Are You Targeting the Right Audience? Stop Wasting Money by Using Market Segmentation

Developed from the ProThink Learning Course Effective Marketing: Methods, Models, and Processes to Ensure Success

Sometimes when overly enthusiastic CEOs are asked who should buy their product, they say everyone. But that’s not true. Bald men don’t need a comb, skinny people don’t need a weight-loss pill, and preschoolers don’t need a beer while they watch the Superbowl. And this aggrandized mentality makes for highly inefficient and ineffectual marketing.

Your market is always a subset of humans on planet Earth. It includes anyone who has the need and means to purchase your product or to influence the purchase of your product. This is an important consideration. Beyond just having the need, or at least desire, to purchase your product, a person must have access to the money for purchasing the product to be considered part of your market. Most people would love to have a private jet, but few have enough money to purchase one.

However, it is possible that someone who doesn’t have money to purchase your product could still be a part of your Market. Those people are called influencers. Young children may not have money, but they are powerful influencers on their parents. Moreover, women can also be important influencers when it comes to men’s health care; it’s women who make most of the health care decisions for their husbands and the phenomenon even has a name: “woman to man.”

Market Segmentation

Markets can be divided into segments with similar characteristics. These market segments are called submarkets. But how many submarkets should your market be divided into? Three? Eight? Fifty? None at all? There are four Segmentation Strategies that will help you answer that question:

· Undifferentiated

· Concentrated

· Multi-Segmented

· Micro-Segmented

Let’s take a closer look at each of these.

Undifferentiated

The Undifferentiated strategy means that there is no market segmentation, and one promotional strategy is used for the entire market. The entire market is treated as one group. Using an Undifferentiated strategy, everyone in your market gets the same message, and your promotions treat your entire market as one persona.

This form of marketing is useful for reaching many people at a low cost and increasing brand awareness but does little to attract consumer loyalty and, in staying generalized, may miss profitable opportunities to target smaller segments.

Concentrated

With a Concentrated segmentation strategy, you tailor promotions only to the most lucrative market segments. To employ a Concentrated strategy, divide your market into segments. Then select the one, two, or three which have the most potential value, targeting the same promotions to these primary segments.

For example, if you are selling futons, you may notice there are four distinct groups that purchase futons: college students, young professionals, parents, and retirees. But you also notice that two groups, college students and young professionals, purchase the most futons. You know that parents and retirees purchase futons too, but at a much lesser rate. Rather than market to them, it’s better to use your limited resources on the more lucrative markets. So you allocate your resources to promotions aimed at the college students and young professionals submarkets.

While this method does a better job than Undifferentiated segmentation of targeting specific groups, it can prove alienating to particular submarkets if your promotional message fails to meet the needs of each targeted segment. For example, if you sell fine handmade suits and decide that your advertising budget is best spent on a Concentrated strategy geared to both wealthy executives and entry-level professionals hoping to make an impression, you’ll have a challenge on your hands; when designing your website, wealthy executives may not like being seen in suits associated with inexperienced newcomers.

The most common use of segmentation strategies is to implement an Undifferentiated strategy when promoting the company in general, and a Concentrated strategy when promoting products. It is usually the case that most of the sales come from just a couple submarkets, and a Concentrated model is a highly efficient way of reaching those groups.

Multi-Segmented

A Multi-Segmented strategy requires you to create unique promotions for multiple market segments. After selecting four or more different market segments, create separate marketing messages for each. For example, a mall developer who is planning the opening of a new shopping center may want to attract so many people to this opening that it runs separate marketing campaigns for children, teenagers, young professionals, parents, tourists, and retirees.

This kind of strategy enables you to reach those niche markets that competitors may not have allocated significant resources to and gain a more in-depth understanding of who your market consists of. But Multi-Segmented strategies introduce higher levels of complexity and demand more resources, and if done without enough planning, they could end up confusing your brand image. Looking back at our handmade-suits business, a Multi-Segmented targeting business professionals and attendees of everything from weddings, funerals, formal dinner parties, and casual get-togethers could make our website end up looking as though it has multiple personalities. Site visitors from any one submarket might be confused and feel they have come to the wrong place for their needs.

Micro-Segmented

A Micro-Segmented strategy targets marketing all the way down to the individual level. For instance, online retailers may keep track of enough information about individual shoppers to be able to suggest specific products suited to an individual shopper’s personal tastes.

Micro-Segmentation is the optimal way to identify ideal customer groups and focus promotional spending on the most-likely purchasers. But this method is highly time-consuming and incurs a high customer-acquisition cost.

Large companies often adopt a Multi-Segmented or even Micro-Segmented strategy. They have the money and manpower to squeeze juice from small, relatively unproductive submarkets. Another reason they might chase after small submarkets is to protect against a competitor getting a foothold. A large company might rather forfeit profit to capture a tiny segment of the market than relinquish it to a competitor.

Is Segmenting Right for You?

With segmenting comes complexity. It’s easy to get enamored with Market Segmentation. But before you get swept up in the excitement of segmenting your market, remember that the more submarkets you have, the more time and manpower it will take to reach them. You can easily quadruple your cost and workload by segmenting one market into four. Also, keep in mind that all promotions have a halo effect. While you might not be promoting your product directly to particular segments, they may still see your promotions and be persuaded to purchase.

Be careful not to confuse the ability to segment with whether you should segment. The access to profiling information that data compilers give us today can be very useful, but it can also seduce you into chasing unprofitable submarkets. A good rule of thumb is, don’t segment a market unless you have to.