Segmenting Your Market

 

Welcome to part 2 of our marketing mini-series.

If you missed out first installment you can check it out here – Market Research.

The most fundamental principle in marketing is knowing who your customers are and what they need.  Yet many small business operators do not understand this.  They decide on what they are going to offer, start the business and wait for the customers to come rolling in.  They see their customers as a crowd of people, out there somewhere, just waiting for this product or service.  They have not segmented their market.

For most products and services there is not just ‘one’ market but groups of sub-markets.  These sub-markets are groups of people who have some common characteristics or needs, but who differ in characteristics and needs from other groups.  These sub-groups are called market segments.

Many small businesses take a non-segmented approach and try to reach the whole market. These are often the businesses that find themselves in difficulty and without a suitable marketing strategy.  A weak appeal to the whole market is not as effective as a strong appeal to a specific segment.  In other words, you are better off saying something to someone than nothing to everyone.

The better you can segment your market, the more clearly you are able to identify what motivates those customers and the more accurately you can tailor your marketing mix to meet their needs.  This leads to a much more effective use of your marketing dollar.

The table below lists the factors that identify specific groups of customers.  When you analyse the customers within your industry, you will notice that they fall into groups with one or more of these factors in common.

Ways of Segmenting Your Market

Identifying Factors

GEOGRAPHICAL

  • Location – urban, inner city, suburban, distance from your business

DEMOGRAPHIC

  • Disposable Income – high, middle, low
  • Age – child, teenager, adult, retired
  • Sex – male, female
  • Occupation – professional, clerical, white collar, blue collar, trade
  • Education – secondary, tertiary, trade qualifications
  • Special Characteristics – nationality, religion, race, cultural background

PSYCHOLOGICAL

  • Lifestyle – image, preference, usage patterns
  • Personal Preferences – hobbies, interests

WHAT IS PURCHASED

  • Volume of purchases
  • Type of purchase – wholesale, trade, retail

TYPE OF ORGANISATION

  • Residential – flat, house, townhouse
  • Business – partnerships, companies, sole traders, franchise, agents,
  • Industry

For example, the market for dog food might be segmented and ‘labelled’ as follows:

‘Baby Substitute’ (10% of market)

  • Demography – one small dog, no children, higher income, urban
  • Psychological – dogs fragile indoor animals, owners very attached to dogs, dogs are finicky eaters, great desire to give what the dog wants

‘Nutritionist’ (15% of market)

  • Demography – multiple dog owners, unlikely to have children, Australian urban, high/middle income
  • Psychological – very personally attached to do, dog belongs to woman, interested in nutrition, food is varied, least interested in cost

‘Functionalists’ (40% of market)

  • Demography – multiple dog ownership, usually children, lower income
  • Psychological – dogs outdoor, hearty, eat anything, no bother, little attachment to dog, woman not involved in dog

I’m sure you can think of brands of dog food which target these different market segments.  Some brands appeal to ‘finicky eaters’, others promote their ‘nutritional content’ and other represent ‘value for money’.

Having segmented the market, you can better identify those segments that you can or should concentrate on, that is, which group to target.

Segmenting the market is a powerful tool.  Consider the case of two small manufacturers of paper plates.  If one manufacturer was market oriented, they may segment the market and find that there is a higher income group who would make more use of paper plates if they were more substantial, a more appealing range of colours and prints and a better finish.  The manufacturer can then create a marketing strategy to target this group and gain a competitive advantage over the other manufacturer.

Next issue we will look at the Product Life Cycle and this can dramatically impact your business.

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