Why Market Segmentation Is Crucial For Your Business

Mar 29, 2017 5 Min Read

Imagine you’re an entrepreneur that has a network of professional fitness clubs across the country. Of course, the market includes people interested in well-being and good health. But you also know that clients are different in so many ways, so dividing them into several categories would be very convenient for providing your services.

For example, young parents would require childcare services when they are in the club. Obviously, they should be treated differently as their needs are slightly different.

There are also people who come after work and train intensively for one hour or so. Basically, there are at least a few groups of clients that differ in priorities, desires, and needs.

Meeting their needs

The solution is market segmentation (in plain words, a specific approach to each category of clients) – the process of dividing the target market into clearly defined subgroups of customers with common needs, requirements, and priorities.

This approach can significantly increase sales and improve customer loyalty. Even if you sell the same product to different subgroups, you can create different experiences and provide different services. 

Aside from that, market segmentation has other benefits for businesses and organisations. These include:

  • Finding market opportunities: With market segmentation, you can analyse the needs of each customer segment in relation to the products or services you’re offering. As a result, you can determine what drives current customer behaviour. 
  • Developing effective marketing programs: Dividing customers into specific market segments allows you to come up with programs tailored to their specific needs. 
  • Designing appropriate products: With market segmentation, your business can create and design products that match the demand of a specific market segment. With this, you can improve your products’ income potential. 
  • Using resources more efficiently: By dividing customers into market segments, your business can use marketing resources in a more efficient manner. For example, you can invest your resources in specific customer categories instead of trying to meet the needs of many people at once. 

Market segmentation is truly beneficial to your business. But to make the most out of it, knowing how it works is important. 

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Although most marketers intuitively understand the criteria for the division, it won’t be superfluous to know the methods and techniques of market segmentation.

To understand the benefits that your business will get, let’s get back to the fitness club network scenario.

Your visitors on a particular season may consist of parents and pensioners.

  • To involve parents, you can place ads focused on family health. Place this ad on your website, blog and relevant resources. You can also offer the service of childcare or create a children’s room in the club.
    Moreover, you can reduce the price for day visitors because usually fewer people come at this time.
  • The next subgroup – pensioners – has very different needs. They need personal coaches specialised in helping people of a certain age. Advertise on the radio and websites as these may be the avenues which are more popular among pensioners.
  • You can change the marketing tactics for evening visitors. Business people or those who are professionally engaged in sports appreciate quality, so you should advertise the latest training apparatus that are used in your fitness club. Another good idea is a premium card because most of them can afford it.

As you see, dividing customers into categories can help you to meet their needs better and therefore increase loyalty.

Where to start

Firstly, analyse each group carefully to ensure that you have divided them accordingly:

  • Availability
    Will you be able to achieve your goals? Do you have enough money, resources and distribution channels?
  • Measurability
    Are you able to estimate the number of customers in each subgroup so that you can effectively distribute the money on marketing?
  • Essentiality
    Is this subgroup of clients large and stable enough to guarantee your pay off?
  • Viability
    Will consumers afford this product or service? Do they understand all the benefits that you offer them? Do they see your product or service as better than your competitor’s?

Take into account the following factors when segmenting the market:

  • Geographic (country, language, region, etc.)
  • Demographic (gender, age, occupation, ethnicity, the level of income).
  • Psychographic (lifestyle, values, interests).
  • Behavioural (the purpose and the advantages of the product).

Despite the fact that marketers and businessmen widely use these four elements for the last few decades, these categories are still wide enough. For example, if you take the age factor, there is a huge difference between people of the same age in terms of their interests, values, and behaviour.

Therefore, this method should be used together with other strategies. You may consider working with a data analytics company for this. It lets you utilise information essential to your efforts. For example, if you’re a B2B firm, you may want to focus your marketing efforts on prospects in a sector that’s gaining high demand. The data company can help you obtain B2B intent data and actionable buying signals. You can then use these to build trust and make opportunities for transactions.

Market segmentation and behavioural psychology

Technologies have allowed business owners to reinvent new business models and segment the market based on behavioural psychology.

For example, Amazon was the first to advertise products on the base of the purchase history of the client. Netflix offers movies based on the same criterion. Both companies keep track of purchases and activities of their customers and segment the market based on their behaviours. It’s called the customer experience personalisation journeys.

The development of communication has brought on many new strategies for segmentation. Some companies segment market by geographic data if a person uses the GPS (Global Positioning System).

Apple uses this tactic in its marketing strategies. The company positions its products as premium and that gives a different outlook in a person’s lifestyle. Apple customers pay a lot of money not only for the quality of the product but also the desire to be special.

At the same time, Apple sells old models at a reduced price. This approach attracts new customers by giving them opportunities to try out old models, evaluate them and then purchase a new one.

Concluding thoughts

By constantly tracking and learning new technologies and approaches, you’ll be able to gain a competitive advantage. Everything changes very quickly in this digital age, so do keep up with the times to stay on the crest of a business wave.

I wish you the best in your entrepreneurial endeavours!

Lucy is an open-hearted writer. She loves three things: travelling, research, and research while travelling. She covers a wide range of topics, from business to psychology and self-development. To share your market segmentation strategy in the nature of your business, you can write to us at editor@leaderonomics.com. We would love to hear from you! For more Consulting Corner articles, click here.

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This article is published by the editors of Leaderonomics.com with the consent of the guest author. 

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