Week Two: Segmenting Your Market

Week Two: Segmenting Your Market

by Nicholas Tart

Think of the world as a giant pizza pie with a jumbled mess of toppings and ingredients.

You want to divide that pizza pie into distinct, completely unique slices. Your goal is to divide it equally leaving one slice with all of the best and perfect ingredients. That’s the slice you’ll want to eat. But first you need to divide the pizza.

This week you’ll take a broad look at the market you wish to enter and figure out how to divide that market into segments. There are five ways you can segment your market and I’ll help you figure out the best method for your business.

Demographically

Demographic segmentation is the most popular method for dividing up a population because it’s easy to understand. Some of the segmentation variables are age, income, family size, family life cycle, religion, race and nationality.

  • Demographic segmentation – Toyota segments their market demographically and provides a different product for each segment.
    • For example, the Sienna Minivan is intended for middle-aged mothers with two or more kids.
    • For example, the Land Cruiser is intended for the high-income, late-to-middle-aged consumer.

Segmenting demographically is also beneficial because it’s easy to find statistical data about your segments from the U.S. Census.

Psychographically

Psychographic segmentation is grouping customers together based on social class, lifestyles, activities, interests, opinions and other psychological characteristics.

  • Pyschographic segmentation – Subway can segment their market based on eating habits.
    • For example, health conscious individuals are more likely to purchase a healthy sandwich than a greasy burger.

The benefit to segmenting psychographically is that you’ll be attempting to reach a very specific type of person. And those people typically get along well and communicate with each other, thus facilitating word-of-mouth.

Geographically

Geographic segmentation, as the name suggests, is segmenting markets based on where they are located. On the corporate level, most of the world’s largest businesses don’t segment geographically. But on the franchise level, it’s important to segment your market by location.

  • Geographic segmentation – Subway franchises are only interested in targeting consumers who are within a few miles of their store.
    • For example, Subway might segment their community by zip code and implement a direct mail campaign to everyone within a mile of their restaurant.

If your company only intends to service consumers in your local community, then geographic segmentation is the way to go.

Behavioral/Usage

Behavioral/usage segmentation is a little bit more complicated than the other methods. Basically, you’ll be segmenting the market based on how they use your particular product or service.

  • Behavioral/usage segmentation – Verizon can benefit by segmenting their market into light and heavy users.
    • For example, some consumers are on their phones for six or more hours a day. Those will be Verizon’s most profitable customers.
    • For example, corporations often purchase company phones for their employees. If Verizon landed a corporate account, they could sell tens or hundreds of thousands of phones in one fell swoop.

This method of segmentation takes into consideration the Pareto Principle – 80% of your revenue is generated by 20% of your customers. By segmenting behaviorally you’ll be able to more accurately target the heavy users of your product or service.

Benefits-Sought

Markets can also be segmented based on the benefits that the consumers seek from purchasing your product or service. Benefits-sought is the most complex form of segmentation because it’s difficult to determine exactly why groups of consumers decide to purchase something.

  • Benefits-sought segmentation – People use phones for lots of different reasons and Verizon could customize their packages based on the benefits that customers seek to obtain.
    • For example, some people just want to make a few calls a day to friends and family. Verizon has a basic package to feed this needs.
    • For example, other consumers want to send 500 texts every day. This package would be very different.

Knowing all the reasons why consumers purchase from your business is key to being able to segment based on benefits-sought.

Example Company

Your Turn

P.S.

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