Advantages and Disadvantages of Market Segmentation

Advantages and Disadvantages of Market Segmentation

Image: Advantages and Disadvantages of Market Segmentation

Advantages or Benefits of Market Segmentation

Market segmentation consists of identifying a sufficient number of common buyers. It enables subdivision of the total aggregate demand for a product into economically viable segments. Segments fall between the two extremes of total homogeneity and total heterogeneity. Segments benefit the marketer in several ways which may be discussed under four heads:

  1. Proper choice of target market
  2. Tapping a particular market
  3. Efficient and economic marketing efforts; and
  4. Benefits to the customers.

1. Proper choice of target market: The market for any product is made up of several segments. A market is the aggregate of consumers of a given product. Consumers are not a homogeneous lot. They differ a lot in their characters and buying behavior. Thus, many differing segments exist in a market. Market segmentation helps the marketer divide the heterogeneous market. It is possible to distinguish one customer group from another.

2. Tapping a particular market: Segmentation enables the marketer to understand the needs of the customers and serve them well. Prediction of the likely response from each segment is possible. With homogeneous responses from each segment, marketer finds it easy to develop an appropriate marketing programme. By tailoring the marketing programmes to individual market segments, marketers perform their tasks effectively.

Specialization can be achieved in product distribution, promotion and pricing for catering to a particular segment.

3. Efficient and economic marketing efforts: Segmentation makes marketing efforts both efficient and economic. Marketers segment the market and try to fulfill the needs of that segment. It helps in designing the kinds of promotional devices that are effective from the view point of customers.

Marketing efforts are focused on the well defined needs of the segment. Thus, marketing efforts undertaken by the marketer become more productive. They help the marketer to evaluate the results of his marketing programme. Best time to introduce new products, advertising etc., could be easily determined.

4. Benefits to the customer: Segmentation benefits not only the marketer but the customer as well. It distinguishes one customer group from another within a given market. It helps the marketer concentrate on the fulfillment of the well defined needs of the specific segment. Now-a-days, segmentation has attained a high degree of sophistication.

Though market segmentation offers a lot of advantages, it has some limitations with respect to cost and market coverage.

Disadvantages or Limitations of Market Segmentation

1. Sometimes, market segmentation becomes an expensive proposition. A marketer experiences considerable difficulties, as he has to develop different marketing mixes for different segments. Moreover, mass production is much cheaper than making a variety of products.

Even major players like Bata have erred in market segmentation. In the early 1990s, Bata introduced a few brands with high price tags in the high end segment of the Indian footwear market. This segment was not a sizable one for Bata. This segment accounted for a mere 5 — 10 percent of the Indian footwear market. The sales trend could not facilitate mass production. Having incurred a loss in the high end segment, Bata had returned to the mass segment.

2. Promotional expenses, costs of keeping adequate inventory of each variety of goods etc., also go up, eroding profitability.

3. Since the marketer has to implement varying marketing programmes suiting to the different segments, administrative expenses increase.