Segment a Market
The best way to go out of business is to attempt to be all things to all people. Not everyone can or will be your customer, but on a planet of more than 6 billion people, there should still be enough market for you to survive in, if not thrive. Identify which consumers will best fit your business by following these steps to segment a market. (The Disney store, for example, caters to pleasing children, rather than trying to please every age and gender).
Steps
- Evaluate which market or markets you want to pursue. Decide which methods you want to define your segments by and which definitions best fit your business model. You can characterize segments by any of the following categories:
- Geography pertains either to your location or the location of your target customers, where your product or service will be used.
- Demographics are the statistical characteristics of your target market, such as age, gender, education level or household size.
- Psychographics characterizes consumers by psychological or emotional traits, based on belief systems or personality types such as risk-taker versus risk-averse, or early adopters versus late-stage buyers.
- Lifestyle is a behaviorally-based criterion, focusing on the activities your target participates in, from work to hobbies pursued or vacations favored.
- Life stage combines some of the demographic and psychographic characteristics that groups have in common to delineate where or when your targets are in their life cycle: college and career, young families, empty nesters and the like.
- Qualify your chosen market or markets. Once you’ve evaluated criteria to define your market and selected possible markets to pursue, assess the markets based on their potential for profitability to your business. Answer the following questions:
- How large is the segment now? Is it large enough to support my business?
- How easy or difficult will it be to reach the segment?
- Will the segment grow or expand in the future? How far into the future may it grow?
- Does this segment really fit with our business model? Can we immediately meet their needs or will it take a significant change in direction to meet demand?
- How difficult will it be to get the data we need to fully understand this segment, to answer these questions?
- Gather and analyze data on your selected market. As time and budget allow, use primary and secondary research sources to build a clear picture of your target market.
- Review your own sales data. Who purchases how much of what products or services? When do they buy? Where are they located? Who does the actual purchasing and for whom are they purchasing?
- Cross-reference this sales data to industry-specific databases your trade association may publish or your Chamber of Commerce Book of Lists to get basic business demographic information, or US Census Bureau tables for general population data in your area or near where your area is that you are living
- Mine information from free or low-cost syndicated reports produced by market research firms to dive more deeply into market segments and glean insights on motivations driving buyer habits.
- Analyze the data you’ve gathered. Look for key similarities and differences among the general customer base, your overall population. Do certain groups bunch together or break apart from others based on geography, demographic breaks or behavior? This cluster analysis gives you more clearly delineated segments, helps you answer the qualification questions and sparks ideas on how to communicate with the target segments through your promotional efforts.
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