Chapter-3
Market Segmentation
Meaning
Market segmentation is the process of dividing a broad consumer or business market
into smaller, more manageable groups of consumers or businesses with similar
characteristics, needs, preferences, or behaviours. These groups are called market
segments. The goal of market segmentation is to tailor marketing efforts to meet the
specific needs of each segment effectively and efficiently, thereby achieving better
customer satisfaction and higher profitability.
Bases of Market Segmentation
1. Geographic Segmentation
o Explanation: Consumers in different geographic areas often have varied
preferences, needs, and consumption patterns based on environmental,
cultural, and economic factors. Geographic segmentation addresses these
differences.
o Factors:
▪ Climate: Selling snow gear in cold regions versus light clothing in
tropical areas.
▪ Urban vs. Rural: Urban areas might demand high-tech gadgets, while
rural areas might focus on basic necessities.
▪ Population Density: Crowded cities might require smaller packaging
for convenience, while suburban areas might favor bulk packages.
o Example: A beverage company might market iced teas in hotter climates
while promoting hot beverages in colder regions.
2. Demographic Segmentation
o Explanation: Demographics are quantifiable characteristics of a population
and are the most widely used basis for segmentation because they are easy to
measure.
o Factors:
▪ Age: Different age groups have unique preferences (e.g., toys for
children, anti-aging products for older adults).
▪ Gender: Products can be gender-specific, like cosmetics for women or
shaving razors for men.
▪ Income: Higher-income groups may prefer luxury goods, while
middle-income groups might opt for value-for-money products.
▪ Education and Occupation: Highly educated individuals may prefer
detailed product information, while working professionals may value
convenience.
▪ Family Size and Lifecycle: Marketing baby products to families with
infants or retirement plans to older adults.
o Example: A car company offering economy models for young professionals
and luxury models for high-income individuals.
3. Psychographic Segmentation
o Explanation: Psychographics delve into the psychological aspects of
consumer behavior, understanding their values, attitudes, interests, and
lifestyles. This segmentation helps businesses connect emotionally with their
target audience.
o Factors:
▪ Lifestyle: People leading a fitness-focused lifestyle might prefer health
foods and gym memberships.
▪ Social Class: Upper-class consumers may seek premium or exclusive
products, while middle-class consumers might look for affordability.
▪ Personality Traits: Adventurous individuals might be drawn to off-
road vehicles, while introverted ones might prefer personal hobbies
like reading.
o Example: A travel company offering luxury cruises to high-end customers
and adventure packages to thrill-seekers.
4. Behavioral Segmentation
o Explanation: This segmentation is based on how customers interact with a
product or service. It focuses on usage patterns, loyalty, and decision-making
behaviors.
o Factors:
▪ Purchase Behavior: First-time buyers might need detailed
information, while repeat buyers may respond to loyalty rewards.
▪ Usage Rate: Heavy users could benefit from bulk discounts, while
light users might need smaller packaging.
▪ Loyalty: Loyal customers can be targeted with special perks, while
competitors’ customers might require aggressive marketing offers to
switch.
▪ Occasion-Based Usage: Products marketed for special events like
birthdays, holidays, or anniversaries.
o Example: An airline offering loyalty programs for frequent flyers and
promotional discounts for new travelers.
5. Benefit Segmentation
o Explanation: Consumers buy products for the specific benefits they offer.
Benefit segmentation groups consumers based on the primary value they seek
from a product.
o Example:
▪ A toothpaste brand could offer multiple variants for whitening,
sensitivity relief, or cavity protection, targeting distinct benefit-seeking
segments.
6. Occasion-Based Segmentation
o Explanation: This segmentation is specific to events or occasions when
products or services are in demand.
o Factors:
▪ Regular Occasions: Daily coffee consumption.
▪ Special Occasions: Festivals, weddings, and holidays.
▪ Situational Needs: Buying umbrellas during the rainy season or warm
clothes for winter.
o Example: Greeting card companies creating special campaigns for Mother’s
Day or New Year’s.
Requisites of Sound Market Segmentation
1. Measurable
o Explanation: The market segment's size, purchasing power, and preferences
should be quantifiable so that the business can plan and allocate resources
effectively.
o Example: A company analyzing the percentage of tech-savvy individuals in a
city before launching a smartphone app.
2. Substantial
o Explanation: The segment should be large enough to ensure profitable
returns. A very small niche market may not justify the marketing investment
unless the margins are exceptionally high.
o Example: A luxury yacht company targeting high-net-worth individuals
globally rather than in just one small country.
3. Accessible
o Explanation: The company must have the means to reach and serve the
segment effectively through distribution, communication, and promotion
channels.
o Example: A rural-focused product like solar lanterns should have a
distribution network capable of reaching remote areas.
4. Differentiable
o Explanation: Segments should have distinct characteristics so that they
respond differently to marketing strategies.
o Example: Marketing organic food to health-conscious consumers versus fast
food to younger, convenience-driven consumers.
