Market Segmentation for Small Business
Market segmentation is one of the steps that go into defining and targeting specific markets. It is the process of dividing a market into a distinct group of buyers that require different products or marketing mix.
A key factor to success in today's marketplace is finding subtle differences to give a business the marketing edge. Businesses that target specialty markets will promote its products and services more effectively than a business aiming at the "average" customer.
Recognizing Varying Needs of Clients and Customers
Opportunities in marketing increase when segmented groups of clients and customers with varying needs and wants are recognized. Markets can be segmented or targeted using a variety of factor. The bases for segmenting consumer markets include:
- Demographic bases (age, family size, life cycle, occupation)
- Geographic bases (states, regions, countries)
- Behavior bases (product knowledge, usage, attitudes, responses)
- Psychographic bases (lifestyle, values, personality)
Analyzing Needs Before Determining Niche
A business must analyze the needs and wants of different market segments before determining their own niche. To be effective in market segmentation keep the following things in mind:
- Segments or target markets should be accessible to the business.
- Each segmented group must be large enough to provide a solid customer base.
- Each segmented group requires a separate marketing plan.
Markets Segmented After Conducting Extensive Research
Large companies segment their markets by conducting extensive market research projects. This research is often too expensive for small businesses to invest in, but there are alternative ways for to a small business to segment their markets.
A small business can do the following to gain knowledge and information on how to segment their markets:
- Use secondary data resources and qualitative research. You can use the following resources for external secondary data:
- Trade and association publications and experts
- Basic research publications
- External measurement services
- Conduct informal factor and cluster analysis by:
- Watching key competitors marketing efforts and copying them.
- Talking to key trade buyers about new product introductions
- Conducting needs analysis from qualitative research with individuals and groups.
There are many reasons for dividing a marketing into smaller segments. Any time you suspect there are significant, measurable differences in your market you should consider market segmentation. By doing so you will make marketing easier, discover niche markets, and become more efficient with your marketing resources.
Questions to Ask to Determine Your Segmentation Groups
It's not uncommon for market segmentation to take research that involves your prospects and consumers, but where do you start? The following questions can give you a starting point for conducting preliminary research that can help you in defining your segmentation and learning how to reach them.
- Who are your highest and lowest value customers in terms of revenue and profitability?
- What commonalities do you see in the consumers you are targeting?
- What are their interests? Go even deeper by finding out what common topics they are interested in.
- Are there patterns in their behavior?
- Do they make their selection of the product/service that you are offering online or in-person?
- Do they require a consultation before purchase or is the purchase strictly transactional?
The more you understand your current customer or your targeted prospect the better you can segment. Similarities can be as granular as where they shop, where they research for information and what stops them from making the purchase of your specific product/service. Really dig into who you are trying to reach by creating a persona of your buyer and don't be surprised if you find that you need more than one persona to really identify the segments you are targeting.