Market Segmentation - Key to marketing Success

Every marketing professional will tell you that the core of good marketing is segmentation, targeting and positioning (STP).Marketing and segmentation are inseparable, meaning marketing starts from the market place and not the actual product. Customers are found in the market and because marketing is basically to identify the needs of these customers, neglecting them will make its practice impossible.

Sometimes people misunderstand marketing as sales and advertising, but the Institute of Sales and Marketing Management - UK defines sales/selling as a function concerned with identifying the specific needs, desires and problems of individual customers and providing satisfaction through benefit or solution in order to facilitate profitable business transactions.

Marketing on the other hand holds strategic management roles with diverse operational functions, and selling is just one of these functions. Ultimately, the mutual goal is identifying and satisfying customer needs on a profitable basis.

Marketing and sales are inseparable but trained marketers are needed to do things that sales executives cannot. Proper targeting for example depends on focusing on one segment at the expense of others; something that most sales executives simply will not countenance.

Market segmentation involves splitting customers or potential customers in a market into different segments, where customers share a similar level of interest in a similar set of needs satisfied by a distinct marketing proposition.

WHY DO WE SEGMENT MARKETS?

The core goal of marketing activity is relevance. If you can deliver the right message to the right people at the right time, then chances of converting a sale improves significantly. Segmentation increases relevance by understanding core characteristics and behaviours of customers and delivering marketing messages, likely to resonate with them. Increased relevance leads to higher conversion rate, which, ultimately, leads to more sales and greater contribution to your company’s bottom line.

DEVELOPING SEGMENTS?

According to Professor Malcom Mcdonald, segmentation can be done along two processes (1) Developing segments and (2) Prioritising and selecting segments.

The first section is in three stages;

Stage 1 – Your market and how it works

Step 1 – Define the “market”

The scope of the project

Step 2 – Market Mapping

Structure and decision-making

Stage 2 – Decision-maker and transactions

Step 3 – Who specifies what

Decision-makers and their purchases

Stage 3 – Segmenting the market

 Step 4 – Why

The needs of decision-makers

Step 5 – Forming segment

Combining like-minded decision-makers

The second section (stage 4) looks at those segments in which the company operates those that it will be operating in and the suitable marketing strategies

Stage – 4 Identify your target segments

Step 6 – Segment attractiveness

Measuring segment potential

Step 7 – Company competitiveness

Company strength by segment

WHAT APPROACH IS USED TO DETERMINE MARKET SEGMENTATION?

Marketers use different means in either the B2B or consumer markets. Key variables used in the consumer market include products and services, demographics, psychographic, buyer behaviour and geographic location.

WHAT ARE THE ADVANTAGES OF MARKET SEGMENTATION?

• The company, by studying customer needs in a particular market can lead to niche marketing, resulting in domination of its product and brand in the market place.
• Identification of different needs of customers, enabling the company to tailor their products and services effectively.
• Resources can be utilized in the most efficient manner to gain high returns.

WHAT IS THE FUTURE OF SEGMENTATION?

Marketing has evolved over decades, with technology driving the profession to different levels. Many companies have neglected the use of database segmentation in their strategies. Information and communication is changing market structure so one must consider one-to-one marketing (database segmentation marketing) whereby customers are targeted for maximum benefits. Data will enable you ‘Know,’ ‘Get’ and ‘Keep’ customers. With greater insights into customer’s behaviours online and offline, marketing will be enabled to create accurate forecast and predict modeling for their future campaigns. 

Sources:

Market Segmentation: How to do it, How to Profit from it, Malcom Mcdonald & Ian Dunbar, 2004

Digital Segmentation: Basic Principles, Experian Market Services 2011

Marketing Fundamentals: CIM Study Text 2007