Anyone offering Business Advice to their clients should have a fundamental understanding of strategic planning.
Market segmentation is a very important concept in business planning. Basically, it involves breaking up a large market into a number of smaller markets which have like wants or needs.
By doing this you will be better able to target your product to meeting the needs of these people.
Examples of Segmentation
When you look at the segmentation examples below you can clearly see how they result in the business being able to better target their product or service to these segments.
You can break up your potential customers (or market) by using a number of different factors such as age, sex, geography, income, benefits and many more. A detailed list is included at the end of this chapter. The easiest way to explain the concept is to give some examples.
Example 1: The Automobile Market
The automobile market can firstly be broken into the consumer and industrial market segments. The consumer automobile market can then be further broken into the following segments:
People that buy cars for safety reasons.
People that buy cars for economy.
People that buy cars for prestige.
People that buy cars for performance.
People that buy cars for size (e.g. families).
People that buy cars for off-road pursuits.
If you were preparing a business plan for a company in this market you would obviously have to develop a different price, product, promotion and distribution strategy for each segment. Consider the pricing, style and promotion of a Volvo compared to that of a VW. In each segment there are different environmental influencers and competitors.
Example 2: The Toothpaste Market
The toothpaste market can be segmented by user benefits. Possible segments include the following:
People that buy toothpaste because they want white teeth.
People that buy toothpaste primarily as a breath freshener.
People that buy toothpaste based on price.
People that buy toothpaste for taste or product appeal.
If you were preparing a business plan for the toothpaste market, these segments could suggest a unique offering that you would need to make to best satisfy the needs of the market. Segmentation also helps to specifically target promotions. The target segment – “people that buy toothpaste for taste or product appeal” – would most likely consist of children. The product therefore has to appeal to this age group and promotions have to be seen or heard by this age group.
Example 3: The Industrial Rubber Market
The industrial rubber market might be broadly broken up into industry segments. Four such segments might be:
Marine industry sector.
Electrical industry sector.
Automotive industry sector.
Sporting goods industry sector.
The marine industry might predominantly require rubber that was extremely water resistant, whereas the sporting goods industry might be more concerned with the flexibility and styling of the rubber. When preparing a business plan you might notice that there are a number of manufacturers supplying the electrical and automotive segments but few in the marine sector. As part of your plan you may commence R&D programs to develop rubber compounds that are better suited to the marine industry.
Example 4: The Software Market
The software market can be segmented into those that need word processing capabilities, those that require desktop publishing, those that need to manage their business and those that have other needs. The word processing market might then be broken into the following segments:
Each of these segments may have completely different needs.
Example 5: The Cat Food Market
Strategies in this market could be based on the following four possible market segments:
People that buy cat food based on price.
People that buy cat food based on nutritional value.
People that buy cat food based on variety of meals.
People that buy cat food based on convenience.
Example 6: The Fashionable Clothing Market.
This market might first of all be broken into two major segments, males and females. Each of these markets can then be further segmented by age:
Each of these age groups can be more specifically broken down and targeted.
Peter Hickey is the founder and CEO of MAUS Business Systems and the president of the Australian Chapter of the Exit Planning Institute. www.maus.com.au
He is a bestselling author and creator of a wide range of business tools that have been used in over 60,000 businesses around the world. One of those tools is MasterPlan Lean, a Business Planning software tool.
Peter Hickey | MAUS
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