Market segmentation is the process by which a diverse market is divided into a number of distinct sub-markets (Walker and Mullins). The objective is to identify groups of customers with similar needs and characteristics so that they can be served effectively (Jobber, 2007). By grouping together with similar needs, market segmentation provides a commercially viable method of serving these customers which enables consumer needs to be more closely matched. Consequently, firms and organizations can improve their marketing effort by developing specific products or services for particular segments.
Four advantages are visible for us. Market segmentation provides the basis for the selection of target markets (Jobber, 2007). A target market can be seen as a chosen segment of market that a company has decided to serve. Because customers in the target market segment have similar needs and characteristics, understanding of its customers will be improved so that a single marketing mix strategy can be developed to match those requirements. For example, the success of Carphone Warehouse, which supplies mobile phones, was originally based on the founder Charles Dunstone’s realization. The main suppliers were targeting large corporate clients (顾客). His vision was to be the first to allow customers to visit a shop and see what mobile phones were available. By providing selected offerings for selected groups (target markets) in an effective an efficient way, marketers not only build enhanced customer relationships and improved brand loyalty but also prevent brand switching (Atuma, 2011).
The tailoring of a marketing mix to target market requirements is another merit of segmentation. Marketers have an in-depth understanding in the requirements of a segment and can tailor a marketing mix package to meet their needs (Jobber, 2007). In addition, it promotes an efficient allocation of marketing resources. For instance, product and advertising appeals can be better coordinated and directed towards specific markets. Similarly, proper management of media plans minimizes wastes through excessive exposure. All these result in sharper brand image.
The development of differential marketing strategies between segments can be of a great benefit for business. By breaking a market into its constituent sub-segments a company may differentiate its offerings between segments, and within each segment it can differentiate its offering from competition. Consequently, competitive pressure is reduced for a company. For example, in order to reduce competitive pressure, P&G has several brands in each category instead of concentrating on a single brand, such as heads&shoulders, Vidal&Sassoon, SK-II, OLAY and so on. It also gives an approach to create a differential advantage within the chosen target market so that customers have the reason to buy from it rather than the competition. Finally, market segmentation is useful when spotting opportunities and threats of a company. . When customers become more and more affluent, they will develop new values and seek new experiences. As a consequence, new segments emerge (Jobber, 2007). The company that firstly identifies the new segment and meets its needs better than competition can success on sales and profit growth. For example, NEXT, the UK clothing retailer is quite successful because it is founded on its identification of a new segment: the working women who want fashionable clothing at affordable prices. Furthermore, the neglect of a market segment can pose a...