Levels and Patterns of Market Segmentation

What is Market Segmentation?

Market Segmentation is the process of dividing a broad target market into smaller, more homogeneous segments based on certain characteristics or variables. It involves identifying distinct groups of customers who share similar needs, preferences, behaviours, or other relevant attributes. The purpose of market segmentation is to enable businesses to develop more targeted marketing strategies and effectively meet the diverse needs of different customer segments. Market segmentation recognises that not all customers are the same and that a one-size-fits-all approach may not be the most effective way to reach and engage with customers. By segmenting the market, businesses can tailor their marketing efforts to specific groups, allowing for more precise messaging, product positioning, and customer communication.

“Market Segmentation is the sub-dividing of market into homogeneous subsets of customers, where any subset may conceivably be selected as a market target to be reaached with a distinct marketing mix.” – Philip Kotler

“Market Segments are grouping of customers according to such characteristics as income, age, degree of urbanisation, rare of ethic classification, geographic location or edcation.” – Cundiff & Still

Some key aspects of market segmentation are

i) Demographics: Segmenting the market based on demographic variables such as age, gender, income, education, occupation, marital status, and geographic location. This helps identify groups with similar demographic profiles that may exhibit common needs or buying behaviours.

ii) Psychographics: Segmenting based on psychographic variables, which include attitude, values, interests, personality traits, lifestyle, and opinion. This approach goes beyond demographic characteristics to understand the psychological and behavioural aspects that influence consumers’ decisions.

iii) Behavioural: Segmenting based on consumer behaviour, such as usage pattern, brand loyalty, buying frequency, benefits sought, and product usage occasions. This helps identify distinct segments based on how customers interact with products or services.

iv) Geographics: Segmenting the market based on geographic variables such as culture, language, climate, and population density. This approach helps in grouping the customers based on where they live and where they go for shopping. 

v) Needs and Benefits: Segmenting based on specific needs or desired benefits that customers seek from a product or service. By understanding the unique needs of different segments, businesses can tailor their offerings to better meet those needs.

vi) B2B Market Segmentation: Market segmentation is not limited to consumer markets. It is also applicable in business-to-business (B2B) contexts, where companies can segment the market based on factors such as industry, company size, location, buying behaviour, and purchasing criteria.

Once market segments are identified, businesses can develop targeted marketing strategies for each segment. This may involve customising product features, creating personalised messaging, selecting appropriate distribution channels, and designing tailored promotional campaigns. By focusing on specific customer segments, businesses can increase their competitiveness, enhance customer satisfaction, and improve overall marketing effectiveness.

Levels of Market Segmentation

Levels of market segmentation refer to different approaches and strategies that businesses can employ to target specific customer segments. The four levels of market segmentation are as follows:

1. Segment Marketing: This level of segmentation involves dividing the market into distinct groups or segments based on common characteristics such as demographics, psychographics, or behavioural traits. Businesses then develop tailored marketing strategies and offerings to target each segment separately. For example, a clothing retailer might target different segments based on age groups (e.g., children, teenagers, adults) and offer specific clothing lines and promotions for each segment.

2. Niche Marketing: Niche marketing involves targeting a small and well-defined subset of the market that has specialised needs or preferences. Instead of catering to a broad segment, businesses focus on serving a niche market with unique products, services, or expertise. For instance, a company specialising in organic and gluten-free snacks may target health-conscious individuals with specific dietary requirements.

3. Local Marketing: Local marketing aims to target customers in a specific geographic area or locality. Businesses customise their marketing efforts to suit the preferences and characteristics of the local market. This approach recognises that consumer behaviour and needs can vary across different regions or communities. An example would be a restaurant running location-specific promotions or sponsoring local events to attract customers in a particular neighbourhood.

4. Individual Marketing: Also known as one-to-one marketing or personalised marketing, this level of segmentation involves tailoring products, services, and marketing messages to individual customers based on their unique preferences, behaviour, and characteristics. Advances in technology and data analytics have made individual marketing more feasible, allowing businesses to deliver highly customised experiences and recommendations. For instance, e-commerce platforms may use customer browsing and purchase history to provide personalised product recommendations.

Patterns of Market Segmentation

Patterns of market segmentation refer to different ways in which customer preferences and behaviours are distributed within a market. The three common patterns of market segmentation are as follows:

1. Homogeneous Preferences: In this pattern, customers within the market exhibit similar preferences and behaviours. They have a high degree of similarity in terms of their needs, preferences, and purchase behaviours. As a result, businesses can develop standardised marketing strategies and offerings that cater to the common preferences of this homogeneous segment. For example, a basic commodity like table salt typically exhibits homogeneous preferences as most consumers have similar needs and preferences for this product.

2. Diffused Preferences: Diffused preferences occur when customers in the market have diverse and varied preferences. There is no clear clustering or distinct pattern of preferences within the market. Customers may have different needs, preferences, or behaviours, making it challenging for businesses to identify specific segments or develop targeted marketing strategies. In such cases, businesses may opt for a more general marketing approach that aims to appeal to a broader range of customer preferences. For example, certain fashion trends may have diffused preferences where consumers have varied opinions and preferences.

3. Clustered Preferences: Clustered preferences refer to a pattern where customers within the market can be grouped into distinct clusters or segments based on their similar preferences and behaviours. Each cluster exhibits a different set of preferences and requires a tailored marketing approach. This pattern allows businesses to identify and target specific segments with customised marketing strategies and offerings. For example, in the automobile industry, different customer segments may have clustered preferences based on factors like price range, vehicle type, or fuel efficiency.