At a basic level, an organization's marketing objectives become decisions about which products or services it will deliver to which markets. It follows that decisions about the markets to be served are an important step in strategy formulation. The segmentation process is therefore central to strategy and can be broken down into three distinct components: segmentation, positioning and targeting. This article will examine the segmentation aspect of both consumer and institutional markets.

Successful segmentation depends on a clear understanding of the market. Knowledge of consumer behavior is an important foundation on which market understanding is built. This article will summarize both consumer and organizational buyer behavior as an introduction to market segmentation criteria.

Why segment?

There are several reasons why organizations are divided:

Meet customer needs more precisely: In general market the customer demands will be different and by developing a different marketing mix for each customer segment an organization can provide the best solution to the customer's needs.

Increase Profits: Different customer segments react in contrasting ways to prices. Some are much less sensitive than others. Segmentation allows an organization to obtain the best price in each segment, thereby increasing average cost and increasing profitability.

Segment Leadership: Brands that have major market shares in any particular market will be highly profitable. Their market leadership gives them economies of scale, in marketing and production they will also establish access to distribution channels. Smaller companies or new entrants to the market may not gain leadership. However they may command a dominant share of a particular market segment. This focus may allow them to develop a specialist marketing mix to meet the needs of that segment of customers and at the same time create a competitive cost position vis-à-vis other companies in that segment.

Retain customers: Providing products or services aimed at different customer segments enables an organization to retain customer loyalty as their needs change. As a person moves through life, their needs in financial services will change. For example young singles may need minimum credit and banking facilities and car insurance, young families may need life insurance policies and mortgages, in middle age these needs will shift to pension provision. If an organization can offer all these services, they can retain customers who would otherwise transfer to another brand.

An organization can use segmentation as a way to move customers from entry-level products or services to products at the premium end of the market over time.

Focus Marketing Communications: Segmentation allows an organization to identify media channels that can specifically reach target groups. For example - young women who are interested in fashion are likely to read some fashion magazines. Rather than spending money on mass market media that reach a much wider target group. Organizations can target their money and efforts using media by focusing directly on their potential customer group.


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