Market segmentation is a very simple principle to understand. Understanding the 4 Key market segmentation metrics listed below is something that you and your company must understand in order to generate sales and cash flow quickly. Before we identify and clarify these 4 key market segmentation metrics lets review what market segmentation is. Market segmentation is the act of subdividing the market into a group or groups of people who have similar needs within the group, but dissimilar needs across the groups. Another way to state this would be that everyone in group A is similar to everyone else in group A but everyone in group A is different to everyone in group B. The same would be true also for group B. Everyone in group B is similar to everyone else in group B but they, everyone in group B, is different from everyone in group A.
The goal then would be to divide your potential prospective customers into groups and then decide which companies within those groups would be the best fit for your product. You also might determine after defining the market segments and comparing those segments to previous sales history data that the ideal customer is one who can belong to two or more of the of the groups. Okay, what are some ways that we can define the groups?
- Geographic Segmentation – Geographic segmentation is used to identify business target markets based on where the businesses are located. Are the potential clients in the same zip code, city, county, state, country? If you are a roofing contractor for example, you might decide that everyone in zip code 12345 is a good prospect for your business because of a recent hailstorm in that zip code. However, everyone in zip code 67890 is not a good prospect because those residents have not had any hail in 8 years.
- Segmentation by Size – Size might be measured in terms of number of employees or in terms of annual sales. You might be selling an ERP software solution with an implemented cost of $ 500,000. Therefore, you might quickly rule out any business with sales less than $ 1,000,000 because you would know that a company that small would never benefit by a robust software solution of the magnitude of your product.
- Segmentation by Industry – Industry segmentation may be used by marketers who are selling products with specific appeal in certain industry segments. If you are a manufacturer of industrial automation equipment, you wouldn’t need to talk with companies who were in the hospitality industry. You would select companies generally who manufacture or utilize industrial products in the manufacturing of their products.
- Business Need Segmentation – Segmentation based on business need allows marketers to identify and connect with businesses that span geographies, size and industry, but share a common need addressed by the marketer’s products or services.
In the above example, you might determine that the best customer is likely to be one who is geographically located in a particular state, they have revenues of greater than $ 10,000,000 and they are a manufacturer. By segmenting and then strategically evaluating history and foretasted new opportunities, sales professionals and marketing professionals can more quickly and cost effectively increase revenue and cash flow at costs lower than they would without using market segmentation in their business strategy and business plans.
