Advantages and Disadvantages of Market Segmentation

Today the world is changing at a very rapid phase, and in this changing world economy of the country plays a very important role. Due to advancements in the economy, the nation easily provided all the goods and services, making everything very easy to do. With the help of economic opportunities, anyone can raise their standard of living. Also, the nation can easily progress due to the selling of goods and services. And if the national economy is running progressively, then it benefits humanity.

Out of the several economic instruments, the most notable development which shaken the world is the development of market segregation to do business according to the needs of the consumers. Day by day, the use of goods and services is increasing, and now market segregation can perform various functions that were performed by the traditionally developed instruments in earlier times.

Market Segmentation helps companies or manufacturers by providing easy solutions to the needs of consumers. Now the behavior of the consumers is shaped according to their needs and with the use of their interest markets segmented. The development of market segmentation as an economic concept is notable in human history. The development of a consumer-friendly market is the biggest achievement in the economic field.

Now in today'stoday's times, everything is directly or indirectly related to the nation's economy. Almost all fields currently frame policies and design their products by keeping focused profits. Numerous other types of economic instruments are prevalent at the current time. They aim to save people'speople's money and provide goods and services easily.

In the recent context, we witnessed COVID-19, which poses challenges not only to health but continuous lockdown affects the economy of the countries too. In this article, we are going to discuss one of the instruments of the economy, which is market segmentation. With the help of proper market segmentation, the manufacturers develop products that suited their interests.

What is Market Segmentation?

Market segmentation is the term used in marketing under which aggregating prospective buyers are grouped into similar groups. Market segmentation helps companies target different types of consumers with the same interest but also different from other groups. Buyers are segmented with common needs and usually respond similarly to a marketing action. The interest of the group is similar.

Characteristics of Market Segmentation:

1. Market segmentation is the process of identifying targeted consumer groups to sell their products and advertising in a way that is attractive to the group.
2. Market can be segmented in different ways; it can be segmented by keeping the geography, demography, or behavior of the consumers.
3. Market segmentation helps companies in different ways; one way is that it minimizes risk. Market segmentation helps companies determine which product is likely to earn more profits and helps the company shape consumer behavior.
4. When the risk is minimized, and market segmentation clarity helps the companies earn more profits and shift their resources to make business more inclusive and progressive.
5. The market can also help the companies by increasing their demographic reach, and because of that, they started developing those products which they didn'tdidn't produce earlier.

Generally, companies use three criteria for market segmentation, and these are -

• Homogeneity - it means common needs within the group.
• Distinction - it means needs that are different from other groups
• Reaction - it involves a similar response to the market by every group

By creating two designs of shoes, they segmented the market in two ways. For example, a footwear company manufactures shoes for football and basketball. And for that, they have to develop two different types of advertisement which attract different groups. For basketball, the company has to design long shoes which attract the basketball liking group. And also, the company has to design football shoes that attract the football liking group. And by using this, it captures large numbers of consumers and earns profits.

Types of Market Segmentation:

There are generally four types of market segmentation -

1. Demographic,
2. Behavioral,
3. Geographic, and
4. Firmographic.

Advantages of Market Segmentation:

In the above paragraph, we discussed market segmentation and its characteristics. Market segmentation has several advantages, which are very beneficial for companies to cater to the needs of consumers. Consumers are very materialistic; they generally opt for those products or show interest in those with high economic value. Market segmentation shapes the interest of consumers. Some of the most discussed advantages of market segmentation are-

1. Market segmentation helps to enhance the focus and intensity of marketing efforts:

Today world is witnessing rapid growth and innovation, and with innovation, the standard of living increases. To raise the standard of living, companies develop their products according to the needs of consumers. Market segmentation helps the business or companies better target consumers and helps them to enhance their focus. By using market segmentation, companies save time and money.

Because market segmentation helps companies target only those interested in their products rather than developing a focus on non-interested consumers. With the use of market segmentation, companies can increase their profits. Also, market segmentation helps create more impactful marketing campaigns that better capture the needs of the consumers.

Consumers do not exist in a single group; they differ in choices and demands. Market segmentation can play a role in developing marketing strategies according to the needs of different groups. For example, if one segment of society needs winter wear, another needs rainy wear because they are situated in different places. Keeping this in mind, companies develop both winter and rainy wear simultaneously.

2. Market Segmentation helps the firms by providing insights into several markets:

As the world is witnessing globalization, any company's product is not confined to the developer's boundary. Product design, distribution, and pricing all shape the behavior of consumers. Market segmentation helps companies and firms to understand varying markets.

During market segmentation, companies better understand the individual segments, as some geography have a larger demand for any specific product while others do not. So by using this, companies develop products according to the needs of the consumers and earn profits.

