Market Segmentation – How to Use it and Build Successful Business Efficiently
Market segmentation is a breakdown of the market into smaller parts that meet specific criteria. In other words, it is a market differentiation into segments.
Today without marketing, it is impossible to run a single business successfully, and segmentation is necessary for effective marketing. It is impossible to solve the needs of consumers by filling the market with a product of the same type. If you want to meet the needs of customers successfully, it is necessary to take into account many factors: place of residence, social and financial situation, behavior – all this is reflected in their needs. For this purpose, consumer market segmentation is being carried out.
Manufacturers do not believe that it is necessary to develop a product that meets the needs of a particular buyer, referring to the mass market. However, when some companies want to simplify interaction with the consumer and optimize production, a segmentation of the consumer market is carried out, that is, the identification of people whose views, needs, and opportunities are practically the same.
Thus, the formation of groups of market consumers. Representatives of different segments themselves are very different from each other by many criteria: attitudes, preferences, requirements for products and services, etc. It is essential to use such measures when it comes to market segmentation examples.
Why Is It Necessary to Segment Your Customers
The principle of operation of the expensive goods market is entirely different since the offered products are quite costly and are not designed for the mass consumer. Here, each customer is equated to a separate market. For example, the market for airliners provides an individual approach to each customer. Marketers consider this approach as an extreme degree of market segmentation.
Thus, market segmentation (or segmentation) is a strategy implemented by producers and sellers. Its essence is to divide the market into segments according to the characteristics of the products offered, location, typology, and social affiliation of consumers. The mentioned characteristics are always vital to create the best market segmentation examples.
“There is no specific method by which to segment the market. For each group of customers, it may be necessary to carry out a separate set of measures, since this process involves the introduction of individual products for each segment,”- says Ben Grant, a contributing writer for LinksManagement.
How to Segment Your Audience & Customers Correctly
The first thing to do when conducting the market segmentation process is to choose the features — areas that will be the focus. Typically, when segmenting a market, the following symptoms are distinguished:
- Geographic segmentation.
The market is divided into various regions – cities, countries, etc. For example, a company may operate in one city or many countries around the world. This indicator varies depending on the size of the company, the demand, and the popularity of the product. In this regard, it is easier to work with customers by using geographic market segmentation examples to increase profits.
- Segmentation on a socio-economic basis.
Consumers are divided by profession, income, education;
- Demographic segmentation.
Consumers are divided by age, gender, marital status, nationality, religion. Demographic factors are usually the most significant during segmentation because product preferences and popularity are often associated with them. Moreover, such demographic studies are easy to conduct, and on their basis, it is easier to analyze. Demographic market segmentation examples always have to include the mentioned standards.
- Psychographic segmentation.
The market is divided according to lifestyle, personal qualities of customers, social classes;
- Segmentation depending on the circumstances of use.
Here, the conditions of the purchase, the appearance of the idea of its necessity are taken into account;
- Effective segmentation.
The benefits, benefits of the product that the consumer needs are considered;
- Segmentation by consumption intensity.
The market is divided into groups of weak, medium and active consumption of the final product;
- Segmentation by a degree of loyalty.
Consumer confidence in the brand is taken into account;
- Segmentation of customer readiness.
Buyers are divided depending on their knowledge of the product, on the desire to purchase it.
For example, it will be more profitable for a manufacturing company to focus on active buyers (in terms of consumption).
The Primary Criteria of Market Segmentation
There are several criteria for market segmentation, based on which there is a choice of the above signs.
The importance of this segment for the enterprise (expensive cars will not be made for a poor category of citizens), its quantitative indicators (market niche and capacity), the profitability of this segment, its availability for the enterprise, the absence or presence of little competition, and the possibility of developing this segment.
First is the method of segmentation. It is foolish to take into account the number of blondes and brunettes among sugar consumers because hair color does not affect the demand for this product. Therefore, the characteristics of the usefulness of market segments are distinguished:
- Expresses the degree to which one or another indicator can be measured. For example, it is hardly possible to easily measure the number of left-handed and right-handed people; therefore, the measurability index of this parameter will be low;
- This value is characterized by the ability to provide this category with the right amount of products;
- This is the profitability and coverage of the segment;
- This is the probability with which success can be achieved in this segment.
The Vital Targets of Market Segmentation
- The explicit goal. The seller’s attention is focused on groups who are interested in their product. It is these consumers who will be targeted by the seller’s market efforts, as they can satisfy requests. As a rule, representatives of such groups pay attention to the product/service, because they need it and can pay for what is needed.
- Hidden target. Increase competitiveness. In market relations, competition merely is inevitable. As a rule, a product/service has analogs that other companies offer. Therefore, it is necessary to distinguish consumer groups for which it makes sense to provide their products, and which do not.
In other words, to increase your competitiveness, you need to identify the groups (or one group) whose consumer needs you can satisfy so as not to waste neither effort nor money.
If segmentation of the target markets is carried out, your company will be able to satisfy the needs of consumers better than competitors, which will increase the interest of the audience.
Market Segmentation – The Basics That You Have to Learn Once and Forever
The following key points are the basics of market segmentation, and it is recommended to learn them.
