IGNOU : M.COM : MCO 6 : UNIT 5 : Q - 3. What is market segmentation ? Explain the importance of segmenting markets.

 Ans. Market segmentation as the process of dividing the total market for a product or service into several smaller groups, such that the members of each group arc similar with respect to the factors that influence demand. Therefore, companies through market segmentation divide large, heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs.

The strategy of market segmentation involves the development of two or more different marketing programs for a given product or service, with each marketing 11rogram aimed at a different market segment. A strategy of marketing segmentation requires that the company first clearly defines the number and nature of the customer groupings (market segments) to which, it intends to offer its product or service. This is necessary (though not sufficient) condition for optimizing efficiency of marketing effort against those segments or the total market where it is likely to yield higher returns on the effort and investment. Some people criticize that marketers create the segments. This is not true. They do not create the segments but they first identify the segments and then decide to focus on one or more segments with different marketing mixes.

IMPORTANCE OF MARKET SEGMENTATION

Market segmentation being customer-oriented is in consonance with the marketing concept philosophy. In market segmentation, a company first identifies the needs of consumers within a segment: and then decides if it is practical to develop a product and marketing mix to satisfy those needs. By practicing market segmentation n company may obtain the following advantages and benefits. 

• By tailoring marketing programs to each market segment, a company can do a better marketing job and can make more efficient use of its marketing resources.
• A small company with limited resources may be ill a better position to compete more effectively in one or two small market segments, whereas the same company would be overwhelmed by the competition from bigger companies if it aimed for a major segment.
• A company with effective market segmentation strategy can create a more finetuned product or service offering and price it appropriately for the target segment.
• The company can more easily select the most appropriate distribution network and communication strategy, and it will be able to understand its competitors in a better way, which are serving the same segment.
• By developing strong position in a specialized market segments, a medium sized company can grow rapidly.
• Even very large companies with the vast resources at their disposal are abandoning mass marketing strategies and embracing market segmentation as more effective strategy to reach various market segments in broad product market. For example, Hindustan Lever Ltd (HLL), one of the most admired companies, has developed a number of detergent brands to cater to the needs of various segments in detergent market. This has been done by HLL after it faced stiff competition in the 1970s from a small and lesser known Nirma Chemicals Ltd, in the form of Nirma brand. As a result of Nirma's onslaught HLL came up with an economical brand named Wheel to cater to the needs of middle class and economy conscious detergent buyers. 

Because of these factors and the benefits from the market segmentation most of the companies both in consumer and industrial markets are practicing this strategy. Because of obvious benefits, today not only market segmentation is practiced by the companies manufacturing goods and services but it has also been adopted by retailers. Many marketing experts are of the view that the days of mass marketing have gone and even if some companies are following mass marketing its days are numbered. Therefore, today companies use market segmentation to stay focused rather than scattering their marketing resources.