Market Segmentation is a natural result of the vast differences amongst people”
- Donald Norman
The costly practice of treating the market as one undifferentiated mass has long been defunct. Just as certain products and services do not suit everyone – neither can one strategy suit all customers. One size cannot fit all. Market segmentation – the process of evaluating and dividing a market into smaller segments – aids the development of targeted and cost effective marketing strategies, optimising a business’s marketing investment, particularly vital in the current economic climate.
What is segmentation?
Segmentation results in groups or segments comprising customers who share several common characteristics. For example, they could live in the same geographical region, demonstrate similar behaviours, be of similar age or income ranges. If marketing to other businesses, characteristics could include company size and type of industry. Using several common characteristics, or bases, to divide the market, results in each group or segment containing customers who are alike in several respects; with the entire segment very clearly differentiated from others.
Marketing Strategy Advantages
Segmentation renders greater efficiency in the application of a company’s resources. Identifying and targeting profitable segments means avoiding wasted resources on those which are potentially unprofitable: insufficiently large segments with poor growth trends, requiring unprofitable expenditure to access and carve a competitive position.
Segmentation and its inherent grouping of like customers also facilitates the effectiveness of customized marketing mix strategies as customers within groups will display similarities in behaviour towards the product (one of the bases for segmentation initially); similarities in respect of pricing sensitivity, how they access the product and media habits – the latter assisting the subsequent choice of promotional tools. To increase the efficiency and effectiveness of your marketing spend resulting in a superior strategy, follows is a quick checklist to savvy segmentation.
Seven Steps to Savvy Segmentation
1. Identify your market – eg ‘all potential shoppers’
2. Select your segmentation bases (eg age, sex, income, location, geographical region, behaviour) – remember use more than one
3. Applying your bases, divide the market into different groups, remembering that the customers within each group will share several common characteristics and each group will be different to each other.
4. Quantify your segments (eg all females over 35 years in Alice Springs – how many customers in this segment?; what is their average retail spend?)
5. Evaluate each segment for attractiveness by considering growth trends, cost of marketing to each segment, potential market share and overall profitability of each segment
6. Rank segments in terms of profitability
7. Select segment/s and formulate your marketing strategy to suit.
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Anne Sorensen is Director of Marketing Is Us, a specialist marketing consultancy dedicated to facilitating business growth by providing strategic marketing solutions. She holds a Bachelor of Business (Marketing), MBA and is a Certified Practising Marketer with the Australian Marketing Institute. E: email@example.com