Segmentation Strategies: Who Are Your Customers?

3 min read

Segmentation Strategies: Who Are Your Customers?

A company divides its consumer base, consisting of its present and future customers, into many sub-groups known as segments. Which are chosen based on some form of shared characteristics? The underlying idea implies that a market or business can reach its targeted customers more easily by personalizing its promotions and pricing policies based on the segments of its customers.

It analyzes a customer’s interest and purchasing power for a product or service to determine its target consumers. Which can then be used for strategy and planning? Objectives are planned and developed using three key processes known as the S-T-P approach: segmentation, targeting, and positioning.

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Segmentation Strategies: Who Are Your Customers?

The S-T-P Approach

Each of the three processes plays a crucial role in a marketing campaign and creating a target consumer base. In the first stage i.e. segmentation comprises the identification of the market to be segmented. And the breaking down of its customers into several different profiles based on their shared attributes.

Next, the segments are sorted and filtered, and the most attractive and profitable segments are chosen by a business to sell its products. This is known as targeting. Lastly, by market positioning, a business displays its advantage and position over other competitors in the consumer’s eyes to become the preferential choice of the consumer.

Properties of a Segmentation

Properties of a Segmentation

The first step in choosing a market segmentation strategy is crucial for a business. A strategy must exhibit several properties that would allow it to divide its consumer base into subgroups accordingly. A segmentation strategy undertaken must be accessible and actionable. The consumers targeted should be reached easily and effectively. The segment should also be identifiable, that is the consumer groups should be such that they can be recognized easily.

It is also important to consider the profitability and stability of the segments. How much profit the segments will sustain the business. Lastly, it is important to note how the various segments are responding to changes in the market so that the business can take decisions more effectively regarding the market.

The Four Horsemen of Market Segmentation

Once a segmentation strategy has been identified, the segmentation is carried out primarily based on four principles:

  • Demographic Segmentation.

In many cases, segments are chosen based on demographics, which consist of but are not limited to age, sex, income, educational qualification, ethnicity, family size, religion, and many others. By identifying which population groups are more likely to consume their products or services. A business can decide how to proceed regarding the promotion of those products or services.

  • Geographic Segmentation.

Loosely a subset of demographic segmentation, geographic segmentation consists of dividing segments based on geographical locations, as well as its climate, tradition, and culture. All of which play a role in the consumption of a product.

  • Psychographic Segmentation.

Psychographic segmentation deals with the psychological aspects of a consumer. Taking into account a consumer’s behavior, opinions, and lifestyle choices to market their products. For example, a company can advertise organic foods to health-conscious individuals to boost their sales. Whilst at the same time concentrate on customers who buy organic foods because it is trendy to do so.

  • Behavioral Segmentation.

Behavioral segmentation deals with segmenting consumers based on how they view a particular product or service. It concentrates on what a customer expects, perceives and responds to a particular product released by the business. It researches customer behavior to determine how customers choose to spend their money and time and what motivates a customer towards a particular product. This type of segmentation can work as a bridge between customers and the business to identify product gaps and manage customer expectations.

Planning a Segmentation Strategy

Planning a Segmentation Strategy

Taking up a market segmentation strategy is a lengthy process, and consists of many subsets for it to be executed perfectly. Primarily the execution of a market segmentation project can be broken down into five steps:

Step 1: The Set-Up

To determine a business’s current customer segment, the business must first take a look internally. It must be clear on what it is trying to achieve through this segmentation and how it should be planned. The business must have a clear understanding of its goals, stakeholders, the project’s parameters and the output to be received. Once identified, the business can start working on a detailed outline to achieve its targets.

Step 2: The Analysis

For the business to segment its market consumers, it must then develop some form of standard criteria against which all data collected will be measured. This is determined based on the economic benefits and the profit/loss incurred by the business due to its customer base.

Step 3: The Collection

Once a criterion has been, it is now time to determine the customer’s characteristics and use that information to identify the attractiveness and profitability of various segments. This can be achieved by means of market research on a company’s customers as well as its competitors.

Step 4: The Validation

Next, in a customer segmentation process, the criteria and characteristics now determined will need to be evaluated and validated. This would require large amounts of data about the customer base of the base. Thus, will use up a large portion of the time and effort of the business.

Step 5: The Feedback

Lastly, the data collected from the customer base will need to be compared against the original customer characteristics and criteria set by the business in the former steps. As a result, a company will be able to identify its best quality customers in the business and segment them accordingly to maximize its profits.

In conclusion, it can be seen can not only is segmentation important to a business because it plays a key role in marketing at present. But also because it allows a business to identify its customer profiles and thus plan its future decisions and monitor its progress. With the right segmentation strategy, a business can easily tap its full growth potential to become a dominating force in the market.

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