7 Amazing Market Segmentation Strategies for Your Business
Market segmentation essentially involves a complex process of identifying the broad market within which a business is operating, and then breaking down that market into segments in order to find the most relevant niches and develop business strategies suitable for each, accordingly.
A lot of marketers fail when it comes to segmentation because of generalizations and stereotypes they have developed over time. Examples of these include such preconceptions as all teenagers have a rebellious tendency, or all elderly women are loyal to the same cosmetic brand.
These kind of preconceptions are actually misconceptions. This is because demographics are multi-level and buyer behaviour can be influenced by factors such as trends, culture, seasons and location. So to approach market segmentation with a narrow mind is to invite failure even before you have implemented any business strategy.
If 80 per cent of the product or service that you offer is consumed by 20 per cent of your customers, the goal of segmenting will be to prioritize the 20 per cent and find others who are like them.
Defining the Segment
Market segmentation has the potential to empower the business you are involved in to gain an edge and become tremendously productive irrespective of how challenging and competitive the industry is.
Following the 80/20 rule, you understand that 80 per cent of the product or service that you offer is consumed by 20 per cent of your customers. The objective of market segmentation here therefore, is to prioritize the 20 per cent and find others who are like them.
In this way, you will be able to achieve optimal results by investing in that group and you will be able to sell more products with much less effort, compared to the situation where you are trying to reach the whole market. This is how you achieve higher sales volume and gain profitability.
Your market segment is comprised of those people out there who are genuinely interested in your product and consume it. Through market segmentation, you can profitably target, engage with, do business and get reviews from loyal customers.
In order to have an effective market segmentation strategy, you need to have a segment that is:
- Measurable: Crucial data for the business can be gathered concerning the segment
- Profitable: Large enough to realize the desired volume of sales
- Reachable: Can be covered by your business' distribution system
Study the sales strategy your competitor(s) is using and find out which products are being offered to buyers that are either similar or identical to yours.
Bear in mind that customers that are loyal to you are also being offered several other products and services out there through various sales methods by the competition. Therefore, you need to have a solid plan on how to retain them.
The Seven Strategies
There are seven steps involved in market segmentation:
1. Identify the Wider Market
You need to be able to define the broader market within which your business operates. To have an idea of this, study the industry you are in.
What kind of consumers make use of the products or services that your business offers? What are their characteristics?
2. List Potential Customer Needs
This is a brainstorming session. consider the wider market you have identified, and ask yourself the question, "What needs do these potential customers have?"
The more the customer needs you can identify in this list, the better positioned you will be in terms of business effectiveness. This is because you will not just be making marketing decisions, you will be making informed marketing decisions.
You may start writing down this list and then at some point you hit a wall or draw a blank. If this happens, simply place yourself in the shoes of your potential customers and ask yourself, "Why would I want to buy this product or service?"
You will need to establish what exactly can move them to make a purchasing decision. Asking yourself the relevant questions will enable you to identify the exact needs that potential customers have in your market.
3. Create Sub-Markets
Once you have a clear picture of who it is you would classify as your typical customer, there is a process you can follow that is suggested by McCarthy and Perreault. It involves creating sub-markets around that typical customer, and then aggregating similar people into that segment based on the fact that you will be able to meet their needs using the same marketing strategy.
The way to do this is to open a spreadsheet and begin documenting the segment. At the top a new column, type in the specific need(s) you will be meeting as the title. Then decide whether a given individual should be included in that first segment, or you should create a new segment for that person.
For each narrow market you have formed, include the demographics and need characteristics of the people in that market. For this exercise, there is no specific formula that can be used to identify the narrower markets, so you will need to rely on your experience and best judgement. You can also distribute a questionnaire or create a poll in order to collect statistics that will help you have a more accurate understanding.
Avoid being everything to everybody. Your business videos, messages and other promotional communication need to be tailored based on your niche, which is what you have defined as your market segment.
4. Process the Need Dimensions
Once you have completed making a list of the need dimensions of each market segment, the next step is to determine which ones have bear determinative value.
In other words, which needs make a difference in the decision-making process of that potential customer?
There are some which just fall under the category of general wants and wishes, but for the purpose of effective marketing, we need to identify the needs which are acted upon.
5. Label Each Segment Market
Once you have established what the determinant dimensions of your market segments are, the next step is to review and give each a suitable name.
For this exercise, you need to rely on the most significant determining dimension. What is the key determinant that characterizes that particular segment?
6. Evaluate Behaviour
After labelling the market segments, consider what other characteristics you are aware of concerning these markets.
What is the market behaviour and what triggers it? Most segments may have what appears to be similar needs, but in actual fact, they are different needs.
Once you understand the different needs involved and how they are distinct from each other, you will be able to diversify your strategies and approaches accordingly. This will help you to become more effective and successful when dealing with competing offerings.
7. Estimate Size
Once each segment has been identified and examined, it is necessary to have an estimate of the size even though this may have to be only a generalised figure at first.
The estimate will be essential for the stages of sales forecasting and marketing that will follow later on. So try as much as possible to do the relevant research in order to get the most accurate data as this will make idea formation and implementation easier afterwards.
Once this seventh step is completed, you are ready to adopt marketing strategies, products or services for each market segment which are tailored appropriately.
Your market segment is effectively your niche where you need to customize your marketing efforts for your products and services in the best way and most fitting manner possible. This will enable you to avoid the disadvantages and losses of producing en mass. You will instead be able to produce on-demand.
Due to modern advances in technology, it is possible today more than ever to customize. Owing to the increasing demand of customers for more and better products and services, the one-size-fits-all approach no longer yields effective results.
Everything you build, including your website and online presence, needs to be constructed based on the characteristics of your market segment. Your business videos, messages and other promotional communication need to be tailored based on your niche, which is what you have defined as your market segment.
Avoid trying to be everything to everybody. Being a jack-of-all-trades and master-of-none will not yield results in today's world. Market segmentation will show you how to differentiate yourself.
The more specifically you are able to customize your approach to the customers you are dealing with, the more they will be inclined to identify themselves with your products and services. This is an effective way of building your business.
So differentiate yourself by personalising your approach. Don't generalise. Instead, take the time to understand your audience properly. This may take you more time and sacrifice, but it will be rewarding in the long run.