The Benefits of Market Segmentation

Successful businesses are characterized by their ability to understand and identify their customers and improve their products and services to meet customer’s needs.  They conduct market research to gather, sort, analyze, and interpret information about their competitors, target market, consumers, and the industry in order to develop a marketing plan and strategies that will help their business grow and succeed. 

Market segmentation is an important component of a business’s marketing plan to reach their target customers and achieve their marketing objectives effectively.  It is a process of organizing customers within a market based on a certain criterion or having similar characteristics such as attitudes, habits, and needs.  Focusing on certain customer groups versus targeting the market as a whole, enables businesses to learn more about their customers and gain a better understanding of their customer’s needs and wants. 

Market segmentation assists businesses with giving their product or brand a distinctive and significant position in the minds of their target audience.  Businesses can direct financial resources into specific communication platforms that connect directly with consumers in that market segment; targeting the right market segment with the right product which will provide the greatest return on investment.  Consequently, marketers are able to tailor their campaigns to market segments with customers that are most likely to purchase the company’s products.  Marketers can operate more efficiently in terms of money, time, and other resources.  Moreover, the benefits of market segmentation include:

  • Improves Product Development:
    It allows businesses to design future products and services to meet the exact needs of customers in their target market.

  • Enables Market Expansion:
    Provides businesses with opportunities to identify underserved markets and establish itself as first in the market.  They can be the first to introduce and offer a product or service to a market and control a market share even when competitors filter in. 

  • Increases Customer Retention:
    Encourages customer retention throughout the life cycle of the customer.  Also, businesses can satisfy customer needs by offering different incentives an achieve greater customer satisfaction.

Furthermore, market segmentation increases profitability because it encourages businesses to focus on target markets with specific products, services, and campaigns versus focusing on too many markets or providing too many products which dilutes the brand.  Market segmentation increases a business’s brand equity, competitiveness, brand recall, brand awareness, and brand loyalty.  For instance, Targus, a multinational mobile computing accessories company that designs, manufactures, and sells high-quality tablet and laptop cases, technology accessories, and universal docking stations, wanted to increase their brand loyalty and generate greater brand awareness.  They decided to create a new marketing program rewarding their consumers and corporate clients.  Targus raised their marketing efforts by using market segmentation to build an identity-driven market segment based on focusing on consumers that aligned with their brand’s values and shared attributes such as their life stage, which consisted of seniors and students, affiliation (the military community), and occupation (first responders, teachers, and nurses).  The outcome of their market segmentation efforts and identity-driven program resulted in Targus generating a triple-digit year-over-year growth.  In fact, they increased their number of orders by 389% and their revenue by 413%.    

Market segmentation is an essential tool for businesses in any industry.  It provides businesses with the foundation for identifying target markets and focusing their efforts on meeting the needs of customers in their target market and their resources on the most promising opportunities to become a better company and higher profitability.  Market segmentation helps businesses and marketers connect with their target audience.  It is also beneficial and effective in giving businesses a competitive edge over their competitors, increasing growth, and achieving sustainability and overall success.

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