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Published on September 4th, 2015 | by Grace Yuen

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Market Segmentation 101 for Retail Businesses

One of the most valuable strategies for effective marketing is segmentation.

What is marketing segmentation?

Market segmentation is dividing your total market into smaller groups based on common characteristics. The end goal is to find a small group with the highest likelihood to buy your products or services. This group is your target market, which is the audience to whom you will be directing all of your marketing efforts.

Defining your target market allows you to communicate better with potential customers.

Why do we have to segment?

As customers differ, it’s not effective for one business to focus on everyone.  The more accurately you can focus on those who are most likely to buy your products or services, you’re less likely to waste resources and effort. Targeted marketing communication offers a greater scope to gain and retain customers, increase profits, and grow market share.

What are the most common market segments? 

Below are the four most commonly used market segments:

1. Demographic segmentation includes dividing groups by age, gender, religion, language, income, ethnicity and education.

2. Geographic segmentation divides the market based on location such as city, country, or region. You can also divide the market into urban, suburban and rural markets. Other geographic segments include climate and population size.

3. Psychographic segmentation includes interests, hobbies, lifestyles, values, and attitudes. Grouping by types of affinity categories will help you identify which groups are most probable to have an interest in your business. 

4. Behavioral segmentation divides market by purchasing behaviors. An example includes online retailers who personalize their website to visitors by recommending products based on prior purchases. Behavioral segmentation also includes benefits sought, the degree of loyalty and rate of use. Different messages may be appropriate for those who are more loyal to your product.

How do we split the market into segments?

The first step in segmentation is understanding what your business has to offer or the problem you are trying to solve. Then come up with a list of customer types who are most likely to have this problem and will benefit from your products or services. This will help you to identify the common characteristics of your potential market. 

Conclusion

It’s always important to gather data. If you are a new business, this may require help from a marketing firm to give you research data. Ask your network of friends and associates. If you are an existing business, you can send a survey via email to your most loyal customers to find common characteristics. All this will help you to better focus your efforts. 

© 2015, Grace Yuen. All rights reserved.

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About the Author

Grace Yuen

Grace Yuen is the Senior Marketing Manager - Analytics & Optimization at VerticalResponse.



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