Why segmentation is a win-win situation for your company and your customer

Posted by Akshay Chugh
September 19, 2017

Self-Published

Think about the last time you went to a movie with your friends. Afterward, when you talked about the movie, how did people respond? Did everyone agree completely about whether the movie was a good one?

Did everyone agree on the acting or special effects or music? Probably not.

Even among friends, who tend to be similar, people’s tastes and opinions vary. No one is right or wrong (well, okay, you were right and your friends were wrong); it’s just a matter of difference in preferences and attitudes.

The movie example demonstrates what economists call “imperfect competition” – that is, consumers have unique needs and desires; so collectively, a marketplace of consumers is heterogeneous. Differences in perception and preferences require that different products be provided to satisfy the different segments’ needs.

When a large, heterogeneous is segmented into smaller relatively homogeneous markets, the demand can become less price-elastic-consumers are willing to pay more to get something that is closer to what they want.

According to psychologists, people have different motivations, (e.g: Maslow’s hierarchy ranges from the satisfaction of basic biological needs to more abstract needs regarding well-being.)

Consumers purchase products to fulfill their needs; hence, consumers who are price-conscious make purchase decision using value material possessions and social approval are driven to purchase brands to garner the approval of family and friends.

In marketing, we deal with customer differences through segmentation. An entrepreneur might create a new gadget, a brand manager a new line extension, or a consultant, a new piece software, and each might hope that the whole world will like and buy his or her market offerings. But it won’t happen.

And it’s not smart marketing to go after the whole market. Why not?

How could you provide a product that is of high enough quality to satisfy premium customers but is priced low enough for price-sensitive customers?

How could you afford to place your advertisement in the disparate media that different customers enjoy (e.g: online, in teen magazines, in car magazines, in cooking magazines, on network television)?

How many versions of the ad could you afford to create so as to communicate effectively to those different audiences?

How could you develop a brand image that appeals to the masses who seek comfort in conformity while it simultaneously appeals to fashion-setters, mavericks, or other customers who seek to express their individualism? These goals are incompatible.

Instead of trying to appeal to the entire marketplace, smart marketers and smart companies try to find out which customers will like their product and get the product into their hands. That strategy begins with market segmentation.

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