The Benefits of Market Segmentation

Market segmentation is a business exercise that chunks the total marketplace for a product into smaller segments, and pulls together groups of consumers with similar characteristics, needs and wants.  It enables the organisation to identify those parts of the market that they can best serve.

As a small business or start-up it can feel quite scary to segment and target only a portion of the market. After all, we need to generate as much business as we can right?  Right.  But let me tell you, it is more effective to dominate a larger share of a small market than a smaller share of a large market.  It's natural to worry about missing opportunities if you dismiss a portion of the market. But you can’t be all things to all people.  If you try to be, you could weaken your messaging and branding, and end up merely a ‘me too’ company.   

Beside the efficiency of it all, there are many other benefits to be had from segmenting the market.  Take a look at these:
Benefits of Segmentation and Targeting for Small Businesses

• Efficiency: it will be easier to craft communications and the marketing mix focusing purely on the needs of those customers in your target segment.
• Attraction: all your marketing techniques will be positioned to attract the right customer.
• Risk: strategic decisions on how to go to market will arise from detailed knowledge of the potential consumer.
• Strategy: your marketing activity will be commercially viable.  You will formulate better marketing objectives and strategies.
• Differentiation:  you will find it easier to differentiate your product from those of your competitors and design your unique selling proposition (USP).
• Focus: you will be able to tailor your offerings to the groups most likely to purchase them.
• Growth: you will see growth in both market share and business results.
• Profitability: superior profitability may result from successful market segmentation.

ExampleSo let me finish with an example.  Let's say we're a travel company.  Our primary market is the travel sector.  But the travel sector as a whole is way too broad to be workable as far as targeting is concerned.  So we need to segment a little further.  Let's say we come up with these segments:

• Young Adventurers age 20 - 35
• Families age 30 - 55
• Seniors aged 55 -75

So now we've segmented the market, it's time to identify our target market - the market we wish to service.  We can do this simply by calculating how attractive the market is (size, growth, competition) and mapping our ability, as a business, to compete in that market.  When you have that result - you have your target market.

There are some highly complex models you can use to map attractiveness and ability to compete (and I will be blogging about them soon) but for now, I would say make it simple and follow your hunches.

If you need any help with segmenting or targeting, please contact me.  Happy to help.

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