What Is Segmentation?

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What is segmentation? Segmentation refers to the separation of markets into smaller, more segmented markets. There are many ways to segment markets. Companies use segmentation in order to determine the most profitable areas for a particular business to serve. They also use it to help determine which markets to enter or exit when investing in a company. Here are some common ways to segment markets:

Geographic segmentation. This refers to the process of breaking down a market into discrete geographies. Generally, the larger the area, the easier it is to analyze the market. The problem with small markets, however, is that analyzing them is more difficult and takes more time, as compared to a larger market segment.

Demographic market segmentation. This refers to the process of breaking down a market segment by age, gender, income level, or any other attribute that is considered to affect buying behavior. Demographics allow marketers to segment customers according to factors that they deem to affect their purchasing behavior. For instance, young, wealthy, or educated customers tend to react more to ads than to those that fall in the other categories.

Demographic segmentation also involves segmenting a market according to geographical location. For example, marketers may segment customers according to whether they live in a large central city or in a small, isolated town. This segmentation can help marketers understand which markets to expand into or else, which ones to avoid. Geographic segmentation can also help marketers decide where to base a branch office or expansion facility. If a new store opens up in a place that is not frequented by other stores, it may be a good idea to outsource the marketing there until the store becomes popular. On the other hand, if a new business begins in a popular place but draws mostly customers from a different location, it makes sense for the business to concentrate its efforts in that location until it becomes more established.

Structured research and study. Market segmentation requires a lot of research on the target customers’ characteristics such as age, income level, education, and purchasing behavior. Marketers must also undertake surveys and questionnaires to gather information about their competition. These surveys and questionnaires are used to formulate strategies that will be most appealing to customers. Businesses that lack the time and resources needed for market segmentation often depend on outside sources to provide information.

Marketing research is important for understanding who buys what and why they buy it. Knowing who buys certain products or services helps create new opportunities for selling. For example, knowing that men prefer buying sport utility vehicles over all other vehicles would motivate marketers to design products and services that would appeal to men. Demographics may not tell marketers everything they need to know, however. Outsourcing companies that specialize in market segmentation can help businesses obtain the data they need to effectively target customers.

Outsource. When companies have enough knowledge about their market segment, they can perform more effective campaigns. Outsourcing companies can get the best of the best when it comes to market segmentation. They can find out which segments offer more sales compared to others, which product or service performs better, and that buyers are more likely to become repeat customers. Through outsourcing, companies can spend more time on campaigns that are truly profitable.

Segmentation allows businesses to make smarter decisions. Without this knowledge, they run the risk of marketing to the wrong group of people. This leads to ineffective purchases, lower profits, and ultimately, failure. Outsourcing your segmentation needs is the key to maximizing the returns you receive from every marketing dollar spent. Contact a company today to learn more about how they can help your business.