Market Segmentation Guide
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Market segmentation refers to the practice of categorizing your target audience into different groups, or subsets, based on shared characteristics. These characteristics can be variables such as age, gender, interests, values, life cycle stage, and so on. Market segmentation allows companies to target different segments of consumers more effectively through tailored product, sales, and marketing strategies.
Market segmentation, when implemented correctly, can benefit a company greatly. However, there are times when market segmentation results in inaccurate or ineffectual solutions, and today we will explore the different reasons for this.
Sometimes, an organization’s market segmentation efforts fail to produce fruitful results. Failed market segmentation can have many different causes, and we must have an understanding of them so that we can ensure we don’t make these mistakes.
Within this article, we will explore the different reasons as to when and why market segmentation fails so that we can avoid making such mistakes in the future and reap rewarding benefits from our market segmentation efforts.
Design issues generally occur for two main reasons; due to the segmentation of the wrong market or due to the effect of personal bias and agendas on results.
Your market must be segmented based on your goals. If you are conducting market segmentation to grow your business and acquire a wider customer base, then you must focus segmentation on those who are currently not your customers. However, if your goal is to increase your conversion rate, then you must focus your segmentation on decision influencers and account for them in your segmentation design.
Another prominent design issue is caused by personal bias, agenda, and/or prejudice. Although personal biases can negatively influence all aspects of a market segmentation process, your design phase is especially vulnerable to this issue. Personal biases and agendas can affect the choice of market, the measures selected, and the segments selected. Therefore, if you begin your market segmentation project with the wrong assumptions, your solution will most likely be wrong and ineffective.
Business Issues occur when a company lacks the understanding of how segmentation can meet its specific goals and therefore has failed to outline actionable and measurable goals before segmentation. A market can be segmented in an infinite number of ways. Without a goal in mind, you won’t be able to identify which variables you need to achieve the results you want.
For this reason, It is integral that organizations clearly outline their objectives before beginning segmentation so that they can get what they hoped for out of their efforts.
Implementation issues primarily occur due to the following reasons:
Implementation issues can occur when a scheme is so complex that people struggle to understand it and therefore are unable to implement it. This often occurs when a large number of variables are considered while creating segments. When considering too many variables, it is important to understand that these variables will define the segment solutions as well. Segmentation techniques such as discriminate analysis or decision trees can be used to reduce the number of variables down to a manageable set.
Another reason for implementation issues is an overly basic scheme. If a scheme is too simple then people may not see value in it and may not carry it out effectively. Additionally, an overly basic scheme is unlikely to produce appreciable results.
Sometimes, companies make the mistake of creating a scheme that is impossible to implement accurately. This is especially common in attitudinal schemes where customer assignment is very tedious.
Performance issues generally result due to the following:
1. Differences within Segments
This is a performance issue that occurs when the customers within each segment still have significant differences. This is likely to result in imprecise targeting for specific strategies and tactics such as product messaging, offers, and media channels.
In such cases, it may be useful to further segment each existing subgroup using additional variables so that the final segments can be targeted more effectively.
2. “Cure-all” Perception
Another significant performance issue is caused by the “cure-all” perception problem. This occurs when companies run on the assumption that segmentation will cure all of their issues. Segmentation predominantly helps with targeting product, marketing, and sales strategies and may not be of much use in the following areas:
Market segmentation can be a very advantageous tool for businesses when used correctly. Organizations that create good market segmentation schemes and processes, and make sure to avoid the issues stated in this article can enjoy the benefits of their efforts.
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