Retail Market Segmentation & Strategies


Market segmentation is the natural result of vast differences among people.

− Donald Norman (Director, The Design Lab)

Market segmentation gives a clear understanding of the retail customers’ requirements. With the clear understanding of market segmentation, the retail managers and marketing personnel can develop strategies to reach out to the customers with specific needs and preferences.

What is a Market Segmentation?

It is a process by which the customers are divided into identifiable groups based on their product or service requirements. Market segmentation is very useful for the marketing force of the retail organization to create a custom marketing mix for specific groups.

For example, Venus is in the business of retailing organic vegetables. She would prefer to invest her money for advertising to reach out to working and health conscious people who have monthly income of more than say, $10,000.

Market segmentation can also be conducted based on customer’s gender, age, religion, nationality, culture, profession, and preferences.

Types of Retail Markets

There are two types of retails − Organized Retail and Unorganized Retail.

Organized Retail

Organized Retailing is a large retail chain of shops run with up-to-date technology, accounting transparency, supply chain management, and distribution systems.

Unorganized Retail

Unorganized Retailing is nothing but a small retail business conducted by an owner or a caretaker of the shop with no technological and accounting aids.

The following table highlights the points that differentiate organized retail from unorganized retail −

Parameter Organized Retail Unorganized Retail
Scale of Operations Large Small
Scope of Operations Nationwide, Worldwide Local
Employees Professional, skilled, and trained Unprofessional
Number of Stores Chain of multiple stores Maximum 2-3 outlets of the same owner within a city or across nearby cities
Ambience of Store Pleasant, attractive Lack of good ambience
Range of Products Wide range of products across the nations Only a range of local products
Shopping experience Excellent, memorable, engaging Average
Bargaining Not possible. Pricing doesn’t depend on relationship Possible. Pricing varies according to personal rapport
Source of merchandise Directly from manufacturer/producer Mostly from wholesaler
Convenience of choosing products Very high. Customer can walk around and choose the product Very less
Examples Walmart, HyperCity, Big Bazar Standalone shops

What is Retail Strategy?

It is a plan designed by a retail organization on how the business intends to offer its products and services to the customers. There can be various strategies such as merchandise strategy, own-brand strategy, promotion strategy, to name a few.

A retail strategy includes identification of the following −

  • The retailer’s target market.
  • Retail format the retailer works out to satisfy the target market’s needs.
  • Sustainable competitive advantage.

Strategies for Effective Market Segmentation

For effective market segmentation, the following two strategies are used by the marketing force of the organization −

Concentration (Niche) Strategy

Under this strategy, an organization focuses going after large share of only one or very few segment(s). This strategy provides a differential advantage over competing organizations which are not solely concentrating on one segment.

For example, Toyota employs this strategy by offering various models under hybrid vehicles market.

Multi-segment Strategy

Under this strategy, an organization focuses its marketing efforts on two or more distinct market segments.

For example, Johnson and Johnson offers healthcare products in the range of baby care, skin care, nutritionals, and vision care products segmented for the customers of all ages.

Strategies for Market Penetration

Market penetration strategies include the following −

Price Penetration

It is setting the price of the product or service lesser than that of the competitor’s product or service. Due to decreased cost, volume may increase which can help to maintain a decent level of profit.

Aggressive Promotion

Increasing product or service promotion on TV, print media, radio channels, e-mails, pulls the customers and drives them to view and avail the product or service. By offering discounts, various buying schemes along with the added benefits can be useful in high market penetration.

High Product Distribution

By distributing the product or service up to the level of saturation helps penetration of market in a better way. For example, Coca Cola has a very high distribution and is available everywhere from small shops to hypermarkets.

Growth Strategies

If a retail organization conducts SWOT Analysis (Strength, Weakness, Opportunity, Threat) before considering growth strategies, it is helpful for analyzing the organization’s current strategy and planning the growth strategy.

Ansoff’s Matrix

An American planning expert named Igor Ansoff developed a strategic planning tool that presents four alternative growth strategies. On one dimension there are products and on the other is markets.

Ansoff’s Matrix

This matrix provides strategies for market growth. Here is the sequence of these strategies −

  • Market Penetration − Company focuses on selling the existing products or services in the existing market for higher market share.

  • Market Development − Company focuses on selling existing products or services to new markets or market segments.

  • Product Development − Company works on innovations in existing products or developing new products for the existing market.

  • Diversification − Company works on developing new products or services for new markets.

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