For many years, marketing specialists have segmented their target customers to understand who might buy a service or product. It does sound pretty easy. In this article we will explain what market segmentation is, why it is important for your business and how you can approach segmenting markets.
Market Segmentation – Overview & Benefits
Market segmentation refers to the classification of prospective consumer groups, in accordance with their needs and requirements and their tendencies to generate a similar response to a particular marketing action. Market segmentation is a useful marketing strategy through which businesses may divide a homogeneous consumer market of a sizeable proportion into more defined segments, to be better able to understand the dynamics of their target consumers.
Segmenting a market, simply put, is separating a group of customers belonging to the mass market into smaller groups of customers with similar needs and behaviours. In doing so, a company establishes a target for their marketing efforts (i.e., target market) and can, therefore, better customise its services and products to meet the target’s preferences.
The purpose of segmentation is to learn as much as possible about the consumers and with this information begin to craft highly targeted marketing campaigns. Targeting a particular market does not mean excluding people who do not pertain to the criteria. Rather, learning as much as possible on specific people allows you to craft highly targeted marketing campaigns. This is a much more affordable, effective and efficient way to reach potential clients and generate revenues. Now that we’ve covered what Market segmentation is, let us dive into the three-stage process of segmenting our market: Segment, Target, Position.
Two-Way Flow of Information (Customers and Suppliers)
Technology has also created a ‘two-way flow’ of information between customers and suppliers, enabling an entirely new set of customer behaviours and expectations around how, when and where they can buy and use products, and in what form. This isn’t necessarily bad news, rather over time, customer behaviours will be easier to cater thanks to the use of advanced analytics.
So, as the pool of customers’ personalities, needs, behaviours, etc. change over time, it is crucial that companies keep up the pace and consistently correct and revise their segments with new data on real behaviours. You will want information about which benefits and features matter to customers, and data on emerging social, economic and technological trends that may alter purchasing and usage patterns.
Effective segmentation need to be dynamic in two ways and need to be redrawn as soon as they lose their relevance. The first way is, they should concentrate on the needs and behaviours which are rapidly evolving, rather than personality traits, which frequently persist through a person’s life. The second way is that segments are being rapidly reshaped by technology, fluctuating economics, and new consumer niches.
Common Advantages
Ultimately, market segmentation adds to a business’ ability to cater to diverse needs of a considerably sized consumer market, where various sections of consumers may have varied needs, interests and perceptions of different products and services. Market segmentation is vital for every business, which is why some entrepreneurs would opt to take up a marketing fundamentals at an educational level.
- Provides direction – Market segmentation is relied upon as an essential tool by businesses to help them with the identification of consumer segments that consist of their target customers. Hence, market segmentation provides a direction to the businesses for adopting a feasible marketing approach and developing a workable marketing strategy.
- Value creation – As a result of market segmentation, businesses can develop a better understanding of the dynamics of smaller market segments, comprised of their target consumers, as well as that of a large consumer market as a whole. This helps businesses in making informed decisions with respect to the deliverance of their products or services, to their target consumers. Gaining insight into the perceptions and preferences of their target consumers, they are better able to project their offered goods and services as valuable entities for their consumer bases.
- Competitive edge – Since market segmentation is considered as a facilitator towards the identification of specified consumer segments and their respective needs and requirements, as elaborated earlier, it helps businesses in offering their goods and services in accordance with the acknowledge consumer demands. Consequently, through market segmentation, businesses are better able to fulfil the needs and requirements of their target consumers and attain a competitive edge over others. If a company, business or firm ignores market segmentation and ignores their target customer, there is nothing to sell and nobody to sell to. A good market strategy and thus a proper segmentation can increase your competitiveness, brand recall, customer retention, communications and expand your market. In summary – Target the right segment, and you will walk away with a better company and higher profitability.
Common Disadvantages
Though market segmentation is one of the most acknowledged tools of marketing in the present times, still there are some shortcomings that entail the concept of market segmentation, and for that very reason, it is subjected to widespread criticism.
