Importance of Market Segmentation - Loyalty and Customers

Market segmentation is practised by most businesses in one form or another, as a way of streamlining their marketing strategy by dividing broad-based target markets into specific groups of consumers, and devising marketing methods that will appeal to each group. Some marketing practitioners also use behavioural segmentation to define their audience.

Identifying viable segments

Clearly defined market segmentation criteria not only ensure that customers are more likely to identify – and purchase – the product that is right for them; it also minimises wastage of resources, reducing the time spent marketing the wrong products to the wrong customers. It is important, however, to focus resources on market segments whose size, growth and profitability is good, both immediately and in the long run. The following 5 market segmentation criteria should be useful when planning your own company’s market segmentation strategy.

A market segment should be:

Measurable: Market segments are usually measured in terms of sales value or volume (i.e. the number of customers within the segment). Reliable market research should be able to identify the size of a market segment to a reasonable degree of accuracy, so that strategists can then decide whether, how, and to what extent they should focus their efforts on marketing to this segment and how to define their go-to-market strategy.

Substantial: Simply put, there would be no point in wasting marketing budget on a market segment that is insufficiently large, or has negligible spending power. A viable market segment is usually a homogenous group with clearly defined characteristics such as age group, socio-economic background and brand perception. Longevity is also important here: no market segmentation expert would recommend focussing on an unstable customer group that is likely to disperse, or change beyond recognition within a year or two.

Accessible: When demarcating a market segment, it is important to consider how the group might be accessed and, crucially, whether this falls within the strengths and abilities of the company’s marketing department. Different segments might respond better to outdoor advertising, social media campaigns, television infomercials, or any number of other approaches.
Differentiable: An ideal market segment should be internally homogeneous (i.e. all customers within the segment have similar preferences and characteristics), but externally heterogeneous. Differences between market segments should be clearly defined, so that the campaigns, products and marketing tools applied to them can be implemented without overlap.
Actionable: The market segment must have practical value – its characteristics must provide supporting data for a marketing position or sales approach, and this in turn must have outcomes that are easily quantified, ideally in relation to the existing measurements of the market segment as defined by initial market research or market assessment study.

A good understanding of the principles of market segmentation is an important building block of your company’s marketing strategy – the foundation for an efficient, streamlined and ultimately successful approach to customers, and a means of targeting your products and services accurately, with the minimum of wastage.

Chintan Bharwada

Chintan is the Founder and Editor of Loyalty & Customers.