Traditionally, markets are segmented in order to improve the effectiveness of business through reaching the specific, target customer group at a defined segmented level. In actuality, the contemporary business environment makes segmentation very significant, though, in recent years, there have appeared a trend to fragmentation of the market, instead of traditional segmentation. Nevertheless, segmentation has preserved its significance. In this respect, it should be said that basically, markets can be segmented at four levels: segments, niches, local areas, and individuals (Gwynn, 2004). In this respect, it is worth mentioning the fact that each level can have its own benefits for business and companies have to take into considerations specificities of each level in order to maximize their benefits.
First of all, it should be said that segment occupies the top level in the hierarchy of market segments’ levels.
Basically, a market segment is a group of people or companies sharing one or more characteristics that cause them to have similar product and service needs. As a rule, a market segment is distinct from other segments (Benfari, 1999).
Also, it is homogeneous within a sector. What is meant here is the fact that companies, for instance, are similar in regard to the production and service needs. Such a similarity of companies’ needs predetermines the similarity of their responses to a market stimulus. In addition, a market segment can be reached by a market intervention.
Basically, market segments have a number of benefits. For instance, companies operating in one segment normally create a competitive environment which helps them to progress steadily and to grow more resistant to negative external influences, such as entering of new companies in the market segment (Gwynn, 2004). In addition, companies can race entering barriers to the level which is suitable for major players in the market segment. At the same time, market segments create favorable conditions for mergers and acquisitions since companies operating in one and the same segment can be merged or acquired easily and the integration of two or more companies into a new, merged one will be more effective due to the similarity of their product and service need. In contrast, companies operating in different segments are more likely to face difficulties with integration in case of merger or acquisition.
As for niche, it should be said that this is a focused, targetable portion, subset, of a market. In fact, a niche is a narrower concept compared to market segment since it is not focused on products and services needs of the mainstream companies providing these products and services. Instead, a niche implies that a company focuses on a more specific portion of the market where there are no mainstream providers (Benfari, 1999). As a rule, a niche is focused on a specific customer group.
One of the major advantages of taking a niche of the market is the consistently lower level of competition the company face compared to segment of market. Moreover, as a rule, each company attempts to take its own niche of the market where there is no competition and which is free of mainstream providers. In such a way, the company can fully benefit from its dominant position in its niche of the market and it only needs to develop positive company-customer relationships and draw the attention of customers to its products and services to maximize its benefits.
Local areas are lower level of market segmentation compared to segment and niche. In fact, the local area implies the specific area where the company operates and distributes its products and services. In actuality, local area is not limited by a specific customer group and it does not imply there are no other companies as is the case of niche of the market. Instead, there may be other companies operating in the same area, but, as a rule, they provide different products and services and are not direct competitors (Breneman & Taylor, 1996). On the other hand, the presence of competitors in the local area increases can deteriorate consistently the marketing performance because it will be unable to maximize its profits (Caplan, 1987). This is why companies tend to develop their business in local areas free of competitors. As a result, they can benefit from being the only supplier of products or services in the local area that put them in practically monopolistic position, though local areas cover small territories.
Finally, individual level is probably the smallest but it is one of the most significant because it refers to the direct interaction of the company and its target customer group on the individual level. What is meant here is the fact that each company delivers products or services to the concrete customer, i.e. on an individual level. This level provides a company with a possibility to develop positive company-customer relations, encourage customers’ loyalty through the growth of customers’ satisfaction, which, in its turn, result from positive experience of using products or services of the company.