OK, so this may sound like a dry, academic topic. But using market segmentation needn't be difficult, and can help any business – large or small – define who their customers are. Once you know who your customers are, you can then take steps to shape your offering to meet their needs.
A segment of the market is basically a group of people that share similar characteristics.
You can follow four rules for creating useful segments. Your segments should be:
We should know where it is, how big it is, and exactly how it differs from the market at large and other segments in particular.
You need to be able to access the segment with your marketing communications.
It has to be big enough to be worth your while.
The members of the segment must act in the same way, and respond in the same way to marketing messages they receive.
So the next question is – what criteria should you use for segmentation?
This depends on your business, but here are some suggestions:
1. Geographical markets
Or even by street
2. Demographic factors
By family life stage (e.g. whether they have children)
3. Social factors
By social class (although this is becoming less useful)
4. Benefits sought
For example, if you are a toothpaste manufacturer, why are your customers buying your product? Is it for dental health, social reasons (fresh breath), or appearance (tooth whitening)?
The list above is based on a business-to-consumer business. A B2B organisation could use slightly different criteria, such as type of customer, end uses, common buying factors, and buyer size and geography.
Segmentation isn't necessarily a precise exercise, but it should be able to help you target your marketing efforts more effectively. It can help define the focus of your company, increase your competitiveness, retain your customers, improve your communication… and ultimately increase your profitability.