Market segmentation is a vital tool for any scaled, competitive business. In our comprehensive guide, we explore the purpose of market segmentation, analyze the application of common types and methods, and walk through the steps to formulate your own market segmentation strategy.
Every business must answer several critical questions: Who is our optimal customer? What messages must we communicate to our customers? What are the primary attributes of a company that our customers want to do business with? What products/services do our customers want? What are the optimal ways to reach our prospective customers?
Although these questions may seem simple, companies and researchers often struggle to answer them. Finding out what people want is complicated. Sometimes, people do not know what they want; additionally, businesses may be unaware of all the audiences that are interested in their products. And, sometimes, businesses make assumptions that lead them to ask the wrong questions. Take, for example, the story of Howard Moskowitz.
Market segmentation benefits businesses not only by answering the question of what customers want, but by helping businesses understand how to drive sales, explore new directions for product development, find ways to retain current customers, and even develop messages that may persuade a competitor’s customers to cross over.
Without market segmentation, businesses are left to craft their marketing messages based on their instincts and intuition. Both require a brand to make expensive guesses as to what will or will not work. In speaking to one audience, you may be accidentally alienating another. In focusing on what has traditionally been your strongest customer base, you may be missing an untapped set of customers who can drive your revenue to a higher level. In other words, intuition is not data, so intuition can lead you astray.
Let us assume that you understand what market segmentation is and how brands can benefit from it.
Now, you need to take the steps of planning and executing a segmentation study. In this section, we walk you through each step of the market segmentation process and use a real-world example as a model for how you can structure your own project.