The Value of Market Segmentation

By Debra Murphy, Vista Consulting

Last month we talked about choosing your prospects based on how your products and services appealed to that target market. To review, a target market identifies customer groups that are in need of your products or services. This month, we want to take that effort one step further by determining market segments within your target market. Market segmentation helps to easily classify your best customers and find more like them. By dividing your target market into further slices, you are able to speak to them in terms that will get their attention and be more likely to do business with you.

What is a Market Segment?

A market segment is a homogeneous group of prospective buyers that have common needs and will respond similarly to your marketing call to action. You usually segment a market when different groups perceive a different value for your product or service than another group. This helps you develop your marketing activities and messages so that you do not come off as being all things to all people.

Why Segment?

Analyzing your target market and dividing it into individual segments can offer you insight into which segments you can more successfully service based on your current resources and skills, alert you to a market segment that is losing money or one you are not capable of servicing effectively, or help you understand what you need to do to expand your business to include a particular segment. This analysis may help you determine that one particular segment is so lucrative that you only want to work with that segment even though the others are out there that you could effectively service.

In addition, market segmentation offers many benefits. You are able to be more precise in how you speak to individual prospects and which marketing efforts will be used to reach them, thereby spending your marketing dollars more wisely. It also allows you to clarify how your products and services apply to these different segments of the market, including the perceived benefits and what messages will more likely resonate to that particular segment. One potential benefit of market segmentation is that you just may find a segment that is willing to pay a premium for your products and services.

Selecting Market Segments

To segment a market, there are various attributes that you can use to paint the picture of your ideal client. For consumer markets, these variables include:

Demographics - age, gender, education, income, marital status, ethnic or religious background
Psychographics - personality, values, spending patterns, buying behavior, brand consciousness, lifestyle (conservative, trendy, economical), activities and interests (fitness, shopping, sports, etc.), attitudes and beliefs (health conscious, environmentalist, security conscious, etc.)
Geographic area

For business markets, some variables to consider include industry, size, age, location, private or public, financial condition, independently owned, franchise, or chain.

Once you have selected a segment or segments to target, you then need to determine if the segment is worth going after.

Is the segment large enough to go after?
How difficult will it be to reach this segment with your marketing activities?
Does this segment have the need and the money to satisfy the need?
Is the segment viable - i.e. is this segment growing? A stable or declining segment would need to be evaluated based on the number of competitors already servicing that segment.
Does the company have the necessary skills, knowledge and expertise to service the segment?
Does the segment meet the mission of the company?

How to Segment

Some business owners have difficulty getting started with segmentation. Start by looking at your current client base and see if there is a pattern. Sometimes businesses just naturally attract a particular type of client. Take a look at those clients you just love to work with. What characteristics do they all have in common that you could turn into a segment?

Let's take a look at an example:

A massage therapist would start by picking their target market based on geographic location since it is more likely that their client base will come from within a 10 mile radius of your office. After a relaxing massage, most people don't really want to drive more than 20 minutes to get home. However, within that target market, you could segment even more in order to offer specific services based on physical need.

When would athletes more likely get a regular massage?
Would corporate executives benefit from a massage as a way of relieving the stress of the job?
What would attract stay-at-home moms more often?
Is there a type of massage that is beneficial to seniors?

Understanding what motivates these segments into booking an appointment for a massage enables you to develop marketing programs that speak directly to these people. This does not mean you would exclude the general person who comes in for a massage, but you may end up marketing your business exclusively for seniors to relieve arthritis pain or athletes who need to be in top condition for their events. The key is to explain why your service caters to their needs, especially if you make it a regular part of your health and wellness activities.

Summary

Successful marketing usually occurs when you speak precisely to your target audience. Market segmentation helps you achieve that precision. Once you go through the exercise, you may choose to market to only one segment within your target market at any one time or you may choose to reach multiple segments simultaneously. In either case, you now can develop marketing messages that speak to your target segments, activities that are geared towards these segments, and clarity around your business that attracts clients like a magnet.