Have you ever wondered how some businesses seem to find their target customers almost overnight, whereas some other firms rarely seem to make it in the market in spite of having better quality products? Or how come Baidu turned into one of the social media platforms in China but is still relatively unknown to the rest of the world? Or how Coca-Cola advertisements generally promote youthfulness and the celebration of life? Companies often take up various strategies to identify customers and promote their product, and this often dubbed as market segmentation.
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Market Segmentation: Know Your Customers
What Market Segmentation Stands For
Market segmentation is the process that allows the division of an existing and potential consumer base or commercial market, into sub-groups called segments. This division into segments is often carried out based on some shared characteristics or attributes that the consumers possess. Using this method to identify consumers, businesses can target their customers better and allocate more time and resources into promoting their activities and catching their target customers’ attention.
Why It’s Important
The idea behind market segmentation is that various marketing programs need to be followed for different marketing segments. This can be done through pricing policies, offers, promotional activities, advertisements or a combination of one or more.
For example, a fast-food restaurant or a bookstore may offer student discounts in order to boost sales from students, their target group in this case. Market segmentation can also use to identify the various types of customers a particular business has, and their various purchasing motivations. This information can then play a crucial role in developing marketing strategies and be key in planning future ones.
In addition to this, segmentation can make a business more efficient in terms of money, time, manpower, and other resources as more effort is spent on entire groups rather than individuals. Segmentation allows businesses to reduce their costs and energy, and thus allows room for growth.
Thus, through the use of segmentation to identify customer groups, a business can reduce their risk of an ineffective marketing campaign. With more information about the consumer groups, a business can launch personalized campaigns for each of the market segments rather than one universal campaign for all segments. Therefore, affecting their reach.
The Types of Segmentation
When carrying out market segmentation, a firm looks for characteristics that’d bring its customers under one roof. This allows a business to identify and analyze its high yield segments. The segments that are more likely to bring in profits for the business or have the room for the highest growth. Some businesses focus on other businesses as their customers. Which requires their segmentation to be dependent on lifestyles and countries. Other business focuses on individuals. Thus rely on their shared needs, interests, lifestyles, culture or their demographic profiles.
There are many ways in which a business divides its customers in the market. And predict how they will respond to a change in the market or a promotional activity. Usually, the prime types of segmentation are as follows:
When a market is divided into segments based on elements such as race, gender, occupation, nationality, age, religion, educational qualification, income, etc. It generally falls under the category of demographic segmentation. Since a customers’ willingness and purchasing power oftentimes depends on their demographics, this is one of the easiest methods for a business to identify its target groups. For example, a billionaire would be more likely to have a meal at a five-star hotel than a person from a middle-class family.
Behavioral segmentation focus on behaviors and patterns by consumers that determine their purchases, consumption, and usage of a product. This allows the business to have a more targeted approach in determining its consumers. For example, fitness-minded individuals are more likely to buy exercise equipment than other consumers.
In psychographic segmentation, business delves into the psychological aspects of a consumer. Taking into account their lifestyle, likes and dislikes, values, opinions, and interests. For example, a paint supply company may focus more on its artistic minded consumers to drive sales and boost up their business growth rather than on all its consumers in general.
Although this loosely falls under the category of demographic segmentation, geographic segmentation is easiest and the largest of all segmentation types. As the name suggests, geographic segmentation concentrates on geographical boundaries to tap customer potential. Whilst the physical location of the countries matter, a large part of the segmentation also depends on the culture and tradition followed, Due to those boundaries and the climate that the citizens there face.
Whilst similar to demographic segmentation, firmographic segmentation differs in the sense that in this case. Businesses concentrate on firms whereas demographic segmentations concentrate on individuals. A business may take into account factors such as the size of the company, number of employees and the firms’ products in determining the business’s target market.
Factors to Consider
To take a viable market segmentation strategy, a business must keep several things in mind. The market segment must be identifiable. That is the customer groups should be distinct enough to be recognized within the market. The segments created must also be accessible, which would allow the business to reach their target customers to promote activities.
The responsiveness of the customers to the decisions undertaken by a business must also be taken into consideration. The target market segment must also be substantially large enough for the business to turn in a profit – a property dubbed as substantiality. Lastly, these would all be for not if the segmentation strategy taken cannot be executed. Thus it is also important for the strategy to be actionable so that the business can make informed segmentation decisions.
In conclusion, market segmentation is one of the most important first steps that a company can take in order to settle on a strategy to promote their business and form a loyal customer group. Thus, a business must take decisions wisely when following a market segmentation strategy and choosing their target markets.