Market Segmentation & Your Small Business

It’s a term we hear a lot as marketers, but what does it actually mean?

Market Segmentation is the process of dividing your target market into groups; these groups will need different products or different types of marketing to pull them in.

How do you divide your target market into segments?

First of all, you need to absolutely know your target market or target audience. Who are they? What motivates them to buy? What are their interests etc.?

Once you know who your target market is, you can then divide them into different groups. The groups need to be big enough to give you a solid customer base.

You can use several different ways to segment or divide your market.

  • Demographics – this includes age, family size, occupation, job
  • Geographics – this is all about the location of your market – could be local, regional, nationwide or international markets.
  • Psychographics – things such as lifestyle, values and personality – for example, someone might like to visit the gym, have a Vegan lifestyle, focus on mental health, and be environmentally aware…this list is absolutely endless in possibilities – but all hangs on knowing your target market.

How to identify your segmentation groups

OK, so you know your target market – now it’s time to break that down into smaller groups.

Try and create a detailed description of your ideal client – a persona that describes them in detail.

For example is you sell children’s’ books, one persona might be female, aged 25 – 45, stay at home Mum with young children. Interested in eco products and the environment, and healthy eating for her family. Her hobbies could be reading, family time, socialising with friends and hiking in the countryside.

The questions

Once you have this persona, you can more easily target that audience with specific books that would be interesting to that target group.

You will most likely need to work on several different personas. I give each persona a name as it makes them more real for me!

Here are some questions that might help you sort out your different segments. 

  • What are your highest and lowest value customers regarding the revenue they bring to you and profitability?
  • Are there any things that your customers have in common – or any patterns of buying you notice that they have in common?
  • Can you divide your customers into demographic information – age, income, gender?
  • Can you divide them into location?
  • What interests and hobbies do your customers have?
  • Have you noticed that customers with a particular interest or value are interested in your services/products?
  • How much do your customers know about your industry, products or services?
  • Do your customers buy online? If you have several online outlets, which is the most popular?
  • Do your customers need to have a consultation before they buy anything from you, or is the purchase just a transaction?
  • From your reviews and records, are your customers more likely to be satisfied with a particular purchase, or are they likely to want to exchange or return it?
  • Do customers ever make a suggestion to improve any of your products or services? Again, look at your records to see if any have the same opinion. Maybe that’s something you can improve and then target that audience?  

The more information you can find out about your current customers, as well as your potential customers, the easier it will be for you to segment your market. You will find groups by age, which is quite a broad spectrum to target, but if you look at feedback and reviews, you may find other things that certain customers have in common. For example, it could be how they found out about you? They may have googled your products or services, or maybe had a recommendation. It’s good to know these things.

Segmentation allows you to aim at the right market for your products. It helps you to focus on the way you interact with your customers, based on their interests, hobbies and behaviours.

This article wouldn’t be complete if I didn’t give you a quick overview of the pros and cons of segmentation. This gives you lots of information so you can make up your own mind as to how you would segment your market.

The pros of segmentation

  • You can look at each segment and determine if your current offering satisfies the needs of that segment. If not, you can adapt your products/services to make sure that you do – this might involve new products/services.
  • If you have a marketing budget, knowing who you want to target and how, you can better allocate that budget.
  • Segmentation helps you to set realistic targets or goals for your business.
  • Understanding your market in more detail, can help you when looking at what your competitors do.

The cons of segmentation

The cons are around, quite simply, costs.

If you are serving several different segments with different wants and needs, you could find costs escalating due to the increased number of products or services, or product variations.

Marketing costs will also increase as you will be serving different groups of people with different marketing. If you do paid ads, you’d need to do more than one to target the different segments.

I think the benefits outweigh the downside, but you need to take everything into consideration if you’re going to go this route.

Donald Norman, an American researcher, professor and author, once said, “Market segmentation is a natural result of the vast differences among people.”

This is so true, even people with the same hobbies or interests have huge differences between them. It’s just about finding those differences and how you can use that information to your best advantage.

Seth Godin, an entrepreneur, best-selling author and speaker, has been quoted in saying, “Don’t find customers for your products; find products for your customers.”

This absolutely puts it all into perspective. If you can work out exactly what your customers want and work to improve or change your products/services to meet their needs, you’re there! Customers always buy for their own reasons, not ours!

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