Business
What Does Market Segmentation Mean for A Small Business?

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Updated Mon 29 Jun, 2020



Market segmentation refers to the process of dividing your target market into defined groups of customers who require different products or a diverse "marketing mix." It is one of the steps to identify and target specific markets. 


Small businesses that target niche markets commonly promote their products and services more effectively than companies which aim for the "average" customer. By using market segmentation to communicate more effectively with your consumers, you'll be able to give your business a marketing edge over your competition. 


As a small business owner, you need to analyse the needs and wants of different market segments before defining your own.


How do you divide a market into segments? 


When you have established the different needs and wants of segmented customer groups, your opportunities to effectively market your business increases. In order to achieve market segmentation, you need to consider the following:


  • Segments or target markets should be accessible to your business.

  • Groups must be large enough to provide a solid customer base.

  • Each segmented group requires a separate marketing plan.


You're also able to segment your market using a variety of factors. The bases for effectively segmenting your consumer markets include: 


  • Demographic traits such as age, family size, life cycle, and occupation.

  • Geographic location, including city, state, region, or country.

  • Behaviour, such as knowledge, product usage, or consumer attitudes.

  • Psychographic traits, including lifestyle, values, and personality.


Once you've successfully identified your target market, you'll be able to further break down the said audience into smaller groups based on the above factors. 


How do you determine your segmentation groups?


Once you've created a detailed description of your ideal customer, you'll more than likely find that you'll need more than one buyer persona to identify the segments you want to target accurately. The following questions will provide a reference point for precisely defining your customer segments as well as 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 groups can you divide customers into based on demographic information, income, or location?

  • What interests do your customers have in common?

  • What values do your customers have in common?

  • Are there patterns in your customers' behaviour?

  • Do they make their purchases online or in stores?

  • How knowledgeable are customers about your industry, products, or services?

  • Do they require a consultation before purchase or is the purchase strictly transactional?

  • Are customers more likely to be satisfied with a purchase or want to exchange/return products?


The more insights and understanding you have of your current and potential customers, the more effectively you'll be able to segment them. Common similarities can be broad factors such as consumer age, income or geographical demographics and they can also be as granular as where they shop, where they look for information and of course, how they learned about your business. 


Does market segmentation require research? 


Bigger businesses commonly segment their markets by conducting extensive market research. This kind of research can be too costly for small businesses to invest in, but there are alternative methods which a small business can utilise to segment their market


In order to effectively segment your business's market without investing in private market research, you could opt to learn more about your customers by: 


  • 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 groups can you divide customers into based on demographic information, income, or location?

  • What interests do your customers have in common?

  • What values do your customers have in common?

  • Are there patterns in your customers' behaviour?

  • Do they make their purchases online or in stores?

  • How knowledgeable are customers about your industry, products, or services?

  • Do they require a consultation before purchase or is the purchase strictly transactional?

  • Are customers more likely to be satisfied with a purchase or want to exchange/return products?


Conclusion:


There are many reasons for dividing your market into smaller segments. At any time during your business's lifecycle where you might suspect that there are significant, measurable differences in your market, you will need to consider market segmentation. Accurate and effective segmentation will make your marketing efforts easier, reveal niche markets or new opportunities, and ultimately aid in using your marketing resources more efficiently. 

  • marketing
  • market research
  • new business
  • business growth
  • market segmentation
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