Similarly, due to demography, geography, and behavior, companies shape their products. By keeping the geographical, demographic, and behavioral aspects, companies easily enhance their insights into several markets. For instance, a clothing firm, with the help of market segmentation, easily increases its profit base.

3. Market segmentation boosts client happiness and results in longer customer retention:

The consumer base is the backbone of any firm progress. Because consumers play a very important role in the firm's rapid growth. Market segmentation benefits not only the manufacturers only bust the customers too. Companies, by developing products according to consumers' needs, create more happiness for them. When they get a product according to their choice, they feel overwhelmed.

And this creates a positive image of the company. And if consumers find products according to their expectations, he automatically shows positive interest in the company. Market segmentation helps in identifying and targeting specific segments, and it helps businesses to meet the needs of their clients. It leads to happier and more satisfied customers who are more likely to continue doing business with the company. Market segmentation increases customer retention and loyalty toward the company. They need to switch companies easily; they stick to their initial firm.

4. Market segmentation helps in avoiding waste of money:

Sometimes by not doing a proper study of markets, companies produce those products with less demand, which affects companies badly. Because they invest lots of money and resources in developing the products, it wastes money. Market segmentation helps companies to develop those products which are in demand. Companies easily capture the consumer's demand and design products according to their needs.

With the help of market segmentation, companies can make their marketing strategies more accessible and cost-effective. It helps marketers categorize the market and try to meet the group's demands. Market segmentation helps companies develop marketing strategies according to the customer's perspective. It helps companies not only in a signal way but in different ways. It increases the customer base, profit margins, and other benefits.

Apart from this discussed advantages of market segmentation, numerous other advantages make market segmentation one of the most useful economical tools. Market segmentation can play a very important role in the company's growth as it increases its customer base and profit margin.

Disadvantages of Market Segmentation:

Every economical tool has two sides, one of which we see and has a positive impact. And the other side is hidden from us. Similarly, for market segmentation, there are several disadvantages; there are different types of cavities that create problems for their users. Some of the most discussed disadvantages of market segmentation are-

1. Market segmentation can increase company rising costs:

Profit forms the backbone of any company's progress. Profit is the main driver of any business. The profit margin is high when the input cost is low and the output cost is high. It means the company invests less and earns more. Tools like market segmentation can increase their rising cost by increasing additional costs in the production of products.

For market segmentation, companies have to develop different strategies for different markets to target different audiences, increasing production costs.

Everything used in the production is interlinked and has a recurring effect. So market segmentation needs more effort, time, research, and use of resources. There is a need for different progress, promotion, and distribution techniques which further increases the input cost.

Costs of the product also rise due to varied marketing techniques used in different market segments. As a result of greater market segmentation, the company's overall expenses can increase. Companies have already invested more in product development, so additional market segmentation costs can increase their rising cost.

2. Market segmentation can create production problems:

Today the world is witnessing rapid growth and development, and in this development, the role of competition is rising. Every product which is used in the market has competition with similar products. The competition between goods and services offered by different companies can also disadvantage them.

Sometimes, they used tools like market segmentation to increase their customer base and profit margin. But they witnessed high competition from other firms. Companies already invested in market segmentation can be disadvantaged because it increases their input cost. If firms used to invest more in market segmentation in competitive markets, there are greater chances of decreasing profit margin, which may result in financial loss. The company may have to incur additional costs to survive in the market. For example, sometimes, market segmentation invests in developing products with less demand and low-profit margins, ultimately leading to production problems.

3. Market segmentation leads to unprofitable Goals:

There is a requirement of money, time, and resources to complete the market segmentation process. Market segmentation doesn'tdoesn't capture the needs of a single group; they have to study the behavior of different groups. And when they use market segmentation, it sometimes leads to setting unprofitable goals. Because sometimes market segmentation studies can be wrong and not fully predict the true consumer's behavior. Businesses may target a market segment that is not large enough to be profitable.

For example, after properly studying market segmentation, the firm started producing left-hand gloves for female players. But they neglected the fact that there are fewer female left-handed golf players. So firm's investment in market segmentation is of no use because there are limited users. And this can be unprofitable for the firm.

4. Market segmentation can create the wrong selection:

Market segmentation is used to create the right and relevant products. They need to capture the wholesome need of the consumers. But sometimes, market segmentation leads to the wrong selection of products. There may be a chance of selecting wrong, irrelevant, and very small segments of products with very low demand among users.

In such a situation, the company needs to identify the true users or the right group of customers. And because of that, they cannot properly sell their products or services to them. Also, geography, demography, and behavioral uses in market segmentation can be wrong. So after the usage of the product, the consumers lose their interest which is unprofitable for the producing firms.

The Conclusion:

Any economic instrument that increases the producing firms' profit margin is essential. So, by using market segmentation, companies increase their consumer base. And by using this type of instrument, they can achieve extensive success.