5. Actionable
o Explanation: The organization must have the capacity (financial,
technological, and operational) to develop and implement effective strategies
for the targeted segment.
o Example: A small startup might focus on a single niche market instead of
trying to serve multiple segments.
6. Stable
o Explanation: The segment should remain relatively consistent over time,
allowing the company to plan for long-term strategies.
o Example: A tech gadget company targeting young professionals should
ensure their preferences don’t shift too frequently.
Consumer Behaviour
Meaning
Consumer behaviour refers to the actions, decisions, and thought processes involved when
individuals or groups select, purchase, use, or dispose of goods, services, ideas, or
experiences to satisfy their needs and desires. It encompasses everything from the initial
recognition of a need to the post-purchase evaluation.
Understanding consumer behaviour helps marketers design effective strategies to influence
customers and meet their needs better.
Factors Influencing Consumer Behaviour
Consumer behaviour is influenced by various factors that can be broadly categorized into
cultural, social, personal, and psychological influences.
1. Cultural Factors
Cultural factors include the values, beliefs, and norms shared by a group of people that
influence their buying behaviour. These factors are usually the most significant determinants.
• Culture:
o A society's culture shapes individuals' perceptions, preferences, and
behaviours.
o Example: In some cultures, gold jewellery is a sign of wealth and status,
driving demand for it.
• Subculture:
o Subcultures such as religion, ethnicity, or geographic regions further influence
behaviour.
o Example: Vegetarianism in some religious groups impacts food consumption
patterns.
• Social Class:
o Defined by factors like income, occupation, education, and lifestyle.
o Example: High-income groups may prefer luxury brands, while middle-class
groups look for affordable value.
2. Social Factors
These involve influences from family, friends, and society at large.
• Family:
o Family members significantly influence purchasing decisions.
o Example: Parents deciding which brand of cereal to buy based on their
children’s preferences.
• Roles and Status:
o An individual’s role in society (e.g., parent, student, executive) determines
their buying choices.
o Example: An executive may prefer formal attire, while a student may favor
casual clothing.
• Reference Groups:
o Groups that individuals look up to for opinions or comparisons, such as
friends, celebrities, or colleagues.
o Example: Teens influenced by their peer group might prefer certain fashion
brands.
3. Personal Factors
These are specific to the individual and can include demographic and lifestyle attributes.
• Age and Life Cycle Stage:
o Preferences change as people move through different stages of life.
o Example: Young adults may prefer trendy gadgets, while seniors might
prioritize functionality.
• Occupation:
o A person’s profession often dictates their needs and choices.
o Example: Office workers may need laptops, while construction workers may
require safety gear.
• Income:
o Higher income typically increases spending capacity and demand for luxury
goods.
o Example: A high-income individual may opt for a premium smartphone, while
a low-income individual might choose a budget option.
• Lifestyle:
o Activities, interests, and opinions shape lifestyle-based decisions.
o Example: Fitness enthusiasts might prefer health foods and gym memberships.
4. Psychological Factors
These relate to how a person perceives and processes information and their motivations.
• Motivation:
o Maslow's hierarchy of needs explains different levels of motivation from basic
survival needs (e.g., food) to self-actualization (e.g., hobbies).
o Example: A person buying a car might prioritize safety, comfort, or status
depending on their motivation.
• Perception:
o How consumers interpret and make sense of the information they encounter.
o Example: A well-designed ad may create a favorable perception of a product.
• Learning:
o Experiences and past purchases shape buying behavior.
o Example: A consumer satisfied with one brand is more likely to repurchase it.
• Attitudes and Beliefs:
o Positive or negative feelings about a brand or product impact decisions.
o Example: Environmentally conscious consumers may prefer brands with
sustainable practices.
Buying Decision Process
The buying decision process is a series of steps consumers go through before making a
purchase. It typically consists of five stages:
1. Problem Recognition
• Explanation: The process begins when a consumer realizes a gap between their
current situation and desired state.
• Example: A person notices their smartphone is outdated and wants a new one.
2. Information Search
• Explanation: After recognizing the problem, consumers seek information about
potential solutions.
o Internal Search: Drawing from personal knowledge or past experience.
o External Search: Looking at reviews, advertisements, or asking others.
• Example: Researching different smartphone models, prices, and reviews online.
3. Evaluation of Alternatives
• Explanation: Consumers compare various options based on criteria such as price,
features, quality, and brand reputation.
• Example: Comparing smartphones from brands like Apple, Samsung, and Xiaomi to
decide which offers the best value.
4. Purchase Decision
• Explanation: Based on the evaluation, consumers choose the product they perceive as
best meeting their needs.
o Influences such as availability, promotions, or peer pressure may impact the
final decision.
• Example: Choosing a Samsung smartphone due to a discount and positive reviews.
5. Post-Purchase Behaviour
• Explanation: After the purchase, consumers evaluate their satisfaction with the
product. This stage is crucial for building loyalty or avoiding dissatisfaction.
o Positive Experience: Leads to repeat purchases and positive word-of-mouth.
o Negative Experience: Results in complaints, returns, or negative reviews.
• Example: Being satisfied with the new smartphone and recommending it to friends.
