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What is Market Segmentation?

Why do you need to segment your market?

What is market segmentation? Segmenting includes a number of focal points: psychographic segment, demographic segment, geographic and price segments, and more. You need to define target market to build an effective marketing strategy and plan.

Segmentation is the act of dividing your marketplace into narrower, targeted buyers or groups of buyers.

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Understand how to define target markets and to focus your marketing strategies directly on your customers' needs.

Your goal in market segmentation is to target the 'best' prospective customers and, therefore, those most likely to buy specific products or services.

Target marketing is focusing your marketing plans on specific segmented markets. Pay attention to those markets when you develop your marketing mix program for your products and/or services.

Define Target Market:

Target marketing: you can break that segmentation into more than one. Often marketers define the primary target market, the secondary target market and the tertiary target market.

Segmenting is typically used when creating a marketing plan and often must be considered hand in hand with marketing mix (product, price, promotion, and place).

Which comes first, marketing mix or market segmentation?

Well, most often segmenting is completed first and then the target markets are considered in marketing mix.

You must be prepared to do some research to segment your market. This research can be primary or secondary (primary is research you conduct yourself such as interviewing potential customers or gathering information from industry suppliers; secondary is data you gather from research resources, such as government statistics websites, industry associations, competitors' websites, customers' website, trade magazines, etc.).

Your prospective customers have a wide range of needs, wants and problems. After you have segmented your market, you will have a better understanding of how your business can focus on its niche. This focus will support your small business growth plans.

Market Segmentation

Your segmentation effort must be focused on clearly identifying those issues using a variety of factors:

For Business to Business Selling Markets:

  • Demographic segmentation: such as age (affects experience and maturity in decision making), gender (women and men make decisions differently), occupation (e.g. owner or employee), income, language, and other factors;
  • Geographic segmentation: such as rural or urban, west coast, central or east coast; and density of population;
  • Behavioral segmentation: such as attitudes;
  • Psychographic segmentation: this is often more closely associated with consumer markets but social, cultural, values and personality play a larger role in the business markets today;
  • Price segmentation: price points - luxury, economy, value price segments.

For Business to Consumer Selling Markets:

  • Demographic segmentation: such as age, gender, marital status, family size, life cycle, occupation, education, ethnicity, languages spoken in the home;
  • Geographic segmentation: rural or urban, city, state or province or region or country; and density of the specified population;
  • Behavioral segmentation: attitudes and culture of the marketplace geography;
  • Psychographic segmentation: such as, lifestyle, values (and religion may play a role in this segment), personality, social;
  • Price segmentation: in addition to luxury, economy, value, it could include bundle pricing, product line pricing, online pricing, and loss leader pricing segments.

Market Share and Market Size

Ensure that your market segments or targets are accessible to your business and that they are large enough for your business.

For example: accessibility - if you manufacture an-expensive-to-transport product in Alaska and your target market is East Coast USA - the accessibility is poor and both time-to-market and delivery costs are high.

Another example: size of market - if you have a very specialized niche product that could only be used by 300 businesses in Western United States, you have to broaden your target market.

Never assume that you will gain 100% market share (even with a new product) because while your product may be new, other products might be serving the same market.

Each of your targeted markets (primary, secondary and tertiary) will require its own marketing plan. Market segmentation allows you to focus marketing and business successfully on specific, narrowly targeted markets.

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Additional Reading:

Understand Competition Analysis and how to manage your competitive tactics.

Effective marketing sometimes includes Guerilla Marketing tactics.

Use a Marketing Plan Outline to develop an effective strategic direction.

The Market Research Process is necessary to building a strong marketing program for your business.

The Importance and Definition of Marketing.

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Marketing and Life–Cycle

Marketing is a requirement for all businesses: without marketing strategies and tactics your business will struggle to survive.

Not all marketing activities are planned: you might be building your brand recognition through a social media campaign (that's marketing); you might be conducting market research to analyze your competitors and/or segment and target your potential market or to develop the most desirable features, advantages and benefits of your products or services (that's all marketing).

Marketing is pretty all–encompassing; and a challenge for many business owners. The additional challenge is recognizing that the different stages of your business life–cycle: start–up, mid–cycle, mature or late–in–life.

During start–up you need to develop your marketing strategies to grow sales; for example, you might want to use a market penetration pricing strategy to build sales quickly.

During mid–cycle, you need to grow your customer base (often through lead generation) and that need requires different marketing strategies, such as cold calling on prospective clients, email marketing, newsletter and blog sign ups and distribution (all to grow your list of prospects).

During the mature cycle, you need to build your marketing efforts around your brand; your competitive advantage can be in your reputation, history, and identity and on what differentiates your business from your competitors.

Marketing your products and services is not something that you do once (such as a marketing plan) and then never change or do again. You need to be continually researching and building your strategies and tactics to be ahead of the market, and ahead of your competition.

The market is constantly evolving; ever more rapidly with the impacts of globalization and technology. You need to invest resources into marketing to ensure that you build and sustain your business.

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Outsource Your Marketing

If you need support in your marketing efforts, or if you'd like a review of your marketing plan, contact us for more information on our marketing services.

If marketing is not your core strength, or if you don't have enough staff to commit to developing your marketing efforts (and acting on the plan), outsourcing your marketing strategy and implementation will allow you to concentrate on developing your business.

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