Unless you sell a highly specialized product, like a medical device that treats a specific rare ailment, your target market will usually be a collection of smaller markets. The people interested in your products and services won't all be interested for the same reasons. Market segmentation is the practice of dividing up your company's audience into different groups with varying needs and interests. Market segmentation is important because it helps you understand the subgroups that make up your audience so you can tailor your products and your marketing.

Importance of Market Segmentation for Product Development

The process of using marketing segmentation starts before your products even enter the market as you develop qualities and features to meet the needs of the customers. Your offerings may start with a skill or interest of yours, such as creating clothing for plus-size women. But after you define this broad focus, the needs of your target market will, in turn, define the products and services you develop. You may segment your primary market into subgroups, such as older and younger plus-size women, plus-size working women and athletic plus-size women. The better you understand the needs and interests of each of these groups, the better you'll be able to create products they'll specifically want to buy.

Importance of Market Segmentation for Marketing and Advertising

As you develop a clear understanding of who your customers are and what they specifically want, you'll be able to specifically target marketing and advertising towards them. For example, if you manufacture nutritional supplements, you may make products targeted towards men, children, pregnant women and older women. It will take a different strategy to reach each of these diverse groups. For example, to advertise children's vitamins, you can run commercials on children's television shows or in parenting magazines. To reach pregnant women who are in the market for vitamins, target your marketing and advertising to venues and media that reach health-conscious younger women. Understanding each of the market segments is an important tool for using advertising funds effectively and casting a smaller, but more successful net.

Psychographics Vs. Demographics

The segments that make up your target markets can be classified both psychographically and demographically. Psychographic characteristics are personality traits and classifications based on taste, such as people who enjoy gaming or social media. Demographic traits define members of your market segments by characteristics they don't necessarily choose, such as age, gender or income level. Understanding each of these target markets is an important aspect of effectively using market segmentation strategies.

Using Data to Segment Markets

Once you have figured out why you need to segment your market, the next step is to figure out how you'll do it. Generally, business tend to segment their potential consumers based on the one or more of the following variables:

  • Demographic factors: age, gender, geographic location, religion, race, income and political affiliation
  • Psychographic factors:  lifestyle, social status and personality type
  • Behavioral factors: how the consumer uses a product, for example, a light or heavy user, and their degree of brand loyalty
  • Purchasing factors: Whether they prefer to shop in store, online or through a catalog

You can find a lot of this information by conducting an analysis of the data that is already stored in your database, or by holding dialogues with your customers in the form of market research, surveys and focus groups.

When you know the type of customer you're looking for, and why you're looking for that type of consumer, you can start to focus your marketing efforts so you speak directly to that group of people. The result should be a better take up for your messages you're relaying and more bang for your marketing buck.