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What is market segmentation? Explanation of meaning and definition
Market segmentation, or market division, is a strategic approach employed by companies and marketers to divide the market into different segments, each with distinct characteristics and needs. This process typically involves grouping consumers or business customers based on specific characteristics, requirements, and purchasing behaviors. This allows marketers to effectively narrow down their target audience and tailor strategies to each segment.
Benefits of conducting market segmentation:
- Clearer targeting: Segmentation enables companies to precisely identify which customer segments to target, allowing them to adjust marketing activities to suit specific groups.
- Customized approach: It allows offering customized products or services to each segment, meeting individual customer needs and enhancing satisfaction.
- Improved market competitiveness: Segmentation facilitates differentiation in approaches against competitors, establishing a competitive edge and expanding market share.
- Optimization of advertising effectiveness: Utilizing segmentation helps in targeting specific segments with tailored advertisements, maximizing the impact of advertising spend and reducing unnecessary advertising.
- Revenue increase: Segmentation increases revenue from various segments by catering to diverse customer needs, diversifying revenue sources.
Fundamentals of market segmentation:
- Demographic (B2C)
Demographic segmentation divides customers based on demographic data like gender, age, income, education level, family status, etc. For instance, examples of different demographic segments include young adults, high-income earners, or large families. - Firmographic (B2B)
Firmographic segmentation involves segmenting business markets based on characteristics like industry, company size, revenue, geographical location, etc. Segments could include small-scale businesses, mid-sized enterprises, or large corporations. - Psychographic (B2C/B2B)
Psychographic segmentation categorizes customers according to lifestyle, values, preferences, and purchasing behavior. Examples include outdoor enthusiasts, health-conscious consumers, or environmentally conscious businesses. - Behavioral (B2C/B2B)
Behavioral segmentation divides customers based on actual behavior or purchase history. It includes loyalty, purchase frequency, purchase amount, product usage, etc. Examples are loyal business clients, infrequent new customers, or repeat purchasers.
Steps in practical segmentation methods:
- Data collection
The initial step involves collecting relevant data through market research, surveys, customer data analysis, and competitive information gathering. Data collection forms the foundation for understanding segments. - Identification of segments
Analyze collected data to identify segments with shared characteristics and trends. This is done from demographic, firmographic, psychographic, and behavioral perspectives. Segment identification based on data helps companies understand diverse customer traits, enabling tailored approaches. Research indicates that companies implementing segmentation achieve over 20% increased revenue on average. - Segment naming
Assign clear names to each segment to differentiate and facilitate internal communication and strategy execution. - Strategy development
Develop strategies tailored to each segment, including customization of products/services, adjusting advertising campaigns, determining pricing strategies, etc. As each segment has distinct needs, strategies differ for each. - Implementation and monitoring
Execute the developed strategies and monitor outcomes. The aim of segmentation is to effectively engage customers and enhance revenue and satisfaction. Monitoring evaluates strategy success and enables necessary adjustments.
This article was written by:
MarketTALE Editorial Department
