The benefits of market segmentation that a firm can enjoy make it hard to ignore this process. These benefits help a company thrive in unchartered territories as it seeks long-term success and sustainability.
Benefits of Market Segmentation
1. Efficient marketing:
When a company has identified different segments and decided which to serve, marketing becomes easy and direct to the point. Tailoring a marketing message becomes easy since customers have a common interest in a product or a service. Thus, the value of marketing costs will be reflected in sales from a segment.
A company like Red Bull is efficient in marketing because of its customer segmentation approach. Red Bull is a company known for its extreme sports. The company target individual who goes beyond normalcy in physical sports. These people are fearless in confronting all odds, breaking records, and even setting their own.
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In the marketing of the Red Bull energy drink, this is where the company’s marketing efficiency is best seen. The popular Tagline, “Red Bull gives you wings,” has propelled the company into success. Those who do physical sports that push them to their absolute limits identify with this Tagline. They believe they have “wings to fly” over any obstacle in their way.
2. Increased customers’ satisfaction:
Once a company has selected a segment, it intends to serve unique customers’ behaviors. Thus, a company invests more resources to produce and serve customers’ needs in the identified segment(s). Customers’ needs are met and, at times, surpassed, contributing to a higher level of satisfaction. The benefits of market segmentation are best seen at the delighted level of customer satisfaction.
For instance, a company that manufactures cars could demographically segment the market. It could serve a segment of young people interested in cars. It will likely consider costs and aesthetics while manufacturing cars for this demography of customers. With aesthetics and costs within reach, target young car buyers could be more satisfied with their purchases.
Take Caterpillar Inc., a company popular in commercial locomotives and equipment. In its customer segmentation, Caterpillar manufactures engines, locomotives, and other equipment that withstand long hours of hard mechanical labor. The company uses high-quality materials that can withstand harsh working conditions, as users would wish.
This customer segmentation results in increased customer satisfaction among users of Caterpillar products. It explains why in 2016, Caterpillar was ranked the leading company in its industry with the highest customer satisfaction in Asia.
3. Boost brand equity:
Segmenting a market forces a company to do its best in its identified segment. Since a company has to keep improving customers’ experience and meeting their expectations, brand equity improves. In the long run, pursuing the right customer segment for a company build solid, strong brand equity. It is this brand equity that a company leverages for brand choice, growth, and even brand loyalty.
4. Mass tailoring of merchandise and marketing:
It is not always possible to meet every customer’s desire in business. In targeting, combining all customers’ desires and summing them into one commodity is worthwhile.
Marketing segmentation gives businesses a strong general approach toward serving customers’ needs. Since the segment(s) have commonalities in customers’ behaviors, it becomes easy to tailor the marketing message. It also becomes effective to stock product features that impress consumers in the customer segment.
Amazon is a good example that has succeeded in mass marketing. The company targets almost everyone and tries to sell almost anything to its target customers. This has resulted in establishing one of the biggest global e-commerce giants of our time.
In its marketing, Amazon does not have to be too specific about who it’s targeting. It uses mass marketing campaigns that work best for most buyers. The idea is to get the consumers of marketing campaigns to buy at least a thing or two from the e-commerce giant.
5. Informed customer differentiation:
When a company targets more than one customer segment, it must understand what differentiates them. This understanding is important for grouping customers. An accurate customer differentiation helps provide a better customer experience in their respective segments.
This is how companies in air travel can satisfy all their customers. Dependent on the class of travel that customers book, they are grouped to enjoy certain travel experiences throughout the flight.
6. Reduces the risks of market cannibalization:
When a company has introduced a new product and service without detailed research on how it will affect what already exists, the risk of market cannibalization is often high. The new product could threaten and lower sales of existing products or services owned by a brand/company. In leveraging these benefits of market segmentation, a brand can make a product that does not competes with others under the same brand name.
In segmenting a market, a company can identify the segment that will consume the newly introduced product. This segment will not necessarily have to abandon the composition of an already existing product or service. Instead, it will be a new set of customers who increase the customer share that a brand has.
7. Development of competitive advantage:
When a company has decided to focus on a given segment, it redefines its business strategies. A company invests in that which would make it competitive. This way, customer segmentation contributes to developing a company’s competitive advantage in its operation industry.
Companies like Apple Inc. developed their competitive advantage through customer segmentation. The company’s eyes are on customers looking for prestige and luxury. The company does not shy away from its prestigious product and service pricing. It is a competitive advantage that earns the company huge profits even when it claims a small market share in the smartphone and tech industry.