Eleanor Finch
Market segmentation is a powerful strategy that involves dividing a large group of prospective buyers into smaller groups with similar characteristics, such as demographics, behaviours, geography, or psychographics. This allows businesses to create more targeted and effective marketing strategies, improve customer engagement, and increase profitability. A viable market segment is a specific group of customers with comparable traits, needs, and preferences that a business can profitably serve. This involves understanding the characteristics, wants, and needs of the target audience to develop effective marketing strategies and products that meet their specific demands. By focusing on a viable market segment, firms can increase sales, customer satisfaction, and brand loyalty.
| Characteristics | Values |
|---|---|
| Identifiable | The segment should be distinct enough that companies can recognize who belongs to it. |
| Responsive | Members of the segment should respond similarly to marketing efforts, which means they should share similar needs, preferences, or purchasing habits. |
| Homogeneity | The segment should share distinct characteristics, such as demographics, behaviours, geography, or psychographics. |
| Measurable | Segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. |
| Accessible | Understanding your customers and their characteristics and behaviours will help you identify the best way to reach them. |
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What You'll Learn
A specific group of customers for a single good
A viable market segment is a specific group of customers for a single good that a business may financially serve. It is a unique collection of consumers with comparable traits, needs, and preferences. By concentrating on this market, the business can adjust its marketing initiatives and product offers to specifically cater to the wants and preferences of this sector, thus increasing profitability.
For example, a company that sells athletic shoes might focus on a segment of consumers who are avid runners, designing shoes specifically for their needs, thus serving them profitably. For instance, a company that produces gluten-free snacks targets health-conscious consumers with dietary restrictions. By focusing on this segment, the company can develop products that cater specifically to their needs, which increases customer satisfaction and loyalty.
Market segmentation separates a large group of prospective buyers into smaller groups for more focused marketing. It is a powerful strategy that allows businesses to design and market their products and services more effectively, increasing sales and financial success. It starts with categorizing potential customers into distinct groups based on shared characteristics such as demographics, behaviours, geography, or psychographics.
Businesses can then develop different marketing strategies and products for each segment, according to their needs and tastes, to improve customer engagement and conversion rates. A well-designed market segmentation process can give a company an advantage over its competitors, increasing customer satisfaction by making them feel that their personal preferences are being directly addressed.
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Identifiable and responsive segments
Identifiable segments refer to the distinct groups within a marketplace that can be recognised and targeted by companies. This identifiability is essential for effective marketing and product design. By understanding the unique characteristics of these segments, companies can tailor their offerings to meet the specific needs and preferences of these groups. Identifiable segments can be determined through various factors, including demographics, behaviours, geography, and psychographics. For example, a company might target a specific age group or focus on a particular region with unique tastes and needs.
To effectively identify segments, companies must conduct thorough research and data analysis. This includes surveys, focus groups, tracking online behaviour, and studying customer purchase history. By understanding the buying trends and preferences of different segments, companies can create targeted marketing strategies that resonate with specific consumer groups.
Responsive segments refer to the extent to which consumers within a defined segment will respond positively to marketing efforts and offerings. This responsiveness is critical for increasing sales and fostering customer loyalty. By understanding the needs and preferences of responsive segments, companies can design products and services that directly address these factors. For instance, a company selling athletic shoes might focus on a segment of avid runners, creating shoes that cater to their specific performance and comfort needs.
Identifying responsive segments also allows companies to differentiate their brands from competitors. By understanding the unique characteristics and preferences of a responsive segment, companies can develop targeted marketing campaigns that stand out in the market. Furthermore, responsive segments enable companies to uncover niche markets and develop new ways to serve existing markets, expanding their brand's reach and potential for growth.
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Post hoc segmentation
There are three primary methods used in post-hoc cluster analysis: hierarchical clustering, k-means clustering, and two-step clustering. Hierarchical clustering is used for smaller samples of less than 250 respondents, while k-means clustering is used for larger sample sizes to ensure distinct groupings of respondents. Finally, two-step clustering is deployed for very large sample sizes as it only requires a single pass through the data set.
