Sharpen your focus with market segmentation analysis

Market segmentation involves breaking down a particular market into categories of products that have common characteristics. Category terms such as budget, regular, premium and super premium are often used to group products with similar price points and quality characteristics. Ultimately though, when it comes to analysing market segments, we are talking about people, so it’s important to also define the people within a particular segment, as the segment.

Male or female, imported or local, dry or sweet, red or white, large or small, on premises versus off premises, however you choose to define your market, it’s important to understand how a market is segmented based on customer need. In my last post, I explained that identifying market segments should be conducted at the beginning of the marketing strategy process, during the Competitor and Market Review stage.

Clearly, different markets are segmented in different ways. For example, in the Australian cordial market, a brand called Bickfords competes in the premium / adult segment and created a further sub segment called the ice tea cordial segment. The more segments of segments (sub segments) you create the smaller the market becomes. This provides opportunity for smaller, niche marketers whilst failing to attract those seeking greater volume.

The real point of understanding how a market is segmented or could be segmented lies in discovering the most attractive market segmentation for your business in terms of matching what you can offer with what the market will buy versus what they are already buying or not buying. It’s a matter of matching your needs with the needs of the market, in a way that enables you to compete and make a profit.

At Baker Marketing, as part of our strategy development process, we use market segmentation analysis to help our clients define the most attractive segments in which to compete. What’s really important in terms of strategic thinking at this point is to determine what segments are likely to be sustainable for the long term, rather than what appears attractive in the short term.

So how do you go about trying to assess the relative attractiveness of different market segments so you can prioritise and ultimately get the best ROI on the resources you invest? For the remainder of this article, I’ll briefly explain how we approach market segmentation analysis and arrive at prioritised segments based on relative attractiveness.

After gathering as much information as we can about the different segments associated with a particular market, we list the segments and then score each segment against the following criteria;

  1. Potential for Profit
  2. Potential to Convert
  3. Potential for Long Term Gain

1.Potential for Profit

What we are looking for here, by segment, are things like segment size, growth, pricing and margins.

If you are segmenting by demographics, does this segment have the disposable income to afford your product? Is it large enough to make your efforts worthwhile?

  1. Potential to Convert

Potential to convert means what is the likelihood that when your product or service is put in front of this segment, will they will see sufficient value in your offer, versus alternatives, to give it a try?

This in turn takes into account primary drivers like need satisfaction and the strength of your competition.

3.Potential for Long Term Gain

Finally, we look at the potential for long term repeat purchase or long term relationships. This involves understanding the nature of this segment in terms age, attitudes and lifestyle preferences. How sustainable is your competitive advantage in the face of increased competition or smarter competition? Do you have the resources to grow as the market grows? Is this market based on a short term fad or long term trend?

After rating each segment against the three criteria,, we add up the scores to assess their relative attractiveness. The market segments are then prioritised accordingly.

By analysing potential market segments in this manner, we are taking a disciplined and well thought out approach with respect to selecting the most attractive market segments in which to compete.

If you would like to take advantage of the years of experience we have at Baker Marketing in helping businesses like yours identify their most attractive market segments, please contact Baker Marketing on 8352 3091.

In my next post I’ll talk about how you take your most attractive market segment and define your “bulls eye” or primary target market.

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