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Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and desires as well as common applications for the relevant goods and services.
The science of using psychology and demographics to better understand consumers.
What is a concentration strategy? The manufacturer of Rolex watches has chosen to concentrate on the luxury segment of the watch market. This allows them to focus all of their efforts on a single segment. If Rolex chose to use a multi-segment strategy they would be marketing to every watch user and thus their brandvalue would diminish. Their use of the concentration strategy has helped define themselves as a luxury brand.
It is internally homogeneous (potential customers in the same segment prefer the same productqualities).
It is externally heterogeneous. In other words, potential customers from different segments have different quality preferences.
It responds consistently to a given market stimulus.
It can be reached by market intervention in a cost-effective manner.
It is useful in deciding on the marketing mix.
There are two major segmentation strategies followed by marketing organizations: a concentration strategy and a multi-segment strategy.
In the concentration strategy, a company chooses to focus its marketing efforts on only one market segment. Only one marketing mix is developed. This strategy is advantageous because it enables the organization to analyze the needs and wants of only one segment and then focus all its efforts on that segment. The primary disadvantage of concentration is that if demand in the segment declines, the organization's financial position will also decline .
In the multi-segment strategy, a company focuses its marketing efforts on two or more distinct market segments. The organization does so by developing a distinct marketing mix for each segment. They then develop marketing programs tailored to each of these segments. This strategy is advantageous because it can increase total sales since more marketing programs are focused at more customers. The disadvantage of this strategy is the higher costs stemming from the need for multiple marketing programs.
Segmentation of a market to define a target consumer base can be done in a variety of methods such as:
Geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes--define the market segments. The geo-cluster approach combines demographic data with geographic data to create a more accurate profile of a specific consumer. In areas prone to rain, you can sell things like raincoats, umbrellas, and gumboots. In hot regions, you can sell summer wear, while in cold regions, you can sell warm clothes.
This consists of dividing the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race, and nationality. Demographic segmentation variables are among the most popular bases for segmenting customer groups because customer wants are closely linked to variables such as income and age and because there is a plethora of demographic data available.
Companies can segment the market according to the benefits sought by the consumer.
Markets could also be segmented by usage rates. For example, it has been suggested that targeting heavy users can lead to increased sales. Segmenting by usage could divide the market by heavy users vs. light users.