Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires using media channels and other touch-points that best allow to reach them. Market segments allow companies to create product differentiation strategies to target them. Criteria for segmenting
An ideal market segment meets all of the following criteria: * It is possible to measure.
* It must be large enough to earn profit.
* It must be stable enough that it does not vanish after some time. * It is possible to reach potential customers via the organization's promotion and distribution channel. * It is internally homogeneous (potential customers in the same segment prefer the same product qualities). * It is externally heterogeneous, that is, 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.
Methods for segmenting consumer markets
Marketers may segment according to geographic criteria—nations, states, regions, countries, cities, neighborhoods, or postal codes. The geo-cluster approach combines demographic data with geographic data to create a more accurate or specific profile. With respect to region, in rainy regions merchants can sell things like raincoats, umbrellas and gumboots. In hot regions, one can sell summer wear. In cold regions, someone can sell warm clothes. A small business commodity store may target only customers from the local neighborhood, while a larger department store can target its marketing towards several neighborhoods in a larger city or area, while ignoring customers in other continents. Psychographic segmentation
Psychographics involves using sciences like psychology and demographics to better understand consumers. Psychographic segmentation divides consumers according to their lifestyles, personality, values and social class. Consumers within the same demographic group can exhibit very different psychographic profiles. Behavioral segmentation
Behavioral segmentation divides consumers into groups according to their knowledge of, attitude towards, use of or response to a product. Segmentation by occasions
Segmentation according to occasions relies on the special needs and desires of consumers on various occasions - for example, for products for use in relation with a certain holiday. Products such as Christmas decorations or Diwali lamps are marketed almost exclusively in the time leading up to the related event, and will not generally be available all year round. Another type of occasional market segments are people preparing for a wedding or a funeral, occasions which only occur a few times in a person's lifetime, but which happen so often in a large population that ongoing general demand makes for a worthwhile market segment. Segmentation by benefits
Segmentation can take place according to benefits sought by the consumer or according to perceived benefits which a product/service may provide. Using segmentation in customer retention
The basic approach to retention-based segmentation is that a company tags each of its active customers with three values: Is this customer at high risk of canceling the company's service? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his or her card. Is this customer worth retaining?
This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. What retention tactics should be used to retain this customer? For...
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