Market segmentation is broadly defined as a complex process consisting of two main phases:
– identification of broad and large markets
– segmentation of these markets in order to select the most appropriate target markets and develop marketing mixes accordingly.
Everyone in the marketing world knows and talks about segmentation, but not many really understand its underlying mechanics, so failure is just around the corner. What causes this? It has been documented that most marketers fail the segmentation test and start out with a narrow mind and a bunch of misconceptions like “all teenagers are rebels”, “all older women buy the same cosmetic brands” , etc. There are many dimensions to consider, and discovering them is certainly an exercise in creativity.
The most widely used market segmentation model consists of 7 steps, each designed to encourage the marketer to take a creative approach.
STEP 1: Identify and name the broad market
You must have figured out by now which broad market your business is targeting. If your company is already in a market, this can be a starting point; There are more options available for a new business, but resources would normally be a bit limited.
The biggest challenge is finding the right balance for your business: use your experience, knowledge and common sense to estimate whether the market you just identified above is not too narrow or too wide for you.
STEP 2: Identify and take inventory of the needs of potential customers
This step takes the creativity challenge even further, as it can be compared to a brainstorming session.
What you need to find out is what needs consumers in the broad market identified above might have. The more possible needs you can think of, the better.
Did you get stuck in this segmentation stage? Try to put yourself in the shoes of your potential customers: why would they buy your product? What could trigger a purchase decision? Answering these questions can help you list the most needs of potential customers in a given product market.
STEP 3: Formulate Narrower Markets
McCarthy and Perreault suggest building submarkets around what you would call your “typical customer,” then adding similar people to this segment, provided you can meet their needs using the same marketing mix.
Start building a column with the dimensions of the main need you are trying to cover: this will make it easier for you to decide whether a certain person should be included in the first segment or should form a new segment. Also create a list of people-related features, including demographics, for each limited market you form; in a later step, it will ask you to name them.
There is no exact formula on how to form tight markets – use your best judgment and experience. Don’t shy away from asking for opinions even from non-marketing professionals, as different people may have different opinions, and you can usually count on at least those items that most people agree on.
STEP 4: Identify the determining dimensions
Carefully review the resulting list from the previous step. You should already have a list of need dimensions for each market segment – try to identify those that have driving power.
Reviewing the needs and attitudes of those you included within each market segment can help you determine the determining dimensions.
STEP 5: Name potential market segments
You have identified the determining dimensions of your market segments, now go through them one by one and give them an appropriate name.
A good way to name these markets is based on the most important determining dimension.
STEP 6: Evaluate the behavior of the market segments
After you have finished naming each market segment, take time to consider what else you know about them. It is important for a marketer to understand market behavior and what triggers it. You may notice that while most segments have Similary needs are still different needs: Understanding the difference and acting accordingly is the key to success using competitive offerings.
STEP 7: Estimate the size of each market segment
Each segment identified, named and studied in the previous stages must finally be given an estimated size, although, due to lack of data, it is only a rough estimate.
Market segment estimates will come in handy later on, supporting sales forecasts and helping plan the marketing mix – the more data we can collect at this point, the easier later planning and strategy will be.
These were the steps to segment a market, presented briefly. If done correctly and thoroughly, you should now be able to see how to create marketing mixes for each market segment.
This 7-step approach to market segmentation is very simple and practical and works for most marketers. However, if you are curious about other methods and want to experiment, you should take a look at computer-aided techniques such as clustering and positioning.
