Market Segmentation Process: Breakdown of Strategy for Customer Grouping
Market segmentation is a crucial process for any firm, big or small, seeking growth and success. This strategy divides a broad market into smaller, identifiable groups based on shared characteristics, allowing businesses to tailor their products and services to meet specific customer needs.
The process of market segmentation begins with Determining Customer Needs. Understanding what customers want and their consumption patterns helps identify gaps in the market that a business can exploit. For example, an Italian restaurant owner might find that middle-aged people are more profitable than youngsters, leading to a focus on this demographic.
The next step is Identifying the Segment. Based on the determined needs, the market is segmented, and unique profiles are created for each segment. This involves choosing the type of segmentation (geographic, demographic, psychographic, or behavioral) to understand who will prefer the product or service.
Once the segments are identified, the Choosing the Most Attractive Segment comes into play. Evaluating the different segments helps decide which one offers the best opportunity. This includes assessing the segment’s size, growth potential, accessibility, and alignment with the firm's strengths.
Assessing Profitability of the Segment is the fourth step, where each segment’s potential profitability is analyzed. Factors such as market size, expected sales volume, cost to serve, and competitive intensity are considered to ensure resources are invested wisely and the segment can sustain growth.
With the chosen segment in mind, the Positioning for the Segment is developed. This involves defining how the brand or product will be perceived relative to competitors in that segment, often by emphasizing unique benefits or value propositions.
After establishing a foothold in the segment, the Expansion of the Segment is considered. Strategies to expand the segment’s size or share may include refining the offering, increasing awareness, or broadening appeal within the segment.
The final step is Incorporating Segmentation into Marketing Strategy. Segmentation insights are embedded into overall marketing planning, ensuring each segment is addressed with tailored marketing mixes (product, price, place, promotion). Continuously revisiting segmentation strategies based on feedback, changing customer needs, and market dynamics optimizes effectiveness.
Incorporating segmentation into the marketing strategy is essential for effective targeting and growth. Companies like McDonald's and KFC have leveraged this strategy to become big chains. For example, an Italian restaurant owner might expand their business by starting a fast food chain next to the Italian restaurant to target youngsters as well.
To learn more about market segmentation, a video by Marketing91 explains the process in detail, and a complete series on Segmentation is available for a comprehensive understanding. Customer segmentation can be done using geographic, demographic, psychographic, or other methods, making it a versatile tool for businesses of all sizes.
The Italian restaurant owner, seeking growth, might first Determine Customer Needs to identify the most profitable demographic. Understanding that middle-aged individuals generate more profit, they focus on this segment.
Subsequently, based on these needs, the market is Identified and Segmented, with the chosen segment being middle-aged customers. Different types of segmentation, such as demographic or psychographic, are used to further understand this segment.
