3.3 Market research – segmentation

We can divide customers into market ‘segments’ in order to understand their needs and wants and allow us to target them. The aim of segmentation is to identify a group of people who have similar needs that can be met by a single product or service. This process will enable a new venture to concentrate its marketing efforts in an efficient and cost-effective manner. Segmentation also helps to channel feedback into the product or service design process.

Targeting is concerned with choosing which segments to aim for in order to achieve success. By implication, targeted segments are the focus of your resource spending at the expense of non-target segments. Thus, the two concepts of segmenting and targeting are almost inextricably linked.

This raises the question of how new enterprises might go about identifying which groups or market sectors will buy their products or services and what improvements, replacements or new related products may be desirable. This requires some research into the markets.

Sometimes it is hard to justify this kind of investment when faced with the challenge of conducting market research, especially if you lack technical knowledge and skills and/or a lack of resources – namely, time and money. The time taken to conduct research must be viewed positively as a resource investment since it is critical to the successful launch of a new product or service.

As you consider the questions in Task 17 it is likely that you will discover that you do not have enough detailed information to answer fully.

Having identified a need for more information you now need to consider what that information is, and how to access it. Some may be publicly available through web searches, business or trade directories, and libraries. A local business advisor will also be able to help. However, identifying your future customers’ common needs and characteristics to group them as segments may well depend on you conducting specific research and often comes down to personal judgement. It will be hard to be confident and precise in your responses until you deal with real customers. The benefit in starting the questioning process right now, however, is that you will get a clearer idea about what customer information is going to be relevant and helpful in your decision making.

Also, you can begin to work out whether and how a potential segment is measurable and how easy it is to define members of the segment. This will enable you to decide how substantial the segment is and whether there are likely to be enough potential customers to enable you to achieve your proposed objectives. You can begin to see to what extent the target customers will be accessible and how you might be able to communicate with them. You may even begin to have an informed opinion on whether certain groups of customers have similar product service requirements and whether the segment is likely to be stable or to disappear in the face of changing fads or fashion trends.