Correspondence of groups of goods and consumers
The principles of market segmentation suggest that the properties of the products must match the characteristics of customers. To do this, you need to know the answers to the following questions: who represents the segment and what do they need? If the needs of consumers coincide with the characteristics of the product, then this is excellent. Consequently, the result of segmentation will be the coincidence of both the features of customers and the properties of the product.
Segmentation of the consumer goods market is possible after making specifics in the product characteristics. Moreover, it is necessary to carry out full details. For example, your product is a watch. If you have only these data, it is impossible to carry out segmentation, since there are many varieties of watches – from wrist or pocket to tower or floral.
Segmentation is also impossible if you take a very narrow characteristic of the watch, for example, a specific model. In this case, the results of segmentation will be too subjective, which will prevent the creation of an overall picture. This approach will reveal only two groups of consumers: those who like this model, and those who are not at all interested in this watch.
Detailing product properties
Segmentation is based on the most significant consumer properties. Naturally, the segments will be determined based on the features of the product, which will be called vital. These include properties that can attract the attention of consumers. For example, a segment became more attractive when, as a critical property of a Teflon-coated pan, instead of “cook without adding oil,” it was determined that “food does not burn.” Thus, market segmentation has identified a group of consumers for whom delicious food, albeit not quite wholesome, is a crucial property.
Segment Key Levels
To correctly identify the segment, market segmentation, and analysis of the following parameters should be carried out: relevance, size, volume, competition, income. Such a study is a fairly time-consuming process due to the need to collect a large amount of data, so marketers practically do not. To give a preliminary assessment, sometimes, a qualitative analysis is enough.
Fundamental Methods to Segment Your Customers Properly
There are traditional methods of market segmentation (a priori and cluster) and new methods (flexible and component).
When using this method, a search is done for natural clusters (market segments). At the same time, goods are selected for the part. Many characteristics of the buyer are highlighted, and among them are chosen those that are most important for the sale of this product.
So gradually, a rough portrait of a potential buyer is compiled. Then there is a selection of characteristics that are slightly less important in this case (and so on for several stages).
With flexible segmentation, a flexible approach to segmenting is assumed. An analysis of consumer preferences is carried out, in which alternative versions of the product are taken as the basis.
A component analysis is based on determining the type of consumer who will be interested in some characteristics of the product. The last two methods (flexible and component) require substantial computational costs and therefore are rarely used at present.
A priori method
Its basis is the previous knowledge of the researcher about the market. Before starting market segmentation, the researcher already has a basic understanding of the needs, needs, and desires of consumers.
After this hypothesis is tested in the course of marketing research, that is why this method is called a priori, that is, experimental.
Strategies of Market Segmentation That You Can Use As Advantage
Concentrated segmentation is a strategy that involves the promotion of one product within the same group. Typically, this strategy is chosen by small companies with relatively modest resources. Such enterprises can make a very substantial profit by gaining a strong position in one market segment.
If a company is working on increasing segments by offering a single product to several groups of consumers, then the sector is growing, and therefore, profit is growing. The company begins with the implementation of a strategy of concentrated segmentation, and then to increase the market moves to a plan of expanding segments. As an example, we can consider the experience of Kellogg, which began its activity with one section – children. Then market segmentation was carried out, and they expanded the spectrum of their actions by attracting adult customers.
Assortment segmentation is a strategy that involves the offer of several products to one segment. Of course, there is an absolute risk to this strategy. As in the above, here all the goods are concentrated in one place and focused on a single segment. For example, if giants such as Reebok or Nike decide to enter the market for kids, then Toddler University will be squeezed out of it.
Focus on multiple segments at once
If you focus on several segments is a strategy used by large companies offering several types of products. This strategy is called “differentiated,” as companies make the offer individual for specific segments. The practice of banks shows that, by offering several types of credit cards, they periodically changed marketing strategies: first they used a concentrated approach, then they switched to expanding segments, and then to differentiated ones. If you want to ensure continuous growth, a strategy of expanding the range within the framework of the plan of work in several segments is being implemented.
First, they launched the release of Golden Cards, which opened up new opportunities for their owners, and then introduced the Platinum cards to emphasize the prestige of the client. This approach led to the fact that market segmentation involved all categories of customers – from the lowest to the highest.
Differentiated segmentation is considered the most powerful strategy, although its implementation is fraught with some risks. This is inevitable, as the company disperses its efforts into different segments, which leads to increased costs. Moreover, the higher the production costs, the smaller the production batch. Another minus is the increase in advertising costs because the promotion of a product in different segments requires separate advertising campaigns. And, in the end, the introduction of new products requires certain investments in their development and modification.
Market segmentation is a specific process in marketing in which segments (consumer groups) are formed. We research the market and form groups, and then it turns out that the behavior of the various segments is precisely the same, which is often the reason for the collapse of all efforts.
Marie Barnes is a writer for Bestforacar and an enthusiastic blogger interested in writing about technology, social media, work, travel, lifestyle, and current affairs. She shares her insights through blogging. Follow her on Medium.