Market Segmentation

Understanding Different Customer Needs

© iStockphoto

Imagine you're flicking through a glossy women's fashion magazine.

You wouldn't be surprised to see an advert for a premium shampoo that featured a very attractive woman in an expensive gown, showing off her beautiful, shiny hair.

Now imagine you're looking at the type of magazine aimed at mums.

It probably contains some recipes, some craft ideas, and some true stories of family life. An advert for that same premium shampoo might show a mother laughing, and stroking the heads of her two happy children.

Finally, imagine that you're turning the pages of a men's magazine.

You turn over the pages discussing the latest cars, interviews with the star of a recent action movie, and so on. An advert for that same premium shampoo might feature a man with strong, healthy-looking hair, playing tennis.

So what's going on here? The same product has been advertised in three completely different ways. The answer is that the shampoo manufacturer is using market segmentation.

Market segmentation involves dividing up the potential market for a product into groups of people who have similar needs, and then addressing these needs in a focused way.

Why Use Market Segmentation?

Market segmentation is an effective way of increasing the effectiveness of your marketing spend, compared with what you'd achieve by marketing to your entire target market in the same way.

Using our shampoo example, it will have cost more to produce the three different versions of the advert, and this might mean that you could place it in the magazines on fewer occasions. However, by producing one image to appeal to fashion-oriented women who want beautiful hair themselves, another for family-oriented mums who want their children to be healthy and clean, and a third for men who want to look great, you are far more likely to persuade each group that your product will meet their needs.

You can meet customers' needs better by segmenting your market. Although you're selling the same basic product to all segments, you can often develop packages of add-on products and services for each different group. When you're promoting a computer to home users, you might bundle it with some family-friendly games, but when you're offering the same machine to small business users, you might be better to offer them a wireless headset as a bonus.

In many cases, marketers know what their market segments are intuitively, however carrying out a formal analysis helps you 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.

For example, computer-games players buying a computer 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, their needs can be met by 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'll emphasize the computer's games ability to one group, and its graphic design capability to the other.

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 communication and distribution channels?
  • Measurable – Can you estimate the segment's size so that you can allocate marketing spend accordingly?
  • Substantial – Is it 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?

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 2% 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 – What you use the product for, brand loyalty, the benefit you're looking for from the product, and so on.

Looking back at the shampoo example, we can see that the marketer who placed the three ads was partly segmenting on the demographic basis of gender (there was one aimed at men and two at women), and partly on the psychographic basis of interests (personal beauty as opposed to family cleanliness and health).

You can segment at more than one level: the shampoo manufacturer would almost certainly want to create different ads for Asian and European countries featuring native Asian and European people, but would also want separate ads for the male and female sub-segments of the target market 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 with reducing 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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