Demand segmentation: here’s what it is and why it’s critical for your business.
In recent years, business processes have increasingly evolved. On the one hand, customers are becoming more and more demanding and heterogeneous, the market highly competitive (mainly accomplice to the Web) and supply chains extremely complex.
A challenging scenario, in which competing (and staying competitive) is not easy. One can no longer be satisfied with offering quality products or services but must really respond, and in an increasingly timely manner, to the needs of one’s audience.
Key processes for coming out on top include, of course, market research. But, to obtain reliable and truly useful results, it is strongly advisable to proceed with demand segmentation.
Today we are going to talk to you about exactly that: market demand segmentation. Of the definition of this process and why it is essential for your company as for businesses in any industry.
What is market segmentation?
It is no secret that the key to business success lies in fully focusing on consumer needs and preferences. In order to achieve business goals, therefore, it is necessary to focus on customer satisfaction and work hard at it.
But how to actually accomplish this?
Even if they belong to the same target market, however, customers feel the need differently. The market is heterogeneous, true, but to fully understand customer desires, it is necessary to identify groups of consumers who exhibit different ideas, needs, and buying behaviors.
This gives rise to market segmentation: the division of the target market into segments, into groups. Each individual group includes within itself homogeneous expectations, needs and buying behavior, differentiating itself from all other groups.
In a nutshell, segmentation is the division of the market into subgroups of consumers on the basis of particular characteristics that unite them.
This is often an indispensable procedure for performing an accuratemarket analysis with a focus on achieving business objectives.
Thus, to arrive at customer segmentation, one must start from a heterogeneous market and arrive at dividing it into fairly homogeneous segments based on the following main descriptive variables:
- Geographic
- Demographic
- Psychographic
- Cheap
- Behavioral
- Social
There is also an additional criterion to consider in order to fine-tune this process, related to the descriptive one. We talk about the criterion of product instrumentality.
Read also: Qualitative research in marketing: definition and difference with quantitative research
Descriptive criterion and product instrumentality criterion in demand segmentation.
Amarket research agency (such as our Central Marketing Intelligence) must use two particular criteria to proceed with demand segmentation:
- Descriptive criterion.
It starts from consumer needs and involves dividing target customers into segments based on particular variables, namely the geographical, demographic, psychographic, economic, behavioral and social factors mentioned earlier.
These factors strongly affect differences in customers’ purchasing behavior of products/services.
The center of this criterion is the client, his identity and history, which lead him to make precise decisions, much like people belonging to the same socio-cultural “framework.”
- Product instrumentality criterion.
It starts with your company’s product/service class and divides buyers based on factors.
Chief among these are the number of products purchased in a given time frame, occasions and modes of use, loyalty to brands more or less felt, and benefits sought in various products/services.
In this case, the focus is not on the customer and their story, but on the products. This is the ideal criterion for analyzing the competitive positioning of products and brands, which, combined with the descriptive criterion, allows us to get very precise answers about your target market.
Segmenting demand based on these criteria allows us to obtain actionable market research, that is, research that can be used to devise powerful and valuable marketing strategies for your business.
Once the market has been divided into segments, the behavior of companies usually moves toward one or more strategies that strongly take segmentation into account.
Market segments and marketing strategies
Marketing strategies designed as a result of market surveys are closely related to demand segmentation. And it could not be otherwise.
Specifically, here are what characteristics are common to the most effective strategies built on market segments:
- Concentrated marketing: consists of choosing multiple target segments while focusing, however, only on the most important (read “profitable” among all). The company that chooses a concentrated marketing strategy exclusively activates procedures dedicated to reaching the most profitable segment, despite the fact that they may benefit other segments as well. Generally those who lean toward concentrated marketing are SMEs with limited resources.
- Focused marketing: in this case, the company chooses a single target segment, the most advantageous in terms of ROI. It then directs all marketing strategies toward him, regardless of the repercussions on other market segments.
- Differentiated marketing: the company chooses several target segments and defines separate offers and strategies for each of them.
- Undifferentiated marketing: products offered by companies that choose an undifferentiated marketing strategy are standardized. Thus, they either do not consider the needs of the various segments or the segments have such similar needs that differences can be considered irrelevant. The variety of products is as minimal as the possibilities for customization. However, companies can offer competitive prices (although this strategy is usually less profitable than differentiated pricing).
Read also: Studying your target market: what it is and why it is essential to the success of your business
In conclusion
Dividing the market into segments, and thus segmenting demand, is extremely useful both to best reach all target customers and to focus on the most “profitable” groups.
Need market research based on segmentation or want more information about it?
We at CMI are ready to answer any questions and look forward to helping you realize your project.
