Income Segmentation - Definition & Importance
What is Income Segmentation?
Income segmentation is when the customers are segmented as per the annual or monthly income they are earning. Income segmentation is best suited for products which are very specific, niche and are priced high. It helps companies to understand the relation between the earning of a customer, the price being offered by the company and the number of potential customers that a company can have.
The customer is divided into various segments as per demography, behavior, psychographic etc. This process in marketing is known as market segmentation. In demographic segmentation, the customers can be further divided into age, gender, income, religion, education etc.
Importance of income segmentation
Income segmentation is way to having a homogeneous group of people having similar annual or monthly incomes. These small income segments help the company to target and develop the products accordingly. Since luxury products are high priced, so there is no point in targeting it to all the customers. Hence luxury products are offered to people who have an income above a certain level, and vice versa. So a better estimation of demand can build up by segmenting the customers into to income group and can be better served.
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Income segmentation example
Suppose there is a car manufacturer who wants to introduce a premium car for its customers. The premium car would have exclusive features like powerful engine, luxurious interiors, personalized styling, prioritized after sales service etc. All these would increase the price of the car. So, if they company targets a normal customer with this car, it would overshoot his budget. Hence, the company would take a decision of have a group of people based on income segmentation who have a high annual income. This would enable the company to focus better on these potential customers and make a sale.
Hence, this concludes the definition of Income Segmentation along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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