Market Segmentation is a lot like simple market targeting to many marketers. It can be as simple as finding profitable market “targets.” You find segments or targets to pursue. However, market segmentation can do much more for you.
By separating your market into several different market segments, you are able to pass on some segments that are too competitive or would not have an adequate ROI for certain products.
If you know the tastes and demographics of different market segments you can use different marketing channels and communications to boost your sales in EACH segment by custom marketing to each segment. This allows many firms to sell more overall than they would if they marketed to all segments in the same way.
One of the greatest ways to use market segmentation is to do needs-based segmentation. This is where you identify both needs you are serving and needs you are not serving in the market place. This can allow you to develop new products for customers that you already have or allow you to serve new customers altogether.
One example I like to use is the restaurant that has been cooking Bubba’s Barbecue for several years. Then, they segment their customers and learn that they have no vegetarians and that they do have people with health concerns. Bubba adds some salads and promotes his “vegetarian bean” dishes and sales grow!
Similarly, treadmills or exercise equipment sales may go flat. However, once you realize that some folks are buying fitness equipment for weight loss and some are buying it for cardio health, some for strength training and some are buying it for endurance training, you can add to your messaging and perhaps how you set up your machines to compete.
Adding some pricing and demographics to your segmentation analysis can pay even greater dividends. For example, you might find that for higher income individuals buying fitness equipment for cardio training may have little price sensitivity and you can sell them your most expensive equipment. This information can help sales at your retail channel, on the phone, or if you are running an info-mercial. Sharing this information organization-wide can allow you to leverage the information at all customer contact points.
We at Research 13 feel that custom market research for segmentation can provide very valuable insights THAT YOUR COMPETITOR DOES NOT HAVE!
More information on Market Segmentation can be found at the Library of Congress: http://www.loc.gov/rr/business/marketing/intro.html