the basis of market segmentation: a critical review of literature

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1. Introduction

Today where the world is being recognized as global village marketing has become vital ingredient for every business success. It is almost become difficult to every competitor to survive in market for a prolonged period because competition is cut to throat. Change or die is the core faith of marketing. That is why development of right marketing strategy over time is required. Right marketing Strategy is something that helps companies achieves marketing objectives. Marketing objectives help achieve corporate objectives and corporate objectives aim to achieve a competitive advantage over rival organizations. Effective marketing strategies or marketing campaigns often consist of a combination of several marketing tactics that work together in a synergistic way to establish your brand, reduce sales resistance, and create interest and desire for your product or service. Today marketing is every where, formally or informally, people and organization engage in vast number of activity that we call as marketing.But still there is one constraint before all companies that they can not connect to all customers in large, broad or diverse market Every company want to focus on customers within there capacity and with customers intimacy . For this market is to divide into groups of consumers or segments with distinct needs and wants. This strategy of dividing the market in homogenous group is known as segmentation. Even companies, who have mass marketing phenomena, are now adopting this new world’s strategy i.e. segmentation. The purpose of segmentation is the concentration of marketing energy and force on subdividing to gain a competitive advantage within the segment. It’s analogous to the military principle of concentration of force to overwhelm energy. Concentration of marketing energy is the essence of all marketing strategies and market segmentation is the conceptual tool to help in achieving this focus. The marketer must try to understand the target market’s needs, wants, and demands. Need can be described as basic human requirements. People need food, air, water, clothing, and entertainment. These needs become wants when they are directed to specific objects that might satisfy the need. An American needs food but wants hamburger, French fries and a soft drink. Wants are shaped by one’s society (Kotler, 2000). Cartwright (2002) is of the opinion that need is something that people cannot do without; a want is the method by which people would like the need to be satisfied. Demands are wants for specific products backed by an ability to pay (Kotler, 2000).Market segmentation was first put forward in the middle of 1950s by Wendell.R.Smith, an American professor of marketing. “Market segmentation is to divide a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes.” (Charles W. Lamb 2003). Segmentation is the process of dividing the market into groups of customers or consumers with similar needs. The more closely the needs match up, the smaller the segment tends to be, but the higher the premium customers are likely to be prepared to pay to have a product that more exactly meets their needs (Blythe, 2003). Segmentation allows marketers to identify distinct groups of customers whose behaviours significantly differ from others. This allows firms to adjust their marketing mix, to cater to particular needs of different market segments. Four segmentation bases have emerged as the most popular in segmentation studies (Kotler, Armstrong, Saunders, & Wong, 2002): geographic segmentation (i.e. markets segmented by geographic region, population density or climate); demographic segmentation (i.e. markets segmented by age, sex, size and family type, etc.); psychographic segmentation (i.e. markets segmented by life-style variables); and behavioural segmentation (i.e. markets segmented by purchase occasion, benefits sought, user status). The segmentation base chosen to subdivide a market will depend on many factors such as “the type of product, the nature of demand, the method of distribution, the media available for market communication, and the motivation of the buyers” (Chisnall 1985).

Segment congruence analysis usually progresses in the following manner:

  1. Traditional dimension-reducing techniques such as factor and cluster analysis are used to identify a number of segmentation bases (batteries of variables).
  2. These segmentation bases can then serve as categorical variables and a multidimensional, contingency table is formed.
  3. Various categorical data analysis tests are carried out on the multi-way table to assess the nature and extent of associations among its dimensions.
  4. A segmentation base is identified as the distinguished base and a model is developed for predicting this base from other (possibly external) variables.

The present paper highlights the definition and major basis of market segmentation. This research paper is broadly divided in to four parts. First part deals with the steps of market segmentation and its basis. Second part deals with the benefits of market segmentation. Third part includes the theoretical and empirical evidences in favor of market segmentation. Fourth and the last part discuss about the conclusion.

2. Steps in Market segmentation
According to Charles W. Lamb and Carl McDaniel (2003,), the first step in segmenting markets is to “select a market or product category for study”. It may be a market in which the firm has already occupied a new but related market or product category, or a totally new one. The second step is to “choose a basis or bases for segmenting the market”. This step requires managerial insight, creativity and market knowledge. There are no scientific procedures for selecting segmentation variables. However, a successful segmentation plan must produce market segments which meet the four basic criteria: “substantiality, identifiably, accessibility, and responsiveness”. The third step is “selecting segmentation descriptors”. After choosing one or more bases, the marketer must select the segmentation descriptors. Descriptors identify the specific segmentation variables to use. The fourth one is to “profile and analyze segments”. The analysis should include the segment’s size, expected growth, purchase frequency, current brand usage, brand loyalty, and long-term sales and profit potential. This information can then be used to rank potential market segments by profit opportunity, risk, consistency with organizational task and objectives, and other factors which are important to the company. The fifth step is to “select target markets”. This step is not a part of the segmentation process but a natural result of it. It is a major decision that affects and often directly determines the firm’s marketing mix. The last one is “designing, implementing and maintaining appropriate marketing mixes”. The marketing mix has been described as product, distribution, promotion and price strategies which are used to bring about mutually satisfying relationships with target markets.

Roger Best (1990) proposes a framework for implementing a market segmentation strategy. He suggests a set of sequential steps to be taken in a needs-based segmentation process the primary benefit of needs-based segmentation is that segments are created around specific customer needs. The goal is to determine what observable demographics and behaviors differentiate one segment from another in order to make need-based market segmentation actionable.

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