Market segmentation is a process that has helps in splitting and grouping customers into various clusters. The customers belonging to a single group are considered to be homogenous and comparable. A market segment is homogenous within and heterogeneous without. If the marketing segmentation has been carried out properly, a market segment is expected to react similarly to a market stimulus.
According to Philip Kotler, an effective marketing segmentation exercise should result in segments that are measurable, relevant, accessible, distinguishable and feasible. These are aspects that ensure that the marketing segmentation has been done on relevant parameters and that further action on these groups is practical.
Marketing segmentation helps marketers understand the otherwise extremely heterogeneous market so that the strategic and tactical marketing decisions can be taken in accordance with customer needs and desires.
Understand the market
At the first level marketing segmentation helps in a better understanding of the market in relation to the industry in question. When each individual is grouped, it is easy to understand the common characteristics of the group rather than assessing each individual customer (something that is quite impossible too) or treating everyone as a single group with similar needs and preferences.
Create product variations effectively
Once you have a certain number of groups that define your market, product variations can be launched depending on the specific needs of the group. So while those who treat a bath as a time to pamper themselves would buy soap with a moisturizer added in, those who feel that a bath is for cleansing may well prefer to have one that fights germs. An insight such as this can help you develop relevant products for specific people.
Perfect your positioning
Not only does marketing segmentation help in creating new products but it also aids in the creating of the appropriate positioning. The words used in the body copy and tag line of the advertisement can be modified based on the expected reaction of the targeted demographic too.
Create customer empathy
With targeted and more relevant products and positioning, the marketer can be sure to create an empathy with the customer; a bond that is difficult to break, thereby encouraging higher customer retention.
Identify need gaps
Conducted for exploratory research, marketing segmentation can allow you to identify need gaps in the market so that the research and development division can be given specific parameters to work with. Sometimes the gap identified can also be used for repositioning of an existing product.
Focus your resources
When the resources are limited, identification of the relevant market segments that are showing growth can be used to ensure that the budgets are allocated in an appropriate manner.
Targeted media selection
An understanding of the customers in each segment can help in better media selection, media scheduling
Using Cluster Analysis for Marketing Segmentation
Cluster analysis is a multivariate statistical tool that is used for marketing segmentation. It helps in identifying groups of people from the sample that have similar responses with respect to any of the parameters that are used for clustering.
Cluster analysis can use any data that has been collected to segment customers into various groups. Some of the broad parameters that can be used are:
- Behavioral parameters like purchase history, amount of product bought, product usage details, brand loyalty, shopping behavior and more.
- Attitudinal parameters that can be used in cluster analysis include (among others) reaction to various belief statements, likes and dislikes measured on a scale and general tendency towards innovation.
- Psychographic variables like lifestyle, values, personality and more can also be obtained using pre tested scales for the same. Customized ones can also be developed depending on the category.
- Demographic data is a key part of the analysis because irrespective of whether it is used in the cluster analysis and segmentation analysis or not, this data linked with each respondent helps in identifying the kind of target audience that you are looking to cater to.