One of the most effective tools for growing a new business is market segmentation. It is very important for startup owners to understand, study and work with the market segments of their businesses. Many businesses that use the market segmentation approach for sales have achieved far better results than their counterparts who lack deep understanding of the market in which they operate.
Market segmentation, according to Wikipedia.org, is a marketing strategy that involves dividing a broad target market into subsets that have (or are perceived to have) common needs, interests, and priorities. After grouping the target market into subsets, the next step is to design and implement strategies to target them. Market segmentation strategies are generally used to identify and further define a target market based on certain variables; while providing supporting data to achieve marketing objectives.
A basic illustration would be the case of two young entrepreneurs who both desire to sell consumer goods. The first entrepreneur raises capital, buys the goods at wholesale price and immediately launches the store. He believes that since consumer goods are basic necessities, the need to segment the target market doesn’t arise.
On the other hand, the second entrepreneur in the same line of business takes a few critical steps before launching. She begins by talking to a few people to understand their buying habits and adequately captures the demography of her target market. Some factors she has considered includes age, gender, religion, family size and income range. Based on the result of her analysis, she is able to properly segment her target market and then purchase the goods that will appeal to them.
It is clear from all indications that the second entrepreneur is likely to make more sales since her products have been carefully tailored to meet the demand of her target market. Here are four ways methods of segmenting your target market:
- Geographic Segmentation – The proximity of the target market to your product or service offering is key to effective market segmentation. The entrepreneurs in the above illustration would get more value in selling their goods by targeting prospective customers in their local community.
- Demographic Segmentation – This is the most traditional form of market segmentation as customers are targeted based on shared traits like age, gender, income, education, family size and so on. It is important to understand customer demographics before selling your product or service to them.
- Psychographic Segmentation – According to study.com, this segmentation involves dividing your target market into segments based on different personality traits, values, attitudes, interests and lifestyle of consumers.
- Behavioural Segmentation – Examstutor defines behavioral segmentation as the method of dividing your target market into groups based on their knowledge, attitudes, uses and responses to the product or service.