Launching a new product without a thorough market segmentation is like shooting in the dark.

You have a vague understanding of your customers.

There is no a concise strategy for reaching a wider audience.

You don’t know what direction to move in which can result in getting lost.

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Business model – this is a compass that will guide you.

But how can you know that the business model you’ve chosen applies to all your customers?

Don’t worry.

There is a way out.

Its name is Market Segmentation.

Let’s get right to the point.

What Is Market Segmentation and Why You Should Care?

Market Segmentation

Let’s imagine that you are going to push a new product into the market.

First of all, you have to catch the attention of your target audience.

You come to them with a value proposition that should solve their problems and improve their life

But what if your customers have different needs and expect different offers?

In most cases, you can’t reach your audience with the same marketing channels and offers.

That’s when market segmentation comes to help.

Market segmentation is the process of dividing your target audience into subgroups, according to their specific needs.

Such approach helps you to better understand your customers and treat them more personally.

Market segmentation also helps you to create personalized marketing campaigns, which will result in a better conversion.

When Market Segmentation Is the Right Choice

First of all, you have to decide who your client is.

Come up with different types of buyer personas and choose what customers you will serve.

When creating buyer persona, pay attention to the following factors:

  1. Age
  2. Occupation
  3. Status
  4. Income
  5. Location
  6. Goals
  7. Pain points
  8. Personality
  9. Background
  10. Hobbies and interest
  11. Fears

It’s also important to mention your marketing message for this person and his or her common objections.

It will help you to be prepared for dealing with different obstacles.

After this, you can create a portrait of negative buyer persona.

Such portrait will help you to better qualify your leads and choose those that are suitable for your business.

If you know what customers to avoid, you will spend more time concentrating on those who matter.

For creating the portrait of a negative buyer persona, answer the following questions:

  1. What customers don’t stay with you for a long period of time?
  2. Who writes negative reviews about your business?
  3. What customers had the highest acquisition cost?
  4. Are there any customers who bring you no or not enough revenue?
  5. What type of customers your solution is not suitable for?

It’s significant to always keep this portrait together with the portrait of your buyer persona.

Remember that you always have to refuse from something not worthy to get a better variant.

What to Do Next?

When you’ve made a decision, start building business models with a strict understanding of your customer needs.

You can divide these groups of clients into different segments if

  • they have different requests
  • you need various marketing channels to reach them
  • they need different kinds of relationships
  • they are looking for different offers

Now think about the value proposition for each of these segments.

Why should they choose you?

What problem do you solve?

What benefits can you offer?

How will their lives change after they buy your product or service?

Here are some elements that constitute the value of your product or service.

– Novelty

You can break into the market with some innovative solution your competitors lack.

Such products quickly catch attention and become popular.

It’s important to remember, that it’s not enough to introduce something brand new.

The point is to ensure that your audience needs it.

You can do it with the help of customer development.

One of the ways is to interview potential clients and influencers in your industry.

Ask them whether they will use your product or service and whether they see any value in what you offer.

– Performance

Your product or service can be a better alternative to what is already available on the market.

It can work faster or have better performance.

Opening a beauty salon?

Make a mobile app for making appointments online.

It will save the time for both clients and workers.

Having an online delivery business?

Make the process of delivery faster.

The sky is the limit.

You always have an opportunity to be faster, better or more convenient.

– Custom Manufacturing

Think about the value of products/services that meet individual needs of your customers.

Such customized approach always wins.

It helps you build better and stronger relationships with your clients.

– Better Price

Offering the same product or service but for lower price is the standard way to please your audience

Such offers have a big influence on the general business model.

It will bring you more clients and sales.

– Affordability

One more way to break into the market is to make products and services affordable for people, who didn’t have access to them before.

You can do it with the help of innovative business models or new technologies.

For example, NetJets has promoted the idea of fractional ownership of private jets.

In this business model, NetJets makes private jets available for individuals and companies.

Such approach is new, so it became popular in a short period of time.

– Expenses Decrease

You can decrease the expenses of your clients by cross-selling your products or services for a lower price.

This is a win-win approach.

You sell more, people spend less.

This is an easy and nice way to get more clients and create a word of mouth for your business.

– Risk mitigation

People will more likely buy your product or service if they see no risks attached.

You will invoke trust in your brand by offering money-back guarantee, return, exchange or insurance

– Usability

Better usability can become one more value proposition of your product.

You can beat your competitors by offering a more convenient version of the product or service.

There is always a space for improvement, so don’t miss the chance to succeed.

Market Segmentation Strategies

When you know all the benefit your product or service brings, it’s time to make a market segmentation.

There are 4 main types of market segmentation strategies:

  1. Geographic
  2. Demographic
  3. Behavior
  4. Psychographic

Let’s review each of them in more detail.

1. Geographic

Geographic market segmentation is the process of dividing a market into segments according to the country, state, city, or community.

If your product success depends on the cultural differences, such segmentation is just the thing.

It will help you to settle on the local market and meet the preferences of your audience.

2. Demographic

Demographic segmentation is one of the most important and useful practices.

It goes without saying, that you need different marketing channels to reach people of various age, income, social class and even gender.

Companies, that understand this, divide their clients according to the demographic differences.

After that, they build different offers, value propositions, marketing strategies, and channels for each of this group.

Let’s say you are promoting the services of your event planning company.

You have different vacation programs for people with a various budget, age, social status, and gender.

You will hit the point if you create different marketing campaigns for each of this groups on appropriate channels.

The demographic segmentation is also used in the bank departments.

