Segmenting the market is a task that consists of dividing a specific market into small homogeneous groups of customers. Its fundamental objective is to be able to accurately determine the needs of each group, so that the company can better serve them, offering each of them an appropriate product or service. Market segmentation is also the first task that any marketing manager should do when it comes to thinking up and devising a strategic business plan. Only once the market is appropriately segmented can you can begin to define concrete actions to develop a business model and market entry strategy that will not backfire.
Let us look at some aspects of the market segmentation process in detail. This is by no means an exhaustive list but just an overview of how a typical market segmentation would work in today’s business environment.
Keys to good segmentation
For segmentation to be useful, it must be based on three fundamental pillars:
- The intangibles (or the intangible product attributes) of the groups in which the market is divided must be homogeneous among all segments.
- The groups must be heterogeneous between them, that is, being well differentiated from each other.
- The segments must be stable over time, that is, preventing members from being between different groups at different periods.
The ability to choose the most appropriate variables for segmentation is another key to obtaining a good result. There are many differentiating factors, which allow the fragmentation of groups in different sectors. Examples of segmentation variables are:
- Demographic: sex, religion, occupation, studies, income level and age.
- Geographical: city, region, country and climate.
- Sociocultural: hobbies, beliefs and race.
The order in which segmentation variables are chosen is also important when dividing a market into sub-markets or smaller groups, especially so that the resulting scheme is reasonable. Putting a differentiating factor in an earlier position at the time of segmenting can cause the scheme to be more complex, especially visually, making it difficult to achieve the three fundamental pillars discussed earlier.
Keys for each segment and the marketing mix
Once the segments are defined, you are in a position to develop a marketing mix for each of them. Not all segments react the same to a product or service, hence the importance of defining the appropriate parameters for each of them in terms of price, product / service, promotion, processes and people.
Identifying market niches, that is, very specific market sectors to focus on in a particular strategy, is one of the consequences of having a good segmentation. The best thing about identifying a niche market is that, if the needs of the clients that make it up are met well, they are usually quite loyal in response to that value first brought in. Love at first sight is a casual term to describe this aspect. For instance, you own a pizza company that offers 24-hour quick delivery to nearby college dormitories (niche market) with a courteous delivery staff. Provided that you offer good food value, most first-time buyers would shift to your business. Particularly, if they are under-served by other players in the market.
Some of the segmentation variables must be carefully looked after, since the sensitivities of the segments can vary radically from one factor of differentiation to another. For example, age-restricting content that may be suitable for adults but not for minors; or printing a warning on a toy that is good for older children but not for babies.
Religion is another factor to take into account, because for cultural reasons, which may well seem innocuous, a service or product can become quite an offense for a segment and bring down the marketing work done for months. For example, at certain times of the year Catholic Christians don’t consume flesh meat while Muslims do not indulge in the consumption of alcoholic beverages or pig-based foods such as ham.
So, it is necessary to be very clear from the outset about the expectations of each segment, which are directly proportional to the needs they want to cover with the product or service offered, and also their most important sensitivities. That is, the factors and behaviors that affect them the most and those that they consider intolerable.
Not all companies base their business development decisions on good market segmentation, leading to cases of failure in launch of products and services and even the whole business. Omitting the fundamental step of segmenting the market is like launching an orphan business strategy which lacks a solid foundation.
The key is in identifying those needs that customers want to cover in order to bring value to the business. Needs need not be extraordinary, nor their solutions. It is a matter of identifying them well in order to provide value to customers and establish a lasting relationship. Thus allowing your business to develop freely.