavy user
Loyalty status None, medium, strong, absolute
Readiness stage Unaware, aware, informed, interested, desirous, intending to buy
Attitude Enthusiastic, positive, indifferent, negative, hostile.
Source: K Rama Mohana Rao, Services Marketing, Pearson Education, New Delhi

Psychographic or Lifestyle Segmentation

Under this approach, buyers are divided into different groups based on the life style,

personality and values. Many a time, the customers belonging to the same geographic and
demographic group may exhibit different psychographic profiles. The service providers shall

have to develop the sound data base on psychographics of the market, to make the service

offer more focused.

One of the most popular commercially available classification system based on

psychographic measurements is SRI consulting Business Intelligence’s (SRIC-BI) VALS

frame work. BVALS classifies US adults in to eight primary groups based on personality

traits and key demographics. The segmentation system is based upon responses to a

questionnaire featuring 4 demographic and 35 attitudinal questions. The VALS system is

continually updated with new data from more than 80,000 surveys per year. Figure 2

presents the VALS system.

Figure 2: VALS Network


The major tendencies of the four groups with higher resources are:
1) Innovators: Successful, sophisticated, active, “take-charge” people with high self-

esteem. Purchases often reflect cultivated tastes for relatively upscale, niche oriented

products and services.

2) Thinkers: Mature, satisfied and reflective people who are motivated by ideals and

value order, knowledge, and responsibility.

3) Achievers: Successful goal-oriented people who focus on career and family. Favour

minimum products that demonstrate success to their peers.

4) Experiences: Young, enthusiastic, impulsive people who seek variety and

excitement. Spend a comparatively high proportion of income on fashion,

entertainment and socializing.

The major tendencies of the four groups with lower resources are:

1) Believers: Conservative, conventional and traditional people with concrete beliefs.

Favor familiar, American products and are loyal to established brands.

2) Strivers: Trendy and fun-loving people who are resource constrained. Favor stylish

products that emulate the purchases of those with greater material wealth.

3) Makers: Practical, down-to-each, self-sufficient people who like to work with their

hands. Favor American-made products with a practical or functional purpose.

4) Survivors: Elderly, passive people who are concerned about change. Loyal to their

favorite brands.

Behavioural Segmentation
Consumers are divided into groups based on their knowledge, attitude, use or

response to a service offer under behavioural segmentation. Behavioural variables such as

occasions, benefits, user status, usage rate, loyalty status, buyer readiness stage and attitudes

are considered the most important for the service organisation to divide markets into various


Distribution Segmentation

Different markets can be reached through different channels of distribution. For

example, a company might segment the “tick and flea collar” market by selling the product to

supermarkets under one brand name, to mass merchandisers under another brand, to pet

stores under another brand name, and to veterinarians under yet another brand name. This
type of distributional segmentation is common, especially among small companies that grant

each channel a unique brand to gain distribution within that channel.

Media Segmentation

While not common, media segmentation is sometimes a possibility. It is based on the

fact that different media tend to reach different audiences. If a brand pours its entire budget

into one media, it can possibly dominate the segment of the market that listens to that radio

station or reads that magazine. Media segmentation is most often practiced by companies that

have some control over the media and can somehow discourage competitors from using that


Price Segmentation

Price segmentation is common and widely practiced. Variation in household incomes

creates an opportunity for segmenting some markets along a price dimension. If personal

incomes range from low to high, the reasoning goes, and then a company should offer some

cheap products, some medium-priced ones, and some expensive ones. This type of price

segmentation is well illustrated by the range of automotive brands marketed by General

Motors historically.

Time Segmentation

Time segmentation is less common but can be highly effective. Some stores stay open

later than others, or stay open on weekends. Some products are sold only at certain times of

the year (e.g., Christmas cards, turkeys, fireworks, cranberry sauce). Chili is marketed more

aggressively in the fall, with the onset of cooler weather. Football is played in the fall,

basketball in the winter and spring, and baseball in the spring and summer (or at least this

used to be the pattern). The Olympics come along every two years. Department stores

sometimes schedule midnight promotional events. The time dimension can be an interesting

basis for segmentation. In addition to the foregoing, markets can be segmented by hobbies,

by political affiliation, by religion, by special interest groups, by sports team loyalties, by

universities attended, and hundreds of other variables.

Kotler mentioned five criteria for an effective segmentation:

• Measurable: It has to be possible to determine the values of the variables used for

segmentation with justifiable efforts. This is important especially for demographic

and geographic variables. For an organization with direct sales (without

intermediaries), the own customer database could deliver valuable information on

buying behavior (frequency, volume, product groups, mode of payment etc).

• Relevant: The size and profit potential of a market segment have to be large enough

to economically justify separate marketing activities for this segment.