Such departments may distinguish different groups of clients according to the amount of their bank deposit.

For example, a bank can divide the clients into two groups: those, whose deposit is more than $100,000, and those with the deposit amount over $500,000.

The needs and problems of these two groups vary.

That’s why they need different approach and value proposition.

3. Behavioral and (4) Psychographic

This is the process of dividing your clients according to their lifestyle, activities, character, and principles.

Understanding your client lifestyle and problems will help you come up with the right for them solution.

Choose the Best Marketing Channels for Each of Your Segment

Think about the channels through which you can reach your potential clients.

Which of them will give more profit?

Are they connected to each other?

What channels are the most effective?

Usually, marketing channels are divided into four groups: own, partner, direct, and indirect.

Here are some examples of direct and indirect marketing channels.

Direct – sales managers, selling via Internet

Indirect – partner companies, wholesalers, company shops.

In most cases, marketing channels require 4 main stages of promoting your product to the customer.

1. Informational

How can people learn about your product?

Is the message you deliver clear enough?

When you go through this stage, try to outline all the benefits your product or service will bring to people.

Try to speak not about what you sell, but why you sell it and how it helps those who buy it.

This stage is the most important.

If your message is not clear enough, you will not evoke an interest in what you sell.

2. Evaluative

How do you help clients test the value proposition of your company?

Do you answer all the questions and support them?

What are their pain points?

Are your interested in their problems?

At this stage, it’s important to show your understanding and help people get the value of what you offer.

3. Selling

How do you give your clients the opportunity to buy?

What does this process require?

Think not about how you will sell the product, but how people can find it.

4. Post-Selling

Do you support your clients after the sale?

How exactly do you do it?

It’s important to stay in touch with your former clients and provide them with other offers, discounts, and loyalty programs.

Each marketing channel can include all the stages or only some of them.

Your task is to ensure that your client will go through all the stages and choose your product or service as a result.

Choose the Type of Relationships for Each of Your Segment

First of all, choose the aim of the relationships you have to build with your customers.

Here are some:

  • Acquiring new clients
  • Maintaining current clients
  • Increasing sales

Think what relationships each segment is expecting to get from you.

Let’s look at 6 main types of relationships you can build with your audience.

1. Personal Support

This type of relationships is based on the personal contacts.

In this case, client  directly communicates with the company representative and gets a necessary support.

2. Special Personal Support

In this case, each company representative is tied to a certain client.

His task is to build the strong business relationships with this client during a long period of time.

3. Self-Service

In self-service relationships, a company does not support direct relationships with the clients.

Instead, it provides them with the necessary tools to serve themselves.

4. Automated Service

Automatisation allows to recognize clients and provide them with the relevant information for making a deal

For example, a client registers on your website and gets access to personal services or recommendations

5. Communities

The popularity of Internet communities and forums is rising by the day.

They open big opportunities for the companies of any size and industry.

Such online communities help companies to learn the problems, questions, and concerns of the clients.

It also gives them a chance to read reviews about their products or services.

This type of relationship can turn into a real goldmine of useful information for your business.

6. Mutual Creation

This type of relationship is something out of the box.

A lot of companies nowadays step out of their comfort zone and try something new.

Mutual creation involves two-side cooperation between the company and customer, where they create a value proposition together.

For example, Amazon allows their clients to write reviews, creating an additional value for book lovers.

Youtube gives an opportunity to create unique video content.

Design agencies work on the product design together with their clients.

Such approach connects a customer and a company. because they work together for one purpose.

Come up with the Revenue Streams

Create the list of revenue streams for each segment.

A business model can include two types of revenue streams:

revenue from one-time deals;

regular revenue from periodic payments;

To come up with the list, try to answer the following questions:

What are your clients ready to pay for?

How do they pay now?

How would they like to pay?

What profit do you receive from these transactions?

Can you increase it?

Here are some ways to create the revenue streams

1. Asset sales

This is the most basic type of revenue streams.

The example is Amazon, that sells books, DVDs, software, computers, etc.

2. Payment for the Use

This stream evolves from the payment for the use of a certain service.

The more client uses the service, the more he or she pays for it.

For example, the guest pays for the days spent in the hotel.

Delivery service takes payment for the delivery from one point to another.

3. Subscription Fee

This revenue depends on the period during which clients use your service.

The longer the period, the higher is a fee.

4. Rent/Lease

You can give your client temporary rights for using your product or service.

This business model allows customers to save money, as they don’t have to pay the total cost.

5. Licenses

With licensing, rights holders get revenue without issuing the product or providing the service.

Market Segmentation Advantages

Selling to the crowd is always difficult.

When you know your clients, their lifestyle, problems, character, and goals – it becomes easier.

Market segmentation allows you to:

  1. create a portrait of the buyer persona
  2. build a more targeted marketing message
  3. find more lucrative marketing channels
  4. gather enough information about your potential clients
  5. open new horizons of your business
  6. come up with the different variants of a business model

Market segmentation will also help you to qualify your clients and choose who to work with.

When customers feel that the message is crafted personally for them, there is more chance that they will choose you.

Spare enough time to conduct the segmentation of your target market.

It will bring you desired results.

You will learn a lot of new things about your audience and it will definitely pay off.

Try different business models for each segment until it will bring you profit and traction.

Don’t be afraid to make mistakes and don’t give up in advance.

Nobody succeeds from the first try.

The most important thing is to keep moving forward, no matter what happens around you.

Only hard work and persistence will bring your business to a new level.