How to do Target Market Segmentation? A Comprehensive Guide (2021)

Introduction

Market segmentation involves the division of the potential customer base or, cohort into subgroups on the basis of their typical attributes and choices. Target market segmentation helps in the identification of the focus group of customers. Benefits of target marketing include optimum allocation of resources for sales promotion of the specific products amongst the target customer groups. Target market segmentation revolves around the core concept of offering customization to intrigue an individual appeal.

In this article let us look at:

1. The 4 Types of Market Segmentation
2. Steps in Market Segmentation
3. Advantages of applying Market Segmentation Methods
4. Disadvantages of Market Segmentation

1. The 4 Types of Market Segmentation

Any customer base is usually divided on the basis of four types of target markets. The market segmentation definition and examples are as below:

1.Demographic: The demographic market segments for retail customers are made on the basis of age, gender, earnings, place of origin, lineage, education, and ethnicity. For corporate clients, the segmentation is made on the basis of the size of the organization, type of industry, and type of functions performed.

For example, for a luxury hotel brand, the target segmentation of customers would be having high earnings while an adult diaper brand would target the senior age group. 

In the case of corporate clients, the characteristics of market segmentation that a seller of a luxury hotel brand would target would be organizations with 500 plus employees. The target segmentation strategy would be to appeal to the senior level managers of such organizations who can take purchase decisions on behalf of the organization. 

2.Psychographic: When retail customers are grouped on the basis of their values, preferences, attitudes, interests, personality, lifestyle, conscious and subconscious beliefs, psychological influences, and motivations, it refers to psychographic market segmentation and targeting.

For example, 

Sellers of fitness equipment would target high-end customers who are health conscious.

3.Geographic: The geographic target segment definition is done on the basis of the zip code, country, city, radius of a certain location, climate, rural and urban location.

For example, air conditioner sellers operate in markets located in warmer regions as people are likely to make purchases in such geographic market segments.

4.Behavioral: This kind of segmentation is done on the basis of a customer’s purchasing and spending patterns along with their status and pattern of interactions with the brand.

For example, in behavioral segmentation marketing, the seller of premium car brands would target customers who have made high-end purchases of premium vehicles in the previous two to three years.

2. Steps in Market Segmentation

A) Create a pool of Valid Data

To create a target customer base, identification of the characteristics aligned with the target product is essential.

The following techniques may be employed:

• Get references from existing customers 
• Prepare a brief questionnaire with small quantifiable questions
• Interview walk-in customers to understand their preferences 
• Tap the experience of the sales team to understand customer trends
• Analyze existing business data to identify buying patterns, spending patterns, frequency of transactions, type of purchases of the existing customers
• Analyze website data to identify the target customer segments from the web pages visited by them
• Use analytics to get customer locations and accordingly plan sales promotion

B) Building a virtual Buyer Persona

A virtual buyer persona may be constructed using available software as it enables visualization of the probable customer and thereby helps to take advantage of segmentation of markets.

C) Gather competitor data

Competitor data facilitates strategizing sales tactics to win over them. Additionally, it helps to prepare in advance to convince customers while comparisons are made. It helps in offering competitive prices, tap competitor market base, and understand their strengths to make necessary developments to retain competition or, surpass them in customer expectation. 

D) Aligning research data in Business Planning

Post the last three steps, the customers can be segregated into the required market segments. The business planning needs to take into consideration the mapping of products as per the best-suited market segments. This is turn would enable to build a probable sales forecast with expected lean and peak demand periods and quantities. Thereby the inventory and entire supply chain may be planned. 

Additionally, aligning customer research data with business planning facilitates in customizing marketing promotional messages, identifying the channels that are best suited for the high-value campaigns.

3. Advantages of applying Market Segmentation Methods

The importance of marketing segmentation in strategizing marketing initiatives cannot be denied. Different types of market segmentation are needed to touch the sentiment of the target customers, arouse the need in them, and help in promoting sales. The advantages of market segmentation are as follows:

1.Helps to create effective messages: For example, a message conveying removal of wrinkles on using a cream can surely appeal to the 40 plus age group of women using demographic segmentation.

2.Facilitates optimum allocation of marketing resources: For example, retailers offer no discounts during a festival when people across all market segments are naturally inclined to buy new clothes. This is applying demographic psychographic segmentation as festivals are location specific and trigger human emotion.

3.Assists in the identification of the best-suited tactic for the respective segments: For example, to appeal to men, jeans need to offer a macho or, rugged look while the same will turn away ladies.

4. Enables designing of appropriate advertisements: For example, companies preserving cord blood would target pregnant ladies and hence may distribute brochures and leaflets conveying advantages of cord blood for the future of the newborn outside a gynecologist’s chamber.

5. Aids the choice of the right medium of advertising to reach the target customer segment: For example, an adult diaper advertised on the television will have more reach than through email as it is more probable for the aged customer segment to watch television than checking emails.

6. Helps to generate and convert leads: For example, offering a discount on the next purchase when a referred friend makes a purchase may appeal to women purchasing clothes from a boutique.

7.Facilitates segregation of brand from its competitors: For example, logos used by the brands help in their segregation.

8.Assists in the identification of niche markets for new product development: For example, during the pandemic shoe manufacturers catering to general retail customers may also manufacture shoes for doctors and nurses.

9.Enables aligning of marketing initiatives with the organizational objectives: For example, by allocating funds to the right product mix and right avenues of advertisement the organizational sales targets may be attained.

4. Disadvantages of Market Segmentation

The customer base is limited for each segment, it becomes expensive for companies to manufacture products to cater to every segment. This is practically not feasible and increases the cost of production.

Conclusion

The advantages of segmentation being much more than the disadvantages can explain market segmentation being used extensively as a marketing tool. Thus, market segmentation helps to decide the right product mix for organizations to maximize their return on investment.

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Target Market Selection: An Easy Guide