Segmentation is a common strategy used in marketing to break
down a large target audience into smaller, more homogenous groups of customers.
The point is to make marketing efforts more efficient by investing in
communication that connects with customers most likely to buy your product,
while minimizing wasted spending on those who won't. Several common techniques
are used to segment markets.
Before developing any new product, Product Managers should
determine which market their new product is targeting and the size of that
market. Without these 2 inputs, the business case is flaky. Of course once it
has been determined that the market size can sufficiently support the new
product, it’s also important to determine if that market has a need for your
product and the presence of competitors in that market.
Demographic segmentation is common. Gender, age, educational
levels are some demographic inputs that can be used to segment your market. You
may choose to use a combination of these inputs. For example, your product may
be pitched at women aged 22 to 28 years of age in full time employment with an annual
income of a certain range or more per annum. Demographic segmentation is almost
always used when strategizing but it may not provide the detail that is
required to create differentiation in your product.
Pyschographic segmentation sub-divides the market based on
customer values, attitudes and lifestyle. To apply this type of market
segmentation, you may decide to create a statement or use an image that best represents
your customer. For example, you may say that your product is targeted at
consumers that “are busy travelers demanding up to date news regardless of
cost”. This can subsequently be qualified through research asking consumers if
they agree or disagree with the statement.
Behavioural segmentation is based on consumer actions. For
example, you may segment the market for an Internet product based on consumer
Internet usage habits. Once you have determined that you want to target
consumers that use the Internet in a particular way, you may choose to develop
a specific product based on that habit. This method of segmentation is
potentially the most useful to identify common customer needs and will
ultimately lead to products that best address those needs.
Geographical segmentation divides people on the basis
of geography. Your potential customers will have different needs based on the
geography they are located in. This type of segmentation is the easiest but it
was actually used in the last decade where the industries were new and the
reach was less. Today, the reach is high but still geographic segmentation
principles are used when you are expanding the business in more local areas as
well as international territories.
It’s not enough to segment the market and define your target
market or persona, you need to clearly position your product in the minds of
your target audience as something designed “for them”.
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