Now the question is, what is market segmentation? As you know, a market refers to a set of all actual and potential buyers of a product. It means that buyers in the same market seek products for broadly the same function. But different buyers have different evaluative criteria about what constitutes the right product for performing the same function. For example, take the case of scooter market. Some buyers prefer Bajaj scooter, some prefer LML and others like Kinetic Honda. Thus, within the same market there are submarkets that differ significantly from one another. This lack of homogeneity within the same market may be due to the differences in buying habits, the ways in which the product is used, motives for buying, etc. Therefore, it is necessary to divide the market into homogeneous submarkets for successfully marketing the product. Market segmentation, thus, is the process of dividing the total market into one or more parts (submarkets or segments) each of which tends to be homogeneous in all significant aspects.
Based on the above discussion, now we can say that a market segment refers to a submarket (a part) of the market which is homogeneous in all significant aspects. The strategy of market segmentation involves the development of two or more different marketing programmes for a given product or service, with each marketing programme aimed at a different market segment.
A strategy of marketing segmentation requires that the marketer first clearly defines the number and nature of the customer groupings (market segments) to which he intends to offer his product or service. This is necessary (though not sufficient) condition for optimising efficiency of marketing effort against those segments of the total market where it is likely to yield higher return on effort and investment.
The alternatives strategies of market segmentation are: 1) undifferentiated marketing 2) differentiated marketing and 3) concentrated marketing. In undifferentiated, marketing, the marketer exposes only one product and tries to draw all buyers with one marketing programmes. Differentiated marketing involves designing of separate products and marketing programmes for each segment. Usually, this strategy is costly due to product modification costs, production cost, administrative costs, inventory costs and promotion costs. Unless the segments is substantial, these costs may prove to be a burden to the marketer. In concentrated marketing, the marketer concentrates all his efforts in one or a few lucrative segments only.
In general, homogeneous markets are best exploited by undifferentiated marketing. The differentiated or concentrated marketing is adopted in the case of heterogeneous markets. The stage of the product in its life cycle is also a relevant factor in this regard. Undifferentiated marketing or concentrated marketing may be adopted to develop primary demand at the stage of introduction. Even the strategy of concentrated marketing may be employed at this stage. At the saturation the differentiated marketing becomes necessary.
The concept of market segmentation should not be mixed up with the concept of product differentiation. These two are only related product strategies. Product differentiation is resorted in order to differentiate one's product from a competitor's product and thereby eliminate price competition. This strategy is usually adopted by companies selling standardised products (such as soaps) to a fairly homogeneous market. To reduce competition, many resort to both market segmentation and products differentiation. Market segmentation is resorted in order to penetrate a limited market in depth, while product differentiation is used to secure breadth in the market. It may be said that the product differentiation seeks to secure a layer of the market cake, whereas market segmentation strategy strives to secure one or more wedge-shaped pieces. Compared to product differentiation, segmentation of markets is only a transitory phenomenon.
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