Tuesday, 6 July 2010

Market segmentation

A market segment is a group with shared needs. Sounds simple enough and I suppose it is.
  • Mothers-to-be have shared needs (pre-natal classes, books of children’s names).
  • Students have shared needs (low-cost food, inexpensive accommodation, text books and places to socialise with other students).
  • Business people have shared needs (cases for carrying laptop computers, well-cut suits, smart phones).
You get the idea.

But of course a market segment could be anything, depending on your business and your customers.

It could be frequent-purchasers. It could be infrequent-but-profitable purchasers. It could be people-who-influence the buying decision, but are not responsible for the purchase. It could be anything that makes sense to your business, your data, and your customers.

In other words, not only must you have data to support your idea of, say, a group who “rarely buys but spends a lot and is very profitable”. But you must also have a meaningful way of communicating with them that makes sense to them, and is profitable for your business.

So segmentation is both a science and an art:
  • Science in the analysis of the data.
  • Art in the sense-making and marketing know-how to make use of the insights.
  • Science in turning ideas into profit.
So what are the benefits of market segmentation?

Many companies that use a data-driven approach to marketing say that it has changed their business-thinking and profitability completely. Benefits include:
  • Developing promotions to appeal to a specific market segment, therefore increasing response rates, keeping costs down, and showing customers that their needs and wants are important to you. (The last point often gets overlooked in these days of email marketing.)
  • Developing products and services to appeal to a specific market segment.
  • Informing competitive positioning relative to different market segments.
  • Informing business and marketing strategies.
After all, customers buy from us as individuals (as consumers or business people). So the more we are able to treat them as individuals, whatever our business, the more successful we are likely to be.

Segmentation is one of the cornerstones of data-driven marketing, and one of the most profitable to get right.

1 comment:

  1. Absolutely right: treat your customers as individuals.
    What many companies forget is that "data" is only "data". No shop assistant would greet you with "you are in the X or Y segment, therefore I am pitching this to you". Yet we try to do so when we "market". Worse: we imagine what those segments should be and label them, then we look for data.
    There are now better ways of using data, to offer the customer what he or she wants as an individual, without having to go through the artificial step of putting them into a segment. Technology enables us to do it. Why would old-school marketers hold companies back?