Market Segmentation

Understanding Different Customer Needs

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Do you use sunscreen?

Thanks to our growing awareness of the damaging effects of the sun, the sun protection industry is booming. But have you ever wondered why there are so many different types of sunscreen on offer?

The answer lies in "market segmentation" – dividing up the market for a product into groups of people with similar needs, so that these needs can be addressed in a focused way.

Initially, sunscreen was marketed according to skin type and climate. But as the industry grew, companies targeted different segments of the market according to gender, age, and attitude… hence the wide range of products available today.

This article looks at market segmentation, and how you can use it to promote your product or service more effectively.

Why Use Market Segmentation?

Market segmentation is a strategic approach that helps you offer a highly tailored service to people in your market. As such, it helps you boost sales significantly and command a higher price from customers.

Returning to the sunscreen example, market research revealed that a person's attitude to the sun has a significant influence on the products they buy. Sun avoiders typically buy little or no sunscreen, because they are conscientious about staying out of the sun. Careless tanners, on the other hand, avoid sunscreen, or buy products with very low level protection, because they believe that sunscreen will prevent them from getting a tan.

Through market segmentation, the sun protection industry targets these two very different attitude groups with very different products and messages.

Segmenting your market in this way helps you to meet all of your customers' needs, and even if you're selling the same basic product to all segments, you can often develop packages of add-on products and services for different groups.

For example, if you're promoting a computer to home users, you might bundle it with family-friendly games. But if you're offering the same machine to small business users, you might bundle in a wireless headset as a bonus, instead.

In many cases, marketers intuitively understand what their market segments are. However, a formal analysis is useful to help ensure that you don't miss out a significant group.

When to Carry Out Market Segmentation

You consider how to segment your market once you have chosen the scope of your target market.

When you've decided how you want to segment your market, you can then design an appropriate marketing mix for each segment.

Choosing Market Segments

Market segments must always be distinct from each other yet the people within each segment must be similar in relevant ways.

Using a different computer-related example, computer-games players want machines with high-quality graphics and fast processing times. Graphic designers, on the other hand, will look for a machine that can handle large graphic files and let them switch between design applications quickly.

In reality, it may be possible to meet their needs with the same product. But, because you should always focus on benefits rather than features when promoting a product, these two groups should be treated as different market segments. You'd emphasize the computer's games ability to one group, and its graphic design capability to the other. (With a more developed approach to segmentation, you'd develop specialized products for each group.)

This basis for segmentation means that the individuals with each group have similar needs. It doesn't matter if some of the games players play one game and others play another, as both games require the same computing features.

Keep this idea at the forefront of your mind all the time when you're deciding how to segment your market.

Market segments should also be:

  • Accessible – Can you reach the segment through cost effective and practical marketing and distribution channels?
  • Measurable – Can you estimate the segment's size, so that you can allocate marketing spend accordingly?
  • Substantial – Is the segment large and long-lasting enough to justify its own marketing activity?
  • Viable – Can people within the segment afford your product, and will they see clear and desirable advantages compared with other products and services?

Tip:

Segments that represent small proportions of the overall market are known as niche markets. Niche marketing is generally the most effective when the product price is very high, or when the market is very large (here, a segment representing only two percent of the total market may be big enough to sustain a good-sized business.)

There are four common bases for segmenting your market:

  1. Geographical – By country or region.
  2. Demographic – By age, gender, occupation, and so on.
  3. Psychographic – By lifestyle, values, interests, and so on.
  4. Behavioral – By what you use the product for, brand loyalty, the benefit you're looking for from the product, and so on.

Looking back at the sunscreen example, we can see that marketers segment on the behavioral/psychographic basis of attitudes towards the sun.

However, you can segment at more than one level: marketers would almost certainly want to create different ads for different countries, featuring people from those countries. They may also want separate ads for the male and female sub-segments within each geographic segment.

Although market segmentation is most commonly applied to consumer product marketing, non-marketers can use it too.

For example, you might want to promote your ideas or projects within your organization. If you want to push through a new initiative, you would emphasize the potential cost savings to the Finance Director; stress how it should help reduce employee turnover to the HR Director; and show the supervisors who report to you how it could reduce their administrative workload.

Key Points

Market segmentation involves splitting your target market up into clusters of people likely to respond in a similar, positive way to the marketing mix presented to them.

The main ways of segmenting a consumer market are on the basis of geography, demography, psychographic factors and behavior. To be worthwhile, market segments should be accessible, measurable, substantial and viable.

Market segmentation aims to make your marketing more effective, and it can also help you serve your customers' needs better. And by applying its principles within your organization, you can better "market" your ideas and increase the likelihood that people will be interested in them.

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