How to Do a Market Segment Analysis

Market segmentation helps you speak directly to your customers.

Whether you’re launching a new venture or are running an existing one, knowing what kind of people you’re targeting and how to reach them is necessary for success. You may have an extraordinary product or service, but if you’re not getting it directly in front of the people who need it, your venture will struggle. Performing a market segment analysis is key for focusing your marketing efforts on the most promising groups of likely customers and clients.

Demographics

Using demographic parameters is an effective way to segment your target markets. This information includes age, gender, race, location, educational background and more. Think about the types of customers your business is targeting. If you have a regional product, perhaps your customers are located in certain cities or states. Your product may be targeted for businesses, individuals or both. As you brainstorm, you’ll start to recognize different groups forming.

Psychographics

Psychographics analyze your customers’ values, personality traits, interests, attitudes and opinions. This information helps you build a clearer persona for each of your groups. Is your customer independent or does she long to feel included? What does she value? If you aren’t sure, hiring an outside market research company to run focus groups or conduct research surveys is a great way to gain more insight. Contacting a local business school to help is a less costly option.

Research

In addition to getting direct feedback from those in your target markets, perform additional research to examine your customers’ behaviors. This will help you get a clear idea of their wants and needs, as well as their buying process. Examine what makes your direct competitors successful. Take a look at what sets you apart — and where you have room for improvement. Use online information and trade publications to deepen your insight.

Strategy

Once you’ve segmented your target markets and have a clear idea of what differentiates them, use this information to develop your marketing strategy. Brainstorm ways you can appeal to your customers emotionally or through a channel that they already trust. Examine what you can do to make their lives easier and more enjoyable. Your market segment analysis should explore these issues — then you’ll be able to incorporate your findings into an effective marketing plan.

Four Elements of a Market Segment

Market segmentation is the division of an entire market group based on consumers with similar market needs. The marketing of a men’s clothing line may be based on advertising during football games. But when manufacturers discover that a large percentage of the product is actually purchased by a wife, girlfriend or mother, a new segment requiring its own separate marketing is identified.

Measurable

Measurability is an important element of market segmentation. Though a new segment is identified, without knowing just how many potential consumers it encompasses, it may not be worth the risk. Commercial advertising, changes in product placement and jumbling price points all come with a price tag to the marketer. If the amount of consumers, and the potential purchasing power of those consumers, cannot be measured, the marketer cannot accurately create a marketing budget to target the segment.

Accessible

For a market segment to be valid, it must be accessible as a marketing target. In other words, if a manufacturer identifies a potential new market segment, it must determine a means to advertise to that market. If the segment cannot be targeted successfully through commercials, direct mail, radio ads, newspapers or the other means typically used by the marketer, creating a new advertising campaign for this segment is not a financially sound adventure. But if the segment can be reached by creating new advertising and selling the product in a different location, it becomes a worthwhile prospect.

Different

A market segment is defined as having a different response to the marketing mix elements, also known as the four P’s. A target market group will be identified based on reactions to the product itself, the price point given, the promotion or advertising methods for the product and where it is sold, or its placement. When a group of consumers inside that market expresses different demands for the product, it morphs into its own segment. There is a huge demand for cell phones, but teenagers and adults have different demands for the product. These two segments will react differently to a commercial for a cell phone, the price of the phone and how it is sold. The manufacturer of the phone will devise separate marketing strategies to reach each of the segments.

Profitability

Defining and targeting a new market segment is the first step toward creating a potential niche market. But before expending time, energy and money into attempting to capture this new segment, run some test questions. How durable is this market segment and is it large enough to garner a profit? Back-to-school products may have a short advertising life span, but the amount of consumers that can be captured in that t