Perhaps the most important analytical process of marketing is segmentation or as what others would call it, “market niching”. By segmenting the market, one obtains a very clear understanding of customers in which segmentation ultimately provides a basis for clear and precise targeting and positioning.
“Segmentation by the way is simply the process by which we subdivide a large potential market into smaller groups.” according to Will Sheward, author of Will Sheward on Marketing. These smaller groups have different needs and preferences in which it enables us to construct approaches we think will appeal immediately to the needs of such particular segments.
Segmenting, however, is also very difficult. And when faced without customer data, it is, you need to invoke your art in marketing. Segmentation is one of those areas in which there are no 'right' answers. There is no set formula or rules. Simply put it, no master list of criteria that you can use to segment your markets successfully. Thus segmentation is a combination of hard-nosed business research, analysis and creativity.
There is however a simple three-step outline to segmentation for small businesses to start with.
First, Identify Your Market. You may ask, what are the overall boundaries of the market you intend to segment? Many traditional marketing initiatives is done at the product development stage except for nascent technologies in which this is often not done at all with many software products developed based on hunch.
Second, Establish a Segmentation Matrix. Establish the key market segmentation drivers for your product, this could be based on age of your customer, spending capacity, usage of other products and demographics -- the list is endless. Use those which you consider to be most the important to define a few 'master' segments.
Third, Evaluate and Prioritize. Establish criteria for evaluating your segments' attractiveness for your product and or service and prioritize in line with the resources that you are able to devote to your marketing efforts and the likely impact of addressing each segment on any support or service.
The practical application of segmentation is that you will be able to find an angle in which your competitors have missed. Success in identifying new segments can lead to innovative approaches to customers that will appeal to them in ways, or using means, that your competitors have not considered.
Segmentation is also a great way of prioritizing marketing spend, allowing you to concentrate limited resources on the one or more segments upon which you can have a real impact. If you do not carefully segment your market, and tailor your marketing propositions for each segment you choose to compete in, you'll likely end up marketing your product or service in a generalized way that misses opportunities with the result that you'll end up falling back onto a price war to make a headway.
Further, market segmentation strategy requires a major commitment by the organization. Everyone must have understood and must be able to align all its efforts toward achieving the strategy.
For example, R&D must be able to execute product variations, and manufacturing must be able to produce those variations. Finance must be able to report costs, profits, and margins by market segment, and marketing research must be able to monitor and measure customer response and provide feedback to the organization by market segment.
At that point, the firm sets initial forecasts of the market demand for each segment. Then, the firm will typically fine-tune its marketing mix to achieve optimal positioning and penetration in each selected target market.
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