Advantages and Disadvantages of Market Segmentation

Market segmentation is a marketing jargon used in the context of segmentation or division of the market by the companies, under market segmentation a company divides different market according to different variables like age, salary, geographical location, weather, culture and so on. For example an air conditioner manufacturing company will divide the market according to weather in different areas of the country, same is the case with ice cream manufacturers as they will benefit from selling their ice creams in areas where temperatures are high than those areas where temperatures are low. In order to understand the concept of market segmentation better let’s look at some of the advantages and disadvantages of market segmentation –

Advantages of Market Segmentation

  1. The first and foremost advantage of market segmentation is that it results in better company performance as the company which has divided the market into smaller segments is likely to have a more focused strategy with regard to sales to that market segment than other company which has not divided the market into segments. Consider the example of mobiles if suppose a mobile manufacturer produces only one type of mobile which is costly and targeted only for rich people and another mobile manufacturer produces different types of mobiles like low cost mobile targeted at students and rural area, high cost mobile targeted for rich, mobile with good camera targeted at young people and so on. In this case naturally mobile company which has divided the market into different segments will perform better than the company which manufacture only 1 type of mobile.
  2. Another advantage of market segmentation is that helps the company in expanding its market, consider the above example if the mobile maker does not segment its market for low income group then it will not think of going into rural markets as rural areas have lower income as compared to urban areas. Hence it due to market segmentation that mobile manufacturer will have the whole rural population for expansion of its business as compared to another manufacturer which is producing only high cost mobiles.
  3. Market segmentation not only helps in market expansion but it is also a key driver for customer retention because a segmented market provides company enough opportunities for making the strategy of retaining its customers of a particular market segment. For example if a computer manufacturer is selling computers to different markets, and if it wants to retain students segment then it can devise the strategy where it offers free internet access for 1 year to students purchasing computers from them, or if wants to retain business class then it may offer free printer or scanner with computers so that they do not go anywhere.

Disadvantages of Market Segmentation

  1. The first and foremost disadvantage of market segmentation is about the wrong selection of a segment, so if the company chooses wrong market segment which is too small or irrelevant for the business of the company then the company will not be able to sell its product. For example if a mutual fund selects old age people for marketing of mutual funds then naturally it will fail as old age people tend to avoid risky investments and they prefer fixed income options like fixed deposits and government securities.
  2. Another disadvantage of market segmentation is that it involves additional expenditure on the part of the company in the form of advertising, so in the above example a mobile manufacturer has to incur additional advertisement expenses for advertising mobile for young people apart from normal advertising expenses and if the benefit due to market segmentation is not there then the whole exercise of doing the market segmentation will be futile and wasteful expenditure.
  3. Another limitation of market segmentation is that if the company venture into that market segment where there is stiff competition and saturation in that particular market segment then it can lead to loss for the company because if a company goes into a market that is already full in terms of competitors and there is no scope for growth then it will be fatal decision for the company.

As one can see from the above that market segmentation has benefits as well as limitations and a company before deciding about segmenting its market should look first its product range, financial position, competition, consumer taste and so on.

0 comments… add one

Leave a Comment

Related pages

examples of current liabilities on a balance sheetindirect and direct quotationsprofit skimmingdefinition of current assets and current liabilitieswhat is oligopoly marketadvantages and disadvantages of a mixed economyassumptions of the capmmixed market economy advantages and disadvantagesmixed market economy advantages and disadvantagesobjective of trial balancemoil ipo pricedifference between systematic risk and unsystematic riskmixed economy advantageseps advantages and disadvantagesdifference between account payable and account receivableterm deposit exampleexamples of consumer goods and capital goodsfull form of demat accountperpetual succession meaningcurrent cost accounting advantages and disadvantagesforeign direct investment advantages and disadvantagesmerits and demerits of socialist economyhypothecation and mortgage differenceunearned revenueventure capital advantages and disadvantagesdisadvantages of social networking for businessesexamples of unsystematic riskaccounting and economic profitpreference shares advantages and disadvantagesadvantages and disadvantages of skimming pricingcost of deflationcomparison between capitalism and socialismadvantages of debenturecash reserve ratio formulaassumptions of law of diminishing returnswhat is the full meaning of fmcgan example of deferred revenue is unearned rentwhat are the advantages and disadvantages of mixed economycross rate formularepo full formwhat is a withdrawal slipdescribe the limitations of the barter systemwhat is unsystematictrade discount accounting treatmentmerits of e bankingwhat is the meaning of escrow accountfluctuating capital accountcharacteristics of monopoly and oligopolydistinguish between costs and expensesfdi and fiisubstitutes in economics examplesadvantage and disadvantage of mixed economybarter system meansadvantages and disadvantages of fifo and lifounearned income accountingrelevant cost managerial accountingmixed economy merits and demeritspricing strategy skimmingrent revenue journal entryfifo methodsadvantages and disadvantages of mixed economy pdfadvantages of decentralization in an organizationmateriality accountingdisadvantages of planned economynostro accountsexamples of capital receipts and revenue receiptsdisadvantages of online bankingautocratic organizationmonopolisticsthe advantages of globalisationtypes of bill discountingadvantages of monopoliesfictitious assets meaningcurrency convertibilitywhat is oligopoly market