A business often divides its potential markets and consumers into subgroups called segments, to have a better understanding of the market. It is important to establish a market’s buyers before entering a new marketplace or launching a new product campaign. Breaking down a market’s customer base into smaller groups based on specific characteristics allows a business to respond to personalized consumer needs dependent upon the segment. This allows a business to maximize profitability and work more efficiently. As more time and resources are spent on market segments that would help a business to achieve its goals.
Market segmentation analysis is essential for any marketing campaign by a business. In market segmentation analysis, the business studies and analyzes its customer segments to understand their characteristics such as age, gender, income, personality, and location and relate how it affects their purchasing decisions. Thus it becomes easier for a company to target a small section of consumers. The methods chosen by the business to promote their products depend upon the target customers selected.
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A Short Guide to Market Segmentation and Its Analysis
The Types of Segmentation Analysis
A company can carry out market segmentation analysis using any of the following methods:
One of the most commonly used methods for market segmentation analysis. The term ‘a priori’ comes from a Latin phrase popularized by the Prussian philosopher Immanuel Kant. It refers to knowledge that is gained from theoretical deduction rather than through experiences or observation.
In terms of marketing, this refers to assumptions that are made about the different segments that give some form of information about the segment. For example, it can be generally assumed that youngsters would be more likely to buy video games and tech gadgets compared to senior citizens. Although this is based on some form of theoretical deduction, in the future this might not hold to be true.
In usage segmentation, the customers are sorted based on their usage of a product or service. This is important as it can use to identify which group uses most of a product or service. Which can use to determine the most profitable segments in the market?
Usage segmentation can be of two types: pereto or decile analysis. In pereto analysis, the segments are broken down into two parts – the top 20% and the remaining 80%. In decile analysis, the segments are divided into ten equal parts. Each form of analysis has its own advantages and disadvantages, and businesses must choose wisely in which path to follow.
Customer data can also be grouped to provide information about their purchasing preferences, which is known as cluster analysis. However, creating customer psychological profiles using cluster analysis is difficult as it depends on the customers and the input data used. Although the initial analysis is difficult. It can be an extremely useful tool to understand customer motivations in the market once the segmentation is complete.
Needs-based segmentation concentrates on dividing a market into segments based on customer needs. It allows the determination of the motivating forces behind a market’s sales and performances. Focusing on needs-based segmentation allows businesses to focus on products based on what the customer wants rather than what the business is trying to sell.
The Types of Segmentation
However, for a business to settle on a segmentation analysis method that would allow it to look into customer profiles in detail. It must first take a look at the customers themselves. This can be done in numerous ways, a few which are as follows:
Psychographic segmentation is the breaking down of consumers based on psychological factors such as their personality, behavior, lifestyle, values, opinions, and aspirations that influence their buying habits.
Usually, the most common form of segmentation, demographic segmentation focuses on demographic aspects of a consumer such as their race, age, sex, educational qualification, marital status, ethnicity and much more. It is one of the most widely used types of segmentation as it plays a large role in determining a consumer’s choices.
A subset of demographic segmentation, geographic segmentation relies on geographic locations of a market’s customers to understand their purchasing motivations. This can consist of several attributes such as climate, culture, frequency of natural disasters, population, etc.
Although household income is one of the several indicators of demographics, price segmentation takes a look at it in much more detail. Price segmentation focuses on how market prices and personal income affect consumer choice and divides customers based on that information. For example, a luxury car such as a Ferrari is more likely to be purchased by upperclassmen than a working-class. Who might spend their income on some necessity good?
The Segmentation Analysis Process
Both the segmentation itself and the analysis of the market segmentation plays a crucial role in a market’s decision-making. But how does a company carry out the segmentation process? Oftentimes the overall market is enormous, a business chooses particular segments to focus their sales on. These are called micro markets – smaller markets within the overall market of the business.
By focusing on the micro-markets based on the various characteristics mentioned above, a business can find its target customers. The most attractive segment, which would allow the business to maximize profits. A business can then start advertising their products or launch special marketing campaigns to prioritize its target customers and make them lean more towards buying their product.
Since a business often has budget and resource limitations, focusing on a specific market with some shared characteristic allows the business to make the best use out of their resources.
In summary, a business breaks its market down into several segments to understand customer preference and maximize their profits. However, the segmentation process and the segments were chosen need to be analyzed profusely so that a business can achieve maximum growth in the economy.