Market Segmentation by Income (The Best Guide)

People’s financial ability is the most affected factor in buying things. Therefore, market segmentation by income is a very effective market strategy.

Market segmentation by income refers to the segmentation based on the annual or monthly income of an individual. Income segmentation facilitates the marketers to understand the link between the potential customers a company might have and the price set according to an individual’s earnings.

When forming market segments, all the individuals in a segment must have aspects in common. Thus, these aspects can be important features for marketers to categorize. One of the most important categories is market segmentation by income. This article will be your guide to Market Segmentation by Income step by step. Let’s go

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Importance of marketing segmentation by income

Market segmentation by income is a process that leads to having a homogeneous group of people, which possess similar annual or monthly salaries. The audience’s categorization in the respective segments helps a company or an organization target the potential audience.

Market segmentation by the audience income helps companies develop new products according to people’s demands and buying ability. High-priced and lavish products are aimed at people having high incomes. At the same time, low-price products are for people with low incomes. So, an efficient segmentation of the audience can help better tackle their demands and serve them better. Hence, increasing the company’s profits.

Market segmentation by income also inhibits that there is no point in targeting those customers who cannot afford high-priced products or services. After all, you can not possibly promote a Ferrari or Lamborghini to a person who cannot even afford a used one.

Market segmentation by income also allows a company to measure the purchasing power of any customer easily. The record of the targeted audience’s income range helps the respective company find and support the individuals spending money on both lower and higher levels. Based on the customers’ income level, many industries may sell different alternatives to the same product.

How can I do marketing segmentation by income?

Income segmentation is the categorization of customers based on their income. The customers are divided into three groups based on their monthly or annual income: high-income, low-income, and mid-income groups. The details of these groups are given below.

Individuals inhibiting a high income

As per observation, there are very few high-income groups in the market. The individuals of these groups aim to purchase a company’s lavish and expensive products with the best quality. This makes them the most influential group in the market.

These individuals mainly focus on quality, not on the quantity of the product. Thus, most of the lavish product consumers belong to high-income groups. Hello there,

Individuals inhibiting a mid-income

Different companies have launched other low-cost products that are affordable to the mid-income groups. The reason is many families around the globe can not afford expensive and high-quality products.

The high-income families are less compared to the mid-income families. Therefore, most organizations depend on low-income groups to concentrate on the products and guarantee their maximum satisfaction.

Individuals inhibiting a low income

More than fifty percent of the world’s population belongs to low-income groups. It means they do not have enough resources to purchase expensive products at all. The individuals of these groups prefer quantity over quality as they cannot buy the best quality products. Thus, many companies worldwide focus on individuals who provide them with products that can improve their lifestyles.

Example to market segmentation by income

There can be many examples of market segmentation by income. One such example is manufacturing a luxury and high-tech car by a car manufacturing company. The company aims to provide the audience with a state-of-the-art vehicle, having all the latest functionalities and accessories. Such a vehicle would have features like luxurious interiors, perfect engines, and personalized styling. All these features will increase the price of the car.

To avoid overshooting a customer belonging to low or medium-income groups, the company must target high-income groups who can afford the products. Hence, making the sales of the product possible by targeting the right people.

Benefits of market segmentation by income

All things come up with pros and cons. Market segmentation by income also possesses certain benefits and drawbacks. The following are some of the benefits of income segmentation.

Matching the Customer Needs: with the presence of diversified customers, different requirements rise. The fulfillment of customers’ needs from different income groups is possible by the segmentation of the target audience. This segmentation of the audience is into specific groups based on their income.
Targeting Specific Groups: with the presence of different income groups, many opportunities are available for various businesses to make profits by targeting specific groups.

Increased Sales: by fulfilling the customer needs using market segmentation by income, the company or an organization can increase the sales.
Customer Retention: customers belonging to specific income groups retain their purchases with the companies over time. The companies can efficiently target their customers and provide them with better services.
Increased Market Share: by expanding the market share of different income groups, a very positive environment can be formed, resulting in increased share through the process of income segmentation of the market.

Disadvantages of market segmentation by income

Market segmentation by income also inhibits some setbacks, which are as follows.

Extensive Research: the company or an organization requires extensive research for segmenting the audience into specific groups depending upon their income. It is not practically possible for all organizations because of the lack of experts.
Expensive Process: the market segmentation by income requires the business to spend a lot of money and time hiring experts. These experts will aid in the segmentation of people according to their incomes.

Other market segmentation types

There are four significant types of market segmentation currently in practice. These types are discussed below.

Geographic Segmentation

In geographic segmentation, the market is divided based on geography. Individuals belonging to different regions have different needs and requirements. Hence, this type of segmentation is crucial for marketers—for example, areas having scarcity of water increase the demand for bottled water. On the contrary, regions having water in abundance may have less or no need for this item.

But sometimes, the same product can be used in different regions for different purposes and requirements. In such cases, geographic segmentation helps the marketer to form specific marketing strategies for each segment.

Behavioral segmentation

Behavioral market segmentation is the segmentation of the audience based on their behavior, including their preference, decision making, and usage. This type of segmentation usually relies on the customers’ knowledge and use of the product. The consumers can be segmented behaviorally into the following categories.

The individuals who are most likely to use the product.
Those who use the product frequently.

The individuals who are the first-time consumers of the product.
Those who are aware of the product.
Those who are not aware of the product.

The usage of a product helps label the people and regard them as competitor loyal or brand loyal. For example, a person who likes participating in different sports will prefer to buy an energy drink. In contrast, a dull or inactive person might purchase the same energy drink because he likes its taste as a medium user.

Psychographic segmentation

In psychographic segmentation, the attitude, personality, and lifestyle of people help in their segmentation. The theory on which this segmentation relies is that the consumers’ purchasing perspective can be affected by their lifestyle and personality.

Personality is a combination of various characteristics that form an individual’s distinct character, including temperament, traits, attitudes, habits, etc. Whereas lifestyle refers to the way, an individual lives their life.

Lifestyle and personality can influence the purchasing decision of an individual. For instance, a wealthy person enjoying a lavish lifestyle may think of having an air conditioner in all rooms as per need. In contrast, a mediocre person having a simple lifestyle will consider it a luxury.

Demographic segmentation

In demographic segmentation, different demographic characteristics like marital status, lifestyle, occupation, religion, income, etc., help segmentation. Many industries, like automobiles, beauty products, apparel, and gadgets, consist of demographic segmentation.

Demographic segmentation relies on the theory that demographics can hugely influence an individual’s purchasing behavior. It is because different customers have a different and unique sets of requirements in the market.

Thus, based on these unique requirements, they can be divided into segments. Segmentation by income holds greater importance among all types of segmentation in the market.

Conclusion

Market segmentation is a process that leads to having a homogeneous group of people, which possess similarities in certain aspects. One of these aspects is annual or monthly salary; this marketing strategy is known as market segmentation by income.

As many customers cannot afford expensive products, the company may launch low-cost products for low-income people to gain their satisfaction. Whereas for specific customers, the company can provide great products for people having a high income.

Market Segmentation by income refers to segmenting the market based on an individual’s annual or monthly income. Market Segmentation by income makes it easy for marketers to win both low-income and high-income customers at the same time by providing goods or services suitable for each income.

As many customers cannot afford expensive products, the company may launch low-cost products to gain their satisfaction. Whereas for specific customers, the company can provide great products. This market strategy is known as market segmentation by income.

Finally: People’s financial ability is the most affected factor in buying things. Therefore, income market segmentation is a very effective market strategy.