Market Segmentation for Target Market Research

Identifying Target Markets for Improved Return on Investment

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Market segmentation is a technique for using market research in order to learn all you can about your customers. The purpose of market segmentation is not just to sell products and services that you have, but to also inform research and development.

Customers appreciate marketing that is directed at them, designed for them, and that efficiently presents the information they need to make purchase decisions.

The more a business knows about a target market, the easier it becomes to persuade the consumer to differentiate a product, service, or brand.

When a market researcher knows what is valued by a consumer group, she knows how to market the product and how to style the advertising to appeal to that group.

Market segmentation can be established by exploring and analyzing many different characteristics about potential consumers. It is helpful to think of market segmentation utilizing several tiers of categorical characteristics.

Market Segmentation: Tier One

Tier One includes the most common and familiar of the attribute groups: demographic, socioeconomic, and product usage.

  • Demographic -- This category includes attributes related age, city or region of residence, gender, race and ethnicity, and composition of the household. While these are all important attributes, the relationship between these characteristics and consumer behavior may be quite small. Demographic attributes function best as a foundation for more specific segmentation research.
  • Socioeconomic -- This category includes attributes related to household income, level of educational attainment, occupation, neighborhood of residence, and membership in various associations. These characteristics tend to be more refined in terms of relationship to consumer behavior, particularly as a reflection of lifestyle, brand preference, array of services used, and price sensitivity.
  • Brand affinity / Product usage -- Consumers who exhibit a brand affinity or actual product usage are segmented on the basis of their behavior. That this is true, makes brand affinity and product usage one of the strongest categories to use for developing market segments. This is why inbound marketing works as well as it does - essentially, the consumer creates his / her own segment through their inbound marketing activity.

Market Segmentation: Tier Two

Tier Two is really just an extension of the Tier One attribute group. Tier Two attributes are obtained by drilling deeper into Tier One attributes.

  • Psychographics -- This category includes attributes related to specific lifestyles, hobbies, personality, attitudes, opinion, and even voting behavior. The relationship between these psychographic characteristics and consumer behavior is fairly strong and can provide an effective avenue of communication with potential consumers.
  • Generation -- This category includes attributes related to a specific identifiable generation cohort group. Segmentation by generation addresses similarities in people who are born in the same time period. These generation cohorts tend to exhibit an orientation to life that has been (or is) strongly influenced by the economic, technological/scientific, political, educational, and political experiences they have shared.
  • Geography -- This category includes attributes that are related to the geographical area in which consumers reside and work. Consumers in this category may be similar along with a number of important dimensions, such as political orientation, religious affiliation, and options for transportation and shopping. These consumers may share an affinity for regional cooking or show strong preferences for certain kinds of apparel.
  • Geodemographics -- This category includes attributes that combine geography and demographics which may cluster into identifiable groups. Segmentation based on geodemographic strategies tends to be implemented through commercial software packages developed for this purpose. This category of attributes is best when combined with other segmentation strategies.
  • Benefits sought -- This category of attributes is related to the benefits that consumers seek when they shop for products and services. The benefits that consumers seek can vary widely depending on what they are in the market to buy. Brand loyalty, brand affinity, and consumer brand attitude cannot be measured collectively. Rather, these attributes may be brand-specific, or maximally, categorically specific. For instance, a consumer may shop thrift stores for clothing or household goods, but shop for food only in expensive, organic food markets.

The next step in the market segmentation process is to create personas or profiles of potential consumers.