• Accessible: The segment has to be accessible and servable for the organization. That

means, for instance, that there are target-group specific advertising media, as

magazines or websites the target audience likes to use.

• Distinguishable: The market segments have to be that diverse that they show

different reactions to different marketing mixes.

• Feasible: It has to be possible to approach each segment with a particular marketing

program and to draw advantages from that.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be

evaluated against the following criteria:

• Identifiable: The differentiating attributes of the segments must be measurable so that

they can be identified.

• Accessible: The segments must be reachable through communication and distribution


• Substantial: The segments should be sufficiently large to justify the resources

required to target them.

• Unique needs: To justify separate offerings, the segments must respond differently to

the different marketing mixes.

• Durable: The segments should be relatively stable to minimize the cost of frequent


Reasons for Market Segmentation

Segmentation is the basis for developing targeted and effective marketing plans.

Furthermore, analysis of market segments enables decisions about intensity of marketing

activities in particular segments. A segment-orientated marketing approach generally offers a

range of advantages for both, businesses and customers.

Better serving customer needs and wants: It is possible to satisfy a variety of customer needs

with a limited product range by using different forms, bundles, incentives and promotional

activities. The computer manufacturer Dell, for instance, does not organize its website by

product groups (desktops, notebooks, servers, printers etc), but by customer groups (privates,

small businesses, large businesses, public/state organizations). They offer the same products

to all customer groups. Nevertheless, they suggest product bundles and supporting services

that are individually tailored for the needs of each particular group.

Higher Profits: It is often difficult to increase prices for the whole market. Nevertheless, it is

possible to develop premium segments in which customers accept a higher price level. Such

segments could be distinguished from the mass market by features like additional services,

exclusive points of sale, product variations and the like. A typical segment-based price

variation is by region. The generally higher price level in big cities is evidence for this.

Opportunities for growth: Targeted marketing plans for particular segments allow to

individually approach customer groups that otherwise would look out for specialized niche

players. By segmenting markets, organizations can create their own ‘niche products’ and thus

attract additional customer groups.

Sustainable customer relationships in all phases of customer life cycle: Customers change

their preferences and patterns of behavior over time. Organizations that serve different

segments along a customer’s life cycle can guide their customers from stage to stage by

always offering them a special solution for their particular needs.

For example, many car manufacturers offer a product range that caters for the needs

of all phases of a customer life cycle: first car for early twins, fun-car for young

professionals, family car for young families, etc. Skin care cosmetics brands often offer

special series for babies, teens, normal skin, and elder skin.

Targeted communication: It is necessary to communicate in a segment-specific way even if

product features and brand identity are identical in all market segments. Such a targeted

communications allows stressing those criteria that are most relevant for each particular

segment (e.g. price vs. reliability vs. prestige).

Stimulating Innovation: An undifferentiated marketing strategy that targets at all customers

in the total market necessarily reduces customers’ preferences to the smallest common basis.

Segmentations provide information about smaller units in the total market that share

particular needs. Only the identification of these needs enables a planned development of new

or improved products that better meet the wishes of these customer groups. If a product meets

and exceeds a customer’s expectations by adding superior value, the customers normally is

willing to pay a higher price for that product. Thus, profit margins and profitability of the

innovating organizations increase.

Higher Market Shares: In contrast to an undifferentiated marketing strategy, segmentation

supports the development of niche strategies. Thus marketing activities can be targeted at

highly attractive market segments in the beginning. Market leadership in selected segments

improves the competitive position of the whole organization in its relationship with suppliers,

channel partners and customers. It strengthens the brand and ensures profitability. On that

basis, organizations have better chances to increase their market shares in the overall market.6

Procedure for Market Segmentation

Philip Kotler suggested a three step procedure for identifying market segments. They are,

Dagmar Recklies,,06/08/2010
• Survey
• Analysis
• Profiling

The first step in market segmentation is to conduct a survey by using exploratory

interviews and focus groups to have greater insights into motivations, attitudes and

behaviour of consumers. The consumer opinion on the attributes of the service package, the

ratings of importance, brand awareness and ratings, attitudes, demographics,

psychographics, Geographic’s, media graphics can be collected to have a sound base for

segmentation. The second step is analysis. The data collected through survey will be

analysed by using statistical techniques like co-relation, regression, factor analysis, cluster

analysis to identify the specific number of the differentiable segments. The third step is

profiling. Each segment identified at the second stage will be given a name based on its

dominant characteristics like active home guarding, self-sufficient, socially active, passive

homebody, sports enthusiasts, etc. Each segments full details relating to attitudes, behaviour,

demographics, psychographics and media patterns will be studied.


The concept of market segmentation is sound. It’s way to apply greater marketing

energy or force to a subset of the market. Market segmentation must be redone periodically

taking into consideration the changes that take place in the market environment. Every

marketer should observe the market conditions and select appropriate market segmentation