Market Segmentation is one of the steps that go into defining and targeting specific markets. It is the process of dividing a market into a distinct group of buyers that require different products or marketing mixes.
A key factor to success in today's market place is finding subtle differences to give a business the marketing edge. Businesses that target specialty markets will promote its products and services more effectively than a business aiming at the "average" customer.
Opportunities in marketing increase when segmented groups of clients and customers with varying needs and wants are recognized. Markets can be segmented or targeted using a variety of factors.
The bases for segmenting consumer markets include:
Demographical bases (age, family size, life cycle, occupation)
A business must analyze the needs and wants of different market segments before determining their own niche.
To be effective in market segmentation keep the following things in mind:
Segments or target markets should be accessible to the business
Each segmented group must be large enough to provide a solid customer base.
Each segmented group requires a separate marketing plan.
What exactly is Segmentation?
Segmentation is an often used word in marketing circles. It generally refers to the division of a market or customer base into uniform groups that react differently to marketing and sales activities such as promotions, communications, and advertising. The idea is to determine the best groups or segments and a set of characteristics about each of these groups, so you can target them with a finely tuned mix of marketing and sales programs. The trick, however, is figuring out what these segments should be.
Choose the segments, then fit the data
This technique is pretty much what it sounds like. By whatever means, the segments are chosen and then each data record is assigned into one segment based on the boundaries established for each segment. Often these segments are decided by intuition, analysis of secondary data sources, analysis of internal customer databases, or similar means.
For example, segments could be:
Customers who ordered less than 12 months ago vs. those who have not
Single purchasers vs. multi-purchasers
Customer lifetime value greater than $1,000 vs. those less than $1,000
North vs. South Regions
Why should I segment?
There are many long-term benefits derived from proper segmentation. Here are a few of more impactful ones:
Tailored marketing generates better returns. Knowing how each segment behaves allows you to tailor messages and promotions specifically that group. As a result, response rates go up and the total revenue dollar impact can be significant.
Cost Savings. Think about how much wasted mail you receive each day because you are not really a prime target for the promotion. Segmentation can help you determine which groups are the best targets for promotional material and which groups just represent wasted dollars. Segmentation analysis can cut out a great deal of waste in the marketing plan.
Higher Operating Efficiency. Segmentation can have a rippling effect on the efficiency of your organization. For example, are account managers spending equal time on all accounts or are the “high potentials” receiving the special attention they deserve? Once you know the characteristics of each segment, making optimum resource decisions become straightforward.
Higher Customer Satisfaction. Many studies have shown that messages and programs that are highly relevant to a customer’s interest shows your company’s value and improves customer satisfaction. In addition, you’re less likely to irritate certain customer groups with irrelevant promotions.
SEGMENTATION
