Written By: Vishesh Kumar
Market segmentation explained in less than 2 minutes
And one man in his time plays many parts.” Wroe Alderson has worn many hats in his lifetime (1898–1965) – that of an active Quaker, president of the American Marketing Association, and marketing professor at the Wharton School of the University of Pennsylvania. The concept of market segmentation first entered the world of American marketing in the 1950s, notably in the works of people associated with Alderson and Prof. Wendell Smith. The latter, also a Wharton academic, is often credited as the father of market segmentation. Fast forward two decades, and market segmentation topped the American academic agenda. Smith proposed segmentation as a viable alternative to product differentiation, describing it as the process of “dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviours who might require separate products or marketing mixes. Much water has flowed since then, and in the present-day, businesses group customers not merely on the basis of demographic and psycho graphic factors. Similarly, location factors are also not the only criteria that matter to segmentation pundits of our time. Certainly, these continue as important bases for segmentation, but there are other yardsticks as well such as company size (firmographic segmentation), and generation (Gen Z, Millennials). Whether the customer is an early/late adopter of a technology (techno-graphic segmentation) can be a key segmentation parameter as also the customer’s prior interactions with the brand. Make no mistake, the last-mentioned segmentation approach is a hot favorite with many e-commerce players!
Importance of the Market Segmentation
In this market segmentation approach, the larger market is divided into smaller subsets that hold relevance for a business’s offerings. Such categories are typically based on demographic factors like age, gender, race, nationality, religion, marital status, family size, education, occupation, and income. More granular criteria might also be applied, such as years of work experience and sexual orientation. These days this kind of data on online users is generally sourced from third-party services (e.g., Lotame, Eyeota, OnAudience, Acxiom, Dawex) and via private surveys. In the next step, businesses apply machine learning and data mining tools to unlock hidden patterns in the collected data such as buying behavior, customer stickiness, end users’ needs as well as preferences around products and pricing.
The target population, in this case, is carved up into sub segments based on where they live, typically decodable from their locational data such as country, region, city, zip codes. Geographic segmentation is particularly suited for location-specific marketing and weighs in factors like regional preferences. Take the case of American lager. This is the best-selling beer in the Pacific region, unlike other geographic areas. Climate and number of people per square kilometer (population density) are some of the other key measures that enter geographic segmentation studies. This type of segmentation points marketers to “where” their customers or prospects are located but doesn’t venture to explain the reason or stimulus that drives them toward a certain product or its rival! So, geographic customer grouping is often employed hand in hand with other market segmentation approaches, such as, for instance, psychographic.
This segmentation method works by breaking down the target market into smaller constituents using psychological traits that influence customers’ actions and decisions as the key criteria. In psychographic segmentation, marketers consider customers’ attitudes towards and opinion of a certain offering. Buyers’ habits, interests, and hobbies are also keenly tracked while grouping buyers into subcategories. The objective is to “get inside” the customers’ mind space and check out what is driving them to decide on one product versus another. Psychographic segmentation is often applied in conjunction with other market segmentation approaches.
How can Infiniti Research help you?
Clearly, every Tom, Dick, and Harry is not a potential buyer, and no two customers have the exact same requirements. So, businesses can’t do without a razor-sharp understanding of the buyer landscape. To stay profitably in business, businesses must be able to single out profitable customer groups from the maelstrom of confusion out there. Because those are the ones who are ready to pay for their services. This calls for highly evolved and high-touch market segmentation services. At Infiniti Research, our experts provide accurate, in-depth, and contemporary market segmentation services for businesses across multiple industries. In the past more than two decades, large enterprises as well as small and medium businesses have precisely defined their customer segments with assistance from our experts. Further along that route, these businesses have effectively targeted these customer groups with solutions that not just relate but also resonate with these customer demographics. And the results are there to see in bold relief.
Manufacturer of paint and coating products benefits from the “double engine” of market segmentation and precision targeting
Our client is a manufacturer of paint and coating products. As the market continues to get competitive, the success of client’s business relies on its efficient targeting strategies and improving sales from the most profitable end-user industries and segments. For this, the business needed relevant and accurate data about customer preferences and to figure out gaps in existing offerings. Based on such precise segmentation of the customer base, the client hoped to rejig products, so they would align precisely to customer requirements.
Between February and March 2023, our market intelligence teams worked closely with the client’s marketing group to develop consumer segment profiles. The objective was to help the client get a firmer grasp of the needs, preferences, and motivations of each market segment. This exercise involved a high level of detailing and carefully weighed the impact of various external factors on each of these segments. Gauging the financial attractiveness (ROI) of each segment from the client’s standpoint was the core focus of the next phase of the engagement. Based on critical parameters like market size, growth rates, price sensitivity, and brand loyalty, our experts helped the client estimate the potential ROI in dollar terms for each segment and zero-in on the most promising slices of the market. In the culminating stage of the assignment, our experts assisted the client in developing an optimal market positioning strategy designed to distinguish the client’s products in a highly competitive market.
The client is connecting with target segments with a high probability of sales closures unlike any time in the past, and this target marketing is premised on highly accurate insights generated by our market segmentation exercise. The engagement is already paying off by way of improved sales and innovative products that align more closely with customer aspirations.
In a hypercompetitive market, our client, a manufacturer of paints and coatings was considering ways to prise open new and more profitable sales opportunities. However, targeting and winning over segments that can contribute to overall business profitability can be a bit tricky in the real world. With timely assistance from our market segmentation experts, the client is now connecting with target segments with a high probability of sales closures unlike any time in the past. The market segmentation and targeting exercise is already paying off for the client by way of enhanced sales and reworked products that map more closely to customer aspirations.