It is often suggested that market segmentation limits a business’ approach towards the identification of and interaction with target consumers. Hence, many point towards the possibility of businesses missing out on any potential consumers, who may not be a part of the identified consumer segments.
- Objective approach and generalisation – Moreover, questions and concerns are raised about the viability of quantitative survey and analysis for market segmentation. Since quantitative studies are more objective in nature, it is possible that relying on quantitative data companies and businesses might not be able to gain some information that may relate to abstract concepts of human behaviour. Individuals essentially show diversity in characteristics and behaviour, and at times it may not be reasonable to generalise and subject a finding to a particular group of people. – Hence, it is argued that applications of market segmentation do not confer to the principles of diverse dynamics of a particular consumer segment and varying individual behaviour.
How to Segment Your Market/s
Identifying the Variables and Gathering the Data – The very first step in segmentation consists of identifying variables through demographics (i.e., statistics that describe a population), geographics (i.e., location issues) and financial information. Most of these variables necessitate the marketer to analyse the customers in the market through primary research methods, like surveys, customer service, or hiring consultants to undertake research projects. Simply put: you will need data.
Going Deeper – The advantage of deeper segmentation is likely to be competitive gains over rivalling companies whose segmentation efforts were more superficial. To get access to such information marketers must be aware that they will spend a surprising amount of resources and time to collect data which customers are sometimes not so keen to share.
Segments To Follow – Whichever approach you take to gain relevant data and segment your market, segments should be fashioned according to the following six characteristics: Identifiable, substantial, accessible, stable, differentiable and actionable.
- Identifiable means you should be able to identify and measure customers’ characteristics, like demographics or usage behaviour.
- Substantial entails a large enough segment to be potentially profitable.
- Accessible means it should be reached via communication and distribution channels.
- A stable segment is one which can be strategically marketed over a long period of time. For example, psychographics may not be wise to use globally because people’s lifestyles are dynamic and constantly evolving.
- Differentiable. The targets in a segment should have similar needs that are clearly different from the needs of people in other segments.
- Actionable means you have to be able to provide products or services to your segments.
To wrap it up – when segmenting your market, make sure you are asking yourself if you have targeted all those potential customers that fit into the segment, whether you understand your target fully, if your target will benefit from your products and services and if they can afford them, and if your idea, product or service is easily accessible. Now all your business needs is marketing objectives and a plan.
Devising a Segment-Led Marketing Approach (Macro)
Next with a granular understanding of your market and segments, it’s time to choose your approach to marketing to those segments. There are four widely recognised strategies for this:
- Undifferentiated or Mass Targeting – With this strategy, the marketing team views the market as one group using a single marketing strategy. As we mentioned earlier, however, while this approach might have been appealing in the initial days of marketing when Ford introduced his Model-T, a limited number of businesses now view it as a feasible strategy.
- Concentrated or Niche Targeting – This approach combines mass and segmentation marketing by focusing on a particular market niche on which marketing efforts are targeted. It is primarily used by small firms which have identified a narrower sub-target of a larger segment that is not served by larger firms. This strategy often allows the former to benefit, as focusing on one segment enables them to compete effectively against larger firms.
- Differentiated or Multi-Segment Targeting – This strategy is used by marketers to target multiple markets using a unique marketing strategy for each. Multi-segment targeting mainly offers benefits to large consumer product firms that offer multiple products (e.g., soccer shoes and baseball shoes) within a wider product category (e.g., footwear).
- Customised or Micro-Marketing – This newest target marketing approach, catalysed by the Internet, is generally used to attract targeted customers with individualised marketing programs. For micro-marketing segmentation to be effective, the marketer must, to some degree, allow customers to “build-their-own” products. As more companies learn to utilise the internet, micro-marketing is expected to flourish.
Summary
Today market segmentation is considered as an effective tool by businesses to enhance their interaction with the target consumer and focus on the allocation of their resources to increase their marketing efficiencies concerning particularly identified smaller consumer segments.
