Importance Of Market Segmentation In Business

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In order to survive in the long run, a company is required to make sales and earn constant revenue from its business operations. In order to expand and grow, a company is required to expand its existing customer base.

It is important to note that a company may offer specialized services or produce specific goods to meet the requirements of its target customer groups. For Instance, a company may produce and sell low value cars to meet the requirements of low/middle income customer groups. Further, a company may target customers in some specific states of the country. A company may also segment its markets based on some other parameters like gender, religion and so on.

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Importance of Market Segmentation in Business

Improved Business Performance

Market segmentation can be used as an effective means to meet the requirements of different types of customer groups. By dividing the market into different segments, a company can customize its production and marketing processes to make its products/ services saleable to the target customer groups. It becomes easier for a company to keep a track of the performance (in terms of sales revenue generation, costs and so on) of different segments and make appropriate adjustments in relation to non performing segments.

Improved Customer Satisfaction

Market segmentation can help the company in producing goods or providing services in accordance with customer demands. Market segmentation gives an opportunity to establish a brand image and loyalty for company’s products. For Instance, a leading bank may design special investment/loan instruments for low income groups. By establishing a proper segment for low income groups, bank may enjoy customer satisfaction at all the levels. This step will not only help in increasing the size of customer base, but will also help in improving the market reputation of the bank.

Opportunities for Cost Saving

Market segmentation can also help in reducing marketing and advertising costs. A company can use different marketing channels for different types of market segments after performing a cost benefit analysis.

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It is quite possible that some market segments may not require any marketing effort on the part of the company while other market segments may require more investments. Therefore, market segmentation can also help in ensuring optimum utilization of available funds and other resources.

Competitive Advantage

Market segmentation can also help in improving the competitive advantage of the company. By offering quality goods or services to some specific sections of the market, a company can develop strong market reputation for its products or services. Such a market reputation may act as an entry barrier (in these specific market segments) for other rival firms. A company can also achieve economies of scale by producing bulk quantities of products required by different market segments.

This can help in lowering the overall cost of manufacturing.  Low cost can provide an opportunity to the company to charge a lower price from its customers, thereby increasing its sales and improving its overall competitive advantage in the market place. However, it is important to analyze demand and supply levels for each market segment before undertaking bulk production.

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