Segmentation is the process of dividing a broad group into smaller more defined subset which all have unique traits but also share commonalities as well.
Every good marketing strategy requires segmenting target markets. Without this, it would be hard for businesses to determine to whom they are selling and what the best solution might be. Every target group you sell to is different and probably has a few unique qualities about them. If you are able to focus on those unique traits you can create selling opportunities where none might have existed prior.
There are several reasons to segment a target market.
Focus of the company
Segmenting your target market allows a company to become more focused. You’ve heard many entrepreneurs talking about “niching down.” This means finding one group of customers who benefit most from your services and making sure that group can provide you with sustainable growth and revenue. While niching down might seem extreme when there could be multiple target groups, segmentation is a very similar concept. When there is more focus there are automatically better returns, which is really the ultimate goal of any company.
For example, if you sell tools to plumbers and auto mechanics and create ads directed at both groups simultaneously it would be difficult to really appeal to both without being very generic in your pitch. On the other hand, if you create campaign segments you could create ads that appeal to the durability an auto mechanic needs for his tools while a plumber might care more about the latest innovative solutions for residential plumbing repair.
Increase in competitiveness
Segmentation also allows for better competition between companies. Once you are firmly focused on a particular segmented group, market share will increase and the number of competitors will decrease. Further, segmenting a group will help to develop brand loyalty from that group.
More efficient marketing
One of the most obvious benefits of segmenting is better advertising. When the market is segmented, the specific needs of each segment are highlighted so it is easier to determine exactly how to market to them. The websites, trade magazines, TV stations and other marketing outlets that are the best to use for each segment become immediately evident, thus making marketing to them easier.
Market expansion
Segmenting a market can show where growth is possible. For example, segmenting a market by geographic location can help a brand to grow in a particular location. Also, it makes it possible for a company to see what needs to be done within a particular location in order to grow there. Segmentation is also a great way to split test your products. If you sell to landscapers and lawyers but are not really sure who is buying more, segment these groups and run the numbers.
Potential for new products
By segmenting the market, companies can begin to determine if a new focus needs to be developed. A company can become completely innovative and can create an entire new product to accommodate the needs of a particular segment.
Customer retention
Customer retention can be easily gained through segmentation. By creating a few specific segments a company can easily tailor different products for each segment and make more consumers happy. Plus, if a customer has been happy on one segment but morphs into another segment of the same market, he will likely remain a customer even though the segment has changed.
Better communication
It is virtually impossible to effectively communicate with customers if there is no segmentation. The best way to communicate with customers is by knowing exactly who they are and what they want. The best way to accomplish this is through segmentation.
Concentrated distribution
Once the market is broken into segments it will be easier for companies to narrow their distribution. By determining which are their higher density areas, companies can more easily eliminate areas that have ineffective distribution and solely concentrate their efforts and resources on areas that have a greater potential for profitability.
Increase profitability
Since segmentation helps to increase competitiveness, brand retention, customer retention, and communication, it stands to reason that it must also increase profitability. Segmenting gives your website greater focus and resonates with customers who are then willing to buy your products or services.
