How to Conduct Market Segmentation

Getting Started with Market Research Segmentation

Little girl showing mother her preference in fruit, selecting an apple over oranges.
Target Market Segmentation Makes Consumer Needs and Preferences Known. Getty Images | Hero Images

Target market segmentation can seem like an enormous undertaking. Although segmentation does require focus, time, and effort, approaching segmentation in phases helps to provide clarity and make the process more manageable. 

Three Phases of Target Market Segmentation

When taking the three phase path to target market segmentation, the process can take about four to six month for all the tasks to be accomplished.

 Once Phase I and Phase II are complete, the segmentation process enters the ongoing third phase.  Phase three is iterative, which means that it is a cycle repeated at regular intervals to ensure that the target market segmentation is working according to plan and producing satisfactory results.

Phase I - Making Best Use of Qualitative Research

The first phase of a target market segmentation effort is designed to uncover information about consumer attributes, needs, desired benefits, and overarching values that govern their decision making. This phase lends itself to focus groups, in-depth interviews with consumers, and direct observation of consumers as they interact with products or services. The market researcher engaged in a target market segmentation process should exit this phase with the following information: 

  • How consumers make ​a decision and arrive at choices.

Phase II - Putting Quantitative Research to Work

This second phase of target market segmentation is used to validate the qualitative research findings from Phase I and to obtain specific data that will help shape segmentation and reveal more information about the segments.

Survey data is often used to validate conclusions and test assumptions made to date about the segmentation that is still work in progress. At the conclusion of Phase II, the engaged market researcher should be able to identify or describe the following:

  • Characteristics of each of the segments and the consumers in the segments.
  • Express the estimated and relative size of the segments.
  • Understand the economic impact and market share of the target segments.

Phase III - Ramping Up to Database Construction and Analysis

The third phase of target market segmentation is directed at the construction of a database that reflects the information gathered in Phase I and Phase II. A key consideration is establishing a database that will enable effective and analyses of the performance of the segments over time.  Careful construction of the segmentation database is important as changes can be difficult to make once the data collection and data analysis processes have begun.  Once the database has been constructed and analysis is underway, participating market researchers, marketers, and advertisers should be able to accomplish the following:

  • Find that consumer contact and database management are facilitated by the structure.
  • Conduct performance tracking and useful measurement for each segment. 

Identifying Consumer Needs and Required Benefits

A typical approach to organizing information about consumers who participate in Phase I and Phase II of the target market segmentation process is to construct a matrix. Generally, a brief description, label, or unique identifier heads each column of the matrix. Along the side of the matrix are three main categories for organizing the consumer information.  These categories refer to the consumer needs and the benefits they require in the product, service, or brand. The categories are: Economic, psychological, and functional.

An important outcome of this information gathering tool is priority rankings for the needs and benefits the consumers have identified.

Clearly, establishing priorities is a task that must be left to the consumer. The history of marketing bears many scars from mistaken assumptions by creatives and marketers about what is most important to consumers

Target market segmentation is a foundation of marketing and advertising, so devote time to each phase and capitalize on your efforts to get to know your potential customers in-depth.