Post hoc models use basis variables such as product attribute preferences, benefits sought, product usage profiles, and price sensitivity to craft the segments, and descriptor variables such as demographics, media viewing, web browsing habits, and shopping patterns to target them. This approach allows marketers to target specific segments with specific marketing solutions, enhancing their marketing effectiveness and increasing profitability.
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A priori segmentation
A priori segments are typically based on predefined characteristics, such as demographics, behaviour, geography, or psychographics. For example, a company may decide to segment its market based on whether consumers are non-users, light users, or heavy users of a product. This information is then used to conduct segmentation research to determine the size of each group and their demographic or psychographic profiles.
A priori segments are easy to define and reach through targeted advertising. They can be useful in directing marketing efforts towards segments based on their value to the business. For example, a company may use customer transaction databases to identify usage segments and direct its marketing efforts accordingly.
However, a limitation of a priori methods is that they do not directly reflect the needs of customers. Pre-existing characteristics may not yield useful segments for some brands and categories. For instance, a tea manufacturer may struggle to engage with light consumers if they have different media consumption habits or patronize different retail outlets.
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Demographic, geographic, behavioural, and psychographic segmentation
A viable market segment is one that can be served profitably by a firm. Here is how demographic, geographic, behavioural, and psychographic segmentation can help identify such segments:
Demographic Segmentation
Demographic segmentation involves dividing audiences into segments based on data points such as age, gender, marital status, family size, income, education, occupation, nationality, and religion. This is perhaps the most commonly used method of market segmentation. It helps create targeted marketing campaigns, ensuring that marketing messages resonate with the target audience. For example, a campaign targeting men aged 18-34 with humorous messages helped increase subscribers for Dollar Shave Club by 11%.
Geographic Segmentation
This type of segmentation involves dividing the market based on the location of the consumers. It is relatively easy to implement and provides immediate insights into a target area's demographics, which can be invaluable for local businesses or location-specific campaigns. It is also useful for understanding regional trends and preferences, which is beneficial for businesses looking to expand into new territories. However, geographic segmentation does not provide insights into consumer behaviour and has limited scope for tailoring messages to individual preferences.
Behavioural Segmentation
Behavioural segmentation involves dividing consumers according to their behaviour patterns when interacting with a company. It studies consumers' knowledge of, attitude towards, use of, likes/dislikes of, or response to a product, service, promotion, or brand. This type of segmentation helps identify the stages where customers are not progressing and allows for advertising personalisation, ensuring their needs are met. For example, Alignable, a brand that sends emails to regular users, creates other user statuses outside of its list to increase the likelihood of retaining customers.
Psychographic Segmentation
Psychographic segmentation offers a nuanced understanding of the intrinsic motivations, desires, and lifestyles within a target market. It helps businesses understand the psychological attributes of their customers, including their needs, wants, concerns, motivations, and aspirations. By understanding people on a personal and emotional level, companies can craft powerful messages that resonate with their target audience. This type of segmentation also helps businesses tailor their communication and offerings, making current and prospective customers feel valued and understood, leading to greater trust and loyalty.
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Frequently asked questions
A viable market segment is a specific group of customers with comparable traits, needs, and preferences that a business can serve profitably.
Market segmentation allows businesses to create more effective marketing strategies, improve customer engagement, and maximize profits. It helps businesses target customers more precisely, leading to stronger brand loyalty and increased financial success.
The most common types of market segmentation include demographic, geographic, behavioral, and psychographic segmentation. Demographic segmentation focuses on factors such as age, gender, income, and family size. Geographic segmentation targets customers based on their location and cultural needs. Behavioral segmentation looks at purchasing habits and brand interactions, while psychographic segmentation uses psychology and demographics to understand consumers' needs, personalities, and values.
To identify a viable market segment, look for groups of people with similar characteristics, needs, and preferences who are likely to respond positively to your marketing efforts. Use market research and data analysis to understand your customers' demographics, behaviors, and purchasing patterns. By dividing the market into well-defined segments, you can tailor your products, services, and marketing strategies to meet the specific needs of each segment.
