If you are running a business, then you have likely segmented your market. Your market segment is the group of people that you have targeted to cater to. From a hotdog stand on the street to your Frontier bundles. Every product or service has used some strategy to break down its market into targeted groups. Without market segmentation, a business would be aimless.
Let’s look at the importance of market segmentation:
6 Reasons Market Segmentation is Important for your Business
It is useful to first go over some of the most common methods for market segmentation used today. Here are some of the most common methods businesses use to segment their markets:
- Benefit segmentation: is when a business segments its market based on consumer values. Some consumers will value customer service over price. Others will value quality.
- Psychographic segmentation: is the segmentation of a market based on consumer profiles. Some businesses are very particular when they segment their market. They can take into account consumer interests, lifestyle choices, self-image values, etc. Businesses that offer very specific products tend to adopt psychographic segmentation.
- Geographic Segmentation: is the practice to segment the market based on location. It could be the location of the business, or the location most suited for the product or service.
- Demographic segmentation: is the segmentation of a market based on variables like marital status, religion, language, gender, etc.
Here are 6 ways your business can benefit from market segmentation:
- Encourages Evolution of Industry
- Allows for Better Brand Image Management
- Opens New Consumer Markets
- Keeps the Business Focused on the Consumer
- Keeps Consumers Motivated to Change Segments
- Improved Customer Loyalty
#1. Encourages Evolution of Industry
When a business is catering to a specific market, it tends to be more attentive to its needs. This attentiveness allows businesses to develop their product to suit their consumers. The level of innovation in product development influences the evolution of an industry. If Breitling, didn’t segment their market and focus on catering to aviators, their watches would not be as advanced as they are today.
#2. Allows for Better Brand Image Management
Communication, for a business, is vital. A business can create, change or maintain their brand image by communicating with their consumers. There are many ways for a business to communicate with its market. Advertisements, marketing strategies, CSR programs, and social media platforms. These are some of the communication tools businesses use to promote their image.
When the market has been concentrated into smaller groups, businesses can communicate better. For their target audience is more specific, they can focus their communication strategies accordingly. These targeting communication strategies resonate better with targeted markets.
#3. Opens New Consumer Markets
Market segmentation allows businesses to develop newer variations of their product. Businesses use these variations to target different market segments. Variations can consist of limited runs, like Blackberry’s Porsche Design mobile phones. Or they can consist of additional features to cater to a specific market. Mercedes-Benz has the Maybach, which is a variation of their S-Class.
There are two main advantages to businesses here. Product variations usually cost less to design and produce than an entirely new product. These variations, which cost less to make, and can fetch higher prices. Since the variations typically have added value, consumers are likely to pay more.
#4. Keeps the Business Focused on the Consumer
Businesses are able to cater to a variety of market segments with variations on the same product. This is only possible if businesses can understand their market better and offer products tailored to their needs. Market segmentation forces businesses to update segment data and consumer feedback. This constant evaluation keeps the company focused on the needs of its customers.
#5. Keeps Consumers Motivated to Change Segments
We as humans can never be satisfied. For us, the grass is always greener on the other side. Market segmentation allows companies to segregate between desirable consumers. Cross-class competition between consumers is a situation most companies enjoy. When consumers feel that the product variation available for other market segments is better than their own; they want to upgrade. A company can capitalize on this basic need to compete.
#6. Improved Customer Loyalty
When a business focuses on smaller market segments, it makes consumers feel more important. They feel that a business gives them importance, it creates more loyalty in them. Consumer loyalty can be the reason a company is able to stay in business. Without consumer loyalty, cigarette brands would find it next to close to impossible to co-exist.
Market segmentation is important for businesses to make achieving their bottom-line easier. It allows for better communication and marketing strategies. It also opens up new markets. Internet service providers like Frontier use market segmentation to offer altered Frontier internet speeds at different locations. By offering a range of internet speeds in different areas and price points, they are able to increase their market demand. Market segmentation can be the reason for your success if done right.