Marketing Strategy: 7 Steps to Market Segmentation

Market segmentation is broadly defined as a complex process consisting of two main phases:

– identification of broad and large markets

– segmentation of these markets to select the most appropriate target markets and develop marketing mixes accordingly.

Everyone in the marketing world knows and talks about segmentation, but not many really understand its underlying mechanics, so failure is just around the corner. What causes this? It has been documented that most marketers fail the segmentation test and start with a narrow mind and a bunch of misconceptions like “all teenagers are rebellious”, “all older women buy the same brands of cosmetics” , etc. There are many dimensions to consider, and discovering them is certainly an exercise in creativity.

The most widely used market segmentation model consists of 7 steps, each designed to encourage the seller to take a creative approach.

STEP 1: Identify and name the broad market

You must have figured out by now what broad market your business is targeting. If your company is already in a market, this can be a starting point; there are more options available for a new business, but resources would normally be a bit limited.

The biggest challenge is finding the right balance for your business – use your experience, knowledge, and common sense to estimate whether the market you just identified above isn’t too narrow or too wide for you.

STEP 2: Identify and inventory the needs of potential customers

This step takes the challenge of creativity even further, as it can be compared to a brainstorming session.

What you need to find out is what needs consumers in the broad market identified above might have. The more possible needs you can think of, the better.

Did you get stuck at this segmentation stage? Try to put yourself in the shoes of your potential customers: why would they buy your product? What could trigger a purchase decision? Answering these questions can help you list the most potential customer needs in a given product market.

STEP 3: Formulate narrower markets

McCarthy and Perreault suggest forming submarkets around what you would call your “typical customer,” then adding similar people to this segment, provided you can meet their needs using the same marketing mix.

Start building a column with the dimensions of the main need you are trying to fill: this will make it easier for you to decide whether a certain person should be included in the first segment or should form a new segment. Also create a list of people-related features, including demographics, for each limited market you form; in a later step, it will ask you to name them.

There is no exact formula on how to form tight markets – use your best judgment and experience. Don’t avoid asking for opinions even from non-marketers, as different people may have different opinions, and you can usually count on at least those items that most people agree on.

STEP 4: Identify the determining dimensions

Carefully review the list resulting from the previous step. You should already have a list of dimensions of need for each market segment – ​​try to identify those that have driving power.

Reviewing the needs and attitudes of those you included within each market segment can help you determine the determining dimensions.

STEP 5: Name the possible market segments

You have identified the determining dimensions of your market segments, now go through them one by one and give them an appropriate name.

A good way to name these markets is based on the most important determining dimension.

STEP 6: Evaluate the behavior of the market segments

Once you’ve finished naming each market segment, allow time to consider what else you know about them. It is important for a marketer to understand market behavior and what triggers it. You may notice that while most segments have similar needs, they are still different Needs: Understanding the difference and acting on it is the key to achieving success using competitive offerings.

STEP 7: Estimate the size of each market segment

Each segment identified, named and studied in the previous stages must finally be given an estimated size, even if, due to lack of data, this is only a rough estimate.

Market segment estimates will be useful later, supporting sales forecasts and helping to plan the marketing mix – the more data we can collect now, the easier later planning and strategy will be.

These were the steps to segment a market, briefly presented. If done correctly and thoroughly, you should now be able to figure out how to create marketing mixes for each market segment.

This 7-step approach to market segmentation is very simple and practical, and it works for most marketers. However, if you are curious about other methods and want to experiment, you should take a look at computer-assisted techniques such as clustering and positioning.