What Is Market Segmentation and Buying Behavior?

Explore how to overcome marketplace alienation

What Is Market Segmentation?

So, what is market segmentation? Market segmentation aggregates prospective buyers into clearly defined groups or segments based on common needs so that every group responds similarly to a given marketing action.

How To Implement Market Segmentation

Market segmentation is an age-old concept that divides current and potential customers into different homogeneous groups based on demographic, socio-economic, geographical, or psycho-graphic traits. But knowing the concept only sometimes translates into effective implementation.

Market Segmentation Process

The University of Waterloo identifies five steps to achieving effective market segmentation. These steps include the following;

(A) Group potential buyers into segments

Only start grouping your target customers into groups with sufficient first-hand data on them, their behaviors, and household purchasing power. This makes studying the choice population the initial step to market segmentation.

  • Needs similarity amongst potential buyers — Market segmentation is only feasible if you can bring together sufficient numbers of potential buyers with similar needs, expectations, and other demographic characteristics. Find these similarities and group the respective persons into distinct market segments. Your organization can then take measured marketing actions towards each segment and reasonably expect similar consumer reactions.
  • Different buyer needs among segments — Consumers in separate segments must also have different needs, wants, and expectations, with those within a given segment sharing similar expectations of your company’s products, services, and other propositions. Correctly classifying consumers into fitting groups lowers costs for the organization while increasing the efficiency of service delivery to consumers.
  • Likelihood of marketing actions to reach segment members — Can a single marketing action reach all members of your chosen segment? If not, or the actions are unnecessarily complicated, your market segmentation is not optimal.
  • Ease and cost of assigning buyers to segments — do not execute your market segmentation strategy if research shows buyer needs are too diverse that segmentation will result in numerous microsegments.

(B) Group products into categories

Having subdivided potential buyers into groups, it is paramount to classify your products, services, and other offerings into clearly defined groups that match certain aspects of consumer segments. You can achieve this by focusing on product variability, packaging, prices, and storage requirements.

© Develop a market-product grid and estimate market sizes

Do you know how big your potential market is? Knowing the size of the market allows marketers to develop an optimal market-product grid that evaluates the potential of each segment to generate sufficient profits needed for segmentation.

(D) Select target markets

You can rely on your market-product grid to decide which markets to implement segmentation in. The grid allows you to easily identify the perfect target markets, with segments having the highest market size estimates preferred.

(E) Take marketing actions to reach target markets

Whatever actions are taken depend on your segmentation strategy. You should identify target markets and the best actions required to benefit from them. This will mostly depend on the characteristics of each segment, but marketers also decide which actions are suited to specific market segments.



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