The market segmentation concept is crucial to market assessment and market strategy. Divide the market into workable market segments — age, income, product type, geography, buying patterns, customer needs, or other classifications. Define your terms, and define your market. And of course, markets change. Don't assume you know your market because you've been in business a few years. Take a step back for a fresh look.
Segmentation can make a huge difference in understanding your market. For example, when a local computer store defines its customer segments as "high-end home office" and "high-technology small business," its segmentation says a lot about its customers. The segmentation helps the company plan its focus on the different types of potential customers.
The pie chart shows the potential market and the relative sizes of different target market groups.
When I was consulting for Apple Computer in the middle 1980s, we divided the markets into workable categories, including home, education, small business, large business, and all others. Some other groups in Apple also focused on government as a specific market segment. As you define the segment you point toward an understanding of the market.
In the 1970s, I knew a company that was selling candy bars through retail channels. They segmented the market in a way that defined a range of products as "oral satisfacters" (their term, not mine) that included candy, cookies, soft drinks, and bagged chips. The segmentation helped the marketers understand their real competition, which wasn't just other candy bars, but also other products targeting the same customer money. That understanding improved the marketing and sales programs.
In today's business it's easy to see segmentation in action. Consider the different tone, content, and media for ads that sell products to kids, compared to those that sell the same product to parents. Car companies change their advertising substantially from one type of program to another. Stand-up comedian Robert Klein used to joke about the beer company ads that changed the style of the music to match the audience. He complained that he kept getting the country music version, but he liked the blues version better. The company that did those ads used the styles of music to address different target customer groups.
In developing segmentation, consider what factors make a difference in the purchasing, media, and value patterns of your target groups. Does age matter in choice of restaurants, or is style and food preference more important? Is income level a key factor? Education? I suspect some restaurants will sell more meals to college graduates than others. Is this because of education, age, or income levels? That depends on your business.
In your initial assessment you may have already developed your first basic Market Analysis worksheet for analyzing potential customers. It will help you define your market and understand your key market segments. As you complete your market analysis, look at your segmentation critically and strategically. Is this the best segmentation? Be sure to revise and polish your numbers.
Copyright © Timothy J. Berry, 2006. All rights reserved.