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Market segmentation is critical to a marketing strategy; it drives organizations’ marketing decisions. The concept of market segmentation stems from the economic pricing theory that claims that it is possible to gain maximum profits via discrimination of pricing levels between segments (Venter, Wright & Dibb, 2015). Market segmentation helps to overcome market heterogeneity as in creating a product that would match the majority of people’s preferences (Venter, Wright & Dibb, 2015). Instead, it is suggested that companies group customers with similar product preferences and purchasing behaviors together, therefore, building homogeneous segments with defined needs and tastes (Venter, Wright & Dibb, 2015). Market segmentation is important because it allows businesses to allocate resources in a more meaningful way and have a better understanding of their customer base. At present, researchers employ different segmentation variables such as demographic, geographic, psychographic, and behavioristic. These are the factors that are used to categorize customers and create homogeneous segments.
An example of a company that is making good use of market segmentation is Zara. Zara is a retailer that sells clothes at affordable prices. In its marketing strategy, Zara uses demographic, psychographic, and behavioral variables. Firstly, Zara’s merchandise mostly meets the preferences of younger people of both genders. Such customers typically do not have a lot of financial resources at hand, and yet, they want to wear clothes that look up to the latest trends (psychographic variables). Zara is a fast fashion copycat: it rarely generates original ideas and relies heavily on new blueprints in high fashion. The retailer understands customers’ behavior and creates an illusion of exclusivity by keeping little inventory in stocks so that it becomes sold out quickly. Because of that, customers enjoy the idea that they will receive goods that not many other people have.
References
Payton, S. (2020). How the Zara marketing strategy makes billions and spends $0.
Venter, P., Wright, A., & Dibb, S. (2015). Performing market segmentation: a performative perspective. Journal of Marketing Management, 31(1-2), 62-83.
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