The Relation between Market Segmentation & ROI

July 10, 20191:47 pm
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“Don’t find customers for your products, find products for your customers.” – Seth Godin

What is market segmentation?

One of the oldest techniques in marketing, market segmentation is a way to classify wants, needs, and demands of customers. Albeit it is an old technique, market segmentation is a critical plan in business. When a business wants to launch a new product, the business needs to conduct market segmentation first in order to reach the right target. That being said, you need to analyse and conduct market segmentation first before deciding what kind of product or service you want to produce and launch.

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Why is it important for marketers?

As mentioned earlier, your product and service should be based on what potential customers want and need. Market segmentation, in this regard, can help you identify the needs, demands, and wants of your consumers. According to College Oxford of Marketing, the value of market segmentation can benefit customers in terms of choices of products and services. Meanwhile, the company can benefit in terms of marketing planning, identifying prospects, knowing your customers, and allocating budget on the basis of investment and return needed from different segments. Additionally, with market segmentation, company can do better marketing and sales activity so there will be more sales with lower costs and higher profitability.

Other than that, by doing market segmentation, marketers can do a better campaign for their product or service. For instance, when you divide a market based on some key characteristics such as age group, gender, and income, you will get a higher chance of success in attracting clients.

Profitable strategy

Market segmentation might be an old technique but it is proven to be the best technique a marketer can do. By dividing your customers and clients, you can communicate with them better. Thusly, you can have an advanced targeting on your advertisements.

A survey by Rob Markey and team showed that 81 percent of executives believed that market segmentation was crucial for growing profits. Firms that maximise their products and service to desirable customer segments can actually gain profit of about 15 percent annually. On the contrary, businesses that fail to connect to their right customer segments might suffer from lower profit growth 5 percent approximately, reported Markey. In addition, big firms such as American Express, Mercedes Benz, and Best Buy are also using market segmentation to increase their sales, build better products, and engage better with their consumers.  

How to conduct better market segmentation

“If markets are to be segmented and cultivated, they must meet certain requirements. Segments must be measurable, substantial, accessible, differentiable, and actionable.” – Philip Kotler

Markey research showed that there are two best practices to conduct well market segmentation that can gain more value, namely identifying lucrative design target and rigorous self-examination. In the design target, you should identify the kind of customers whom you can serve better than any other companies can. While self-examination means you should be able to identify your own capabilities to evaluate insights generated by segmentation projects. You should keep in mind that your focus is on the consumer groups and how to serve them at best.

In addition, you can also conduct these four strategies proposed by Active Marketing to improve your market segmentation plan.

1.  Objective settings by setting segmentation objectives and goals. You should also identify segmentation variables and develop a hypothesis.

2.  Identify customer segments by researching design and data collection. Then, you should analyse data and identify segments to validate the results.

3.  Develop segmentation strategy by selecting a target segment and identifying segmentation implication and recommendations.

4.  Execute plan by identifying key stakeholders, developing communications and operational launch plan, and monitoring the plan. 

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