Steps in Market Segmentation

What is Marketing Segmentation?

Market segmentation refers to the process of dividing a target market into smaller groups with comparable characteristics, such as age, income, personality traits, behaviour, interests, demands, or geography. Knowing the market segmentation allows the marketer to better target their product, sales, and marketing strategies. It can aid in product development processes by directing how to construct offerings for different groups, such as men versus women or high-income groups versus low-income groups. These divisions can be utilised to improve product design, marketing, promotion, and sales. The overall objective of market segmentation is to reduce risk by identifying which items have the best possibility of capturing a share of a target market and by identifying the most effective means of distributing those products to that market. This enables the business to boost efficiency by concentrating scarce resources on initiatives that yield the highest return on investment (ROI).

Steps in Market Segmentation

The seven essential steps in market segmentation are as follows:

1. Determination of the Need of the Segment:

The first and foremost step of market segmentation is to determine the needs of the customers and how can the business then group the customers on the basis of their needs. While determining the needs of the customers, the marketer has to think about the consumption of customers or what the customers would like to have.

For example, a region has many regular restaurants, but no restaurants which serve continental food. So a marketer determined the need of customers for restaurants serving continental food or cafes in that particular region.

2. Identification of the Segment:

After determining the need of the customers, it is essential to determine the customers who will prefer that product or service. For this, a marketer must assess different segments to ascertain their distinctive features, similarities, and differences after effectively identifying each target market. A marketer needs to be aware of the unique qualities of each segment. It is necessary to create a unique profile for each segment. Additionally, each market niche requires a different marketing plan.

For example: Using the same above example, the target demographic will include children, teenagers, and middle-aged folks. Elderly people do not generally like continental food and usually prefer food that is easy to chew. Or there can be psychographic segmentation based on the lifestyle of people, like people living with high standards preferring continental food, etc.

3. Deciding which Segment is Most Attractive:​

The market should assess each market segment at this step of the market segmentation process to determine their value for marketing activities. It means that the marketer will have to choose the segment, which is most attractive for him. If marketers use psychographic segmentation, they must target the psychology of their customers, but it requires time. As a result, marketers can’t expand more quickly. However, if the company’s offer is simple, it can use demographic segmentation as a foundation and develop considerably faster in neighbouring regions. 

The following factors could be taken into account by a marketer when assessing market segments:

• Accessibility to that market sector.
• Cost of entering a new segment.
• Consumer’s desire for goods and services.
• Firm’s competitive position.
• Size of the segment and anticipated profit.
• Goals and objectives of a potential company in the target market.
• Marketing strategy necessary to target a certain segment.

For example: Considering the preceding example, the marketer notices that he has more middle-aged and young individuals in the area around him. As a result, he should market his store at malls, near colleges/universities/offices, etc., where this target audience is likely to visit. Young people like to eat and try dishes from different countries of the world and then suggest their parents for the same. So the first target is the young population, and the second target is the middle-aged. Thus, the marketer has used a combination of geographic (by determining the need in that region) and demographic (by determining the age group) segmentation.

4. Determining the Profitability of the Segment:

In this step, a marketer ultimately chooses the ideal market segment after properly evaluating each market segment. The market sector that offers the company the most opportunities is considered to be the most appropriate one. The prospects, in this case, relate to the firm’s profitability, reputation, ability to achieve its aims and objectives, competitiveness in the market, sustainability, etc. A company will choose more than one market sector if it believes there are enough prospects to enter more than one. For each of the target markets, the brand must employ a different marketing strategy.

For example: Following the same example, the restaurant owner determines that his young customers are quite profitable; however, the middle-aged customers are not. Most middle-aged people usually prefer Indian cuisines and feel proper satisfaction after eating that only. This lowers the profitability of the restaurant.

5. Positioning for the Segment:

Once the target market is selected, it is important to develop a product positioning strategy. Product positioning refers to setting up strategies to ensure that the product resides in the minds of target market consumers. To make the target market more approachable, the marketer must determine the characteristics and pictures of each competitor’s product and establish a position for it. Because the product may be very new to the market or the market may be very new to the company, the marketer may not reach the market so easily after choosing a target market. The marketer must create a positioning strategy that is attractive to potential clients.

For example: In the preceding example, the restaurant owner viewed middle-aged people to be unprofitable. So, in order to change the mindset of middle-aged people, which has proved to be unprofitable, the owner can simply offer Indian cuisine along with continental food. By doing this, the owner has created a mindset among people that even though there are several good restaurants serving Indian food in the nearby areas, this restaurant offers continental food along with it.  As a result, both the middle-aged and young target groups can have fun.

6. Expanding the Segment:

Scalability is required for all segments. So once a segment has been discovered, it must be in a way that the firm may expand with the type of segmentation selected. If the segment is extremely narrow, the business will eventually fail. As a result, segment expansion is the second last step in market segmentation.

For example: In the preceding scenario, the owner can open up a Continental restaurant mixed with an Indian food chain. In the beginning, the marketer was using a blend of demographic and geographic segmentation. Now, he can consider additional geographic sectors in other regions where he may use the same approach and build a business. Besides, with expansion, the owner can earn more profit.

7. Incorporating Segmentation into the Marketing Strategy:

The final step of marketing segmentation involves understanding the target market and using the appropriate marketing plan for the target market that will satisfy them and help the firm achieve its goals. The marketer can use several elements of the marketing mix to readily engage with the target audience to create an efficient marketing plan and program. Finally, a marketer may put his positioning plan into action to accomplish organisational goals. Furthermore, they must assess the effectiveness of the positioning strategy and marketing plan to determine whether they are performing as expected or not.