Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers or segments. Segmentation is based on some type of shared characteristic of existing and potential customers. B2B companies might segment according to different types of businesses or countries. B2C companies could use demographics, lifestyle, behavioral or any other meaningful data points as their segmentation strategy.
Market segmentation is designed to identify the most profitable segments and also to develop profiles of key segments (target markets) to better understand their needs and motivations. Although it can be a costly and complicated exercise, it can also be simple and inexpensive. Regardless of the approach, target market segmentation is essential for effective brand management and to achieve competitive advantage.
The Basics of Market Segmentation
The market segmentation process assumes that different customers require different marketing strategies. These include offers, prices, promotions, distribution channels or a combination of factors.
A range of tools is available to help conduct market segmentation but going back to basics is essential. This means focusing on what consumers want or need to identify how a product or service can meet their preference.
Results from segmentation analysis are subsequently used to support marketing strategy development and planning. Many marketers use the STP approach (Segmentation, Targeting and Positioning) to provide the framework for their marketing objectives. A simple representation of this process looks as follows:
- S – First, segment a market.
- T – Then, select one or more segments to target.
- P – Position products or services in a way that resonates with the selected target markets.
A major step in the segmentation process is selecting a suitable base. Here, marketers identify means of achieving internal homogeneity (similarities within segments), and external heterogeneity (differences between segments). Selecting the right base requires a great deal of thought and a basic understanding of the market to be segmented.
Using SMART Goals For Market Segmentation
Research has shown that setting specific and challenging goals lead to better overall performance. SMART goals are a more effective way to provide the necessary clarity, focus and motivation to achieve your goals and can be characterised as follows:
Be specific and state exactly what you want to achieve. Your goal needs to be clear, unambiguous, and effectively answers What, Who, Why, Where, and Which.
There really is no point in setting goals if you’re not able to track your progress and review your results. Always measure your goal with certain criteria as this helps you identify problems along the way so you can change your strategy accordingly.
It’s important to always push the limits but be realistic about your expectations by focusing on your strengths and weaknesses to find a balance between challenging and doable. Setting your goals too high could result in frustration and an inability to finish what you started.
In order to achieve success, goals must be relevant and aligned with the business’ broader objectives. Determine if the goal is worthwhile, if the resources are available and if it’s relevant to the overall marketing strategy.
A goal with a deadline or scheduled start and end dates often convey a sense of urgency which also helps establish the importance of the goal. It is essential to determine the right time to pursue your goal and also a reasonable timeframe.
Market Segmentation is a convenient method marketers use to reduce costs and increase conversions. Effective segmentation allows marketers to be more organised and specific in their planning, yielding better results.
In part 1 we focused on the basics and how to effectively use SMART goals. Part 2 will include a more in-depth look at the types of segmentation and possible influencing factors.
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