Using Analytical Market Segmentation Strategy for Improving Business Growth

Finding the 20% of Your Market Segment That Bring in 20% of the Profits

by Rod Dunne on December 9, 2011

in Marketing

The success of your business lies in its ability to target your main customers effectively, and one way to achieve this is by market segmentation. When trying to understand how to marketing new product you’ll find a simple way to define market segmentation is by dividing your market into various groups according to criteria such as age, gender, level of income, among others.

Online businesses also require a successful market segmentation strategy as much as offline businesses, in order to maximize their reach to target customers.

In this post I’ll show you the value of market segmentation analysis and subsequent strategy work for pinpointing your customer base long before you make a new product launch. In effect you are applying the Pareto’s 80/20 rule – finding the 20% of your audience who constitute 80% of your sales.

Market Segmentation Theory 101

Since it is very rare for a business to have, 100% homogenous total market, segmentation is the ideal way to reach the right people in the most effective way. Therefore, a basic theory can be used to develop a segmentation strategy for both online and offline businesses.

It comprises of the following three steps:

  1. Segment identification: Determine the criteria that will comprise each segment, which are also called variables. These variables must be distinguishable from each other, accessible, customer focused, as well as profitable. Voice of the customer research is perfect for identifying new segments.
  2. Market selection: Choose a group or segment for marketing activities suited for them based upon the business overall objectives. Whether by review or committee you need good technical data of the potential of the chosen market to backup your selection.
  3. Positioning: Develop a niche for the business by finding the unique selling proposition for the business in relation to meeting customers’ needs. You then simply work this into your advertising, creative marketing ideas, promotional brochures and if necessary into your product features.

A Key Technique for Market Segmentation Analysis Everyone Should Know

Any market segmentation activity can be easily analyzed using online surveys and polls, as well as an evaluation of the subscribers to a website’s emails, newsletters and other communications.

Its critical that your market segmentation analysis is important in adapting to the changing customer needs and behaviors, thus developing a competitive advantage based on the loyalty of the customers. This means analysis must be part of an ongoing set of activities by the company, especially to identify trends.

Analysis of your own data can be supplemented by other consumer behavior surveys for similar online businesses and regression analyses can reveal important trends and influences on customers’ buying behavior.

What is Market Segmentation Good For? Especially With Modern Web Businesses?

You’ll find that all types of web based businesses can use market segmentation to target specific types of customers to their websites and social media pages. This in turn increases your number of sales or orders made for their products.

The key to an effective market segmentation strategy for online businesses is in conducting comprehensive research about your target markets.

Population, lifestyle and trending data can be obtained from the Library of Congress Business Reference Services, the U.S. Bureau of Statistics; as well as other marketing organizations such as Market Segment Research and the American Marketing Association. Data from these sources can give you an idea of the existing segments that an online business can maximize upon.

Using tools such as Google Analytics are essential kit for identifying demographics of those visiting your site. Further online research is also crucial, whereby keyword research and search engine optimization come in to play.

  • Keyword research can reveal the frequency of searches for a given term you want to target.
  • Search engine optimization techniques can maximize your internet presence.

Both types of data can help an online business to develop comprehensive market segments that will reach the most profitable audiences. In effect you are trying to paint a picture of the average target customer in the segment based on a number of characteristics.

Planning Your Market Segmentation Strategy Based on Clear Goals

Most, if not all online businesses share one goal, which is to increase traffic to their websites and social media pages.

However, even more important is the type of traffic you attract. This is where many online businesses fail in their segmentation strategies. It begins with setting clear goals and objectives of not only receiving ‘X’ number of visitors to the business website per day, but also ensuring a high conversion rate from the visitors.

Your online business can adopt six target market options depending on the type of products, services or marketing objectives you envisage offering. These options include:

  1. Demographics: Targeting a niche, based on the more traditional segments of age, sex and geographical location.
  2. Customer value: Targeting those “VIP” customers who conduct repeat purchases and number of referrals they bring.
  3. Customer lifecycle: Online lifecycle is based on each customer’s activity on the website, such as those consistently logging in to those who are inactive for months at a time. Loyalty can pay off big time.
  4. Customer purchase behavior: Evaluating customers’s activity according to their frequency and money spent on the website.
  5. Customer channel preference: Targeting customers who prefer direct mail or phone communications, as opposed to email.
  6. Psychographics: Develop customer personas according to their preferences and behaviors, thus developing more personalized marketing messages.
My earlier post on strategic planning models goes into far greater detail on how you can use business templates to strategize & plan out what markets and customers you’d like to target.

Good & Bad Examples of Market Segmentation Online

In order to develop the best market segmentation strategy, it is important to focus on customer needs as much as on the type of product on offer.

  • Good segmentation means identifying customers according to their needs and abilities and developing products or packages to meet these needs. Good examples of market segmentation are constantly being displayed by car manufacturers who regularly target specific new car lines towards specific customers ( such as Rolls-Royce or penalty focusing on high-value customers low quality and prestige).
  • Poor segmentation focuses on a generalized view of segmentation, such as females aged 18-24, but does not account for their needs or preferences. One of the worst market segmentation examples in recent years which focus solely on age groups are the many MP3 players that tried to compete with the iPod. Many had a narrow focus on the youth audience, completely missing the fact that every generation of music fan would be drawn to purchasing a music player. Where Apple succeeded is in providing an intuitive and user-friendly product design that all generations could warm to.

It is rather easy to have poor market segmentation examples for online businesses due to the widely available statistics on internet usage. Businesses need to devote more time and research on discovering their unique segments of the market and providing the best solutions for their customers.

The Wrap-Up

For your company to thrive it needs to incorporate market segmentation analysis as part of the brainstorming and ideation of all new products and apply proper market segmentation strategy for product platforms, product variations and customization.

Marketing teams therefore need to work with product development as well as sales and advertising to ensure the correct message as well as features are getting through to your desired customer base.

Author Rod Dunne...

Blog owner and sole writer Rod DunneI am the owner and sole writer on Product-ivity.com. This is my personal blog detailing troubleshooting tips for small businesses. Posts are based upon 2 decades in consultancy & innovation management within startups/maturing companies.

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