Market segmentation is the act of grouping potential customers. The process involves segmenting customers that share related needs into sub-groups. Customers that share common characteristics are also divided into subgroups.
What’s the purpose of market segmentation? Identifying the most profitable segments is one of the main reasons for segmenting. The process allows organizations to identify, examine and pursue valuable customers.
In addition, the segmentation process helps businesses develop a better understanding of what customers require. It also gives companies the ability to identify consumers buying motives.
How Does Segmentation Impact Your Company?
The segmentation process gives your organization the ability to focus marketing efforts on high yielding customers that have the highest growth potential. This means that market segmentation helps you to find (groups) customers who are likely to buy your products or services.
Four ways market segmentation benefits your company:
- Help your company grow
- It gives you the ability to understand your customers
- Discover valuable customers
- Identify effective marketing messages
In addition, it allows you to discover market opportunities. Opportunities are essential for businesses because they allow your company to grow. Most importantly, opportunities help you outperform your competitors.
What is a market opportunity? A market opportunity is a situation in which an organization has the chance to earn a profit. It is basically a case where organizations can gain an advantage or make a breakthrough.
Opportunities can arise in many forms which include; technology, product development, product enhancement and technological advancement. Thus, they are easy to overlook and hard to find because they come in so many shapes and forms. Therefore, it’s crucial for organizations to be in the right place at the right time.
Segmentation Helps You Identify High Yielding Customers
Segmentation helps you find customers who are likely to purchase your product(s). For example, you may target groups like people who work out, people interested in skin products, or individuals who like eating out. In other words, segmentation helps your organization identify people who have an interest in your product or service.
You may have the most valuable product on the market, but it will be of no use to you if customers never hear about it.
Truthfully, it’s impossible to target every customer. More importantly, most customers do not purchase products from every industry. Therefore, it’s important to identify high yielding customers.
Market Segmentation Helps You Understand Targeted Customers
The segmentation process consists of the development of profiles for key segments. Creating profiles enables you to understand targeted customers.
To tell the truth, understanding the needs and wants of customers is one of the most important aspects of marketing. In layman terms, discovering your customer’s desires makes it easier to sell products. More importantly, if you understand what your target customers desire, you can develop products that cater to them.
The most important matter you should understand is without customers, your business will not exist. Therefore, it’s important to understand your customers prior to developing other business factors. Developing an understanding will essentially help you reach your business goals and objectives.
Consequently, your company can attract potential leads and customers, in some cases attracting customers from competitors. Therefore, it’s highly recommended for entrepreneurs, small companies and large companies to exploit distinctive forms of advertising.
4 Types of Market Segmentation
Marketing is one of the most challenging aspects of business. It’s easy to develop a product and launch a business. However, marketing your company is a different story altogether.
The main objective of a marketing message is selling the right thing–to the right person-at the right time. Of course, you must have the ability to reach customers to accomplish this task. Luckily, there are 4 effective market segmentation techniques that will empower you to achieve this matter.
The 4 types of market segmentation are demographic segmentation, behavioral segmentation, geographic segmentation and psychographic segmentation. Keep in mind, the insights you gather must be precise, because they provide input for the marketing plan.
Demographic segmentation is dividing groups into subgroups based on quantified population characteristics. In other words, customers are segmented using numbers and statistics.
- Family size
- Socio-economic status
Behavioral segmentation entails segmenting customers based on their consumption patterns. Purchasing methods which include; needs-based, want-based, purchase-frequency and customer-loyalty.
- Level of product usage
- Previous purchases
- Product knowledge
- Purchase patterns
Geographic segmentation involves identifying your target market based on their physical location. This type of segmentation benefits local businesses and independent contractors that specialize in seasonal marketing.
- Postal code
Psychographic segmentation is the act of segmenting customers based on their lifestyle, social or personal characteristics. It is one of the most powerful techniques of grouping; due to the fact it deals with human psychological attributes.
- Personal characteristics
- Social characteristics