To succeed with any new product, it’s critical to understand your target audience deeply. Knowing their needs, goals, expectations, and pain points should inform the product’s development, design, marketing, and price.
As such, manufacturing companies must invest in researching their audience, digging deep into demographic data, conducting focus groups and surveys, and more. But simply knowing the audience isn’t enough. Understanding how the audience can be further broken down into unique subgroups is equally important, a process commonly known as market segmentation.
Understanding Market Segmentation
The primary purpose of market segmentation is to break down a more extensive audience into smaller groups united by shared characteristics or common interests. For example, a manufacturing company may segment its audience by age, income level, geographic location, personality traits, and consumer behaviors.
Market segmentation is important because it allows manufacturers to develop sales and marketing strategies that speak to core constituencies more directly, appealing to them based on their specific needs, goals, and preferences. A good market segmentation strategy can boost sales and ensure smart resource allocation throughout the customer nurturing process.
Different Types of Market Segmentation
So how should manufacturers break down their different market segments? There are four basic types of segmentation to choose from. These include demographic, geographic, psychographic, and behavioral segmentation.
1) Demographic segmentation
Demographic segmentation is precisely what its name suggests: A way to break down audiences in terms of shared demographic traits, including age, race, gender, income level, marital status, level of education, or occupation. This type of segmentation can provide valuable insight into the kinds of products customers desire and how much they are willing to pay for them. Demographic segmentation is also helpful for product planning. Manufacturers can typically rely on customers with shared demographics to behave similarly, making it easier to make predictions for upcoming product launches.
2) Geographic segmentation
Customers can also be segmented by their geographic location. Depending on the scope of the business, this can include breakdowns by country, time zone, or language. Geographic segmentation also encompasses distinctions based on urban, suburban, and rural dwellings. Product managers who understand unique needs or preferences around different geographic segments can better address product development, sales, and marketing.
3) Psychographic segmentation
Psychographic segmentation denotes distinctions based on lifestyle, attitudes, and interests. In other words, it seeks to understand the psychological aspects of consumer purchases, providing insight into customers’ thought processes. An emphasis on psychographic segmentation can help manufacturers to take a more targeted, personalized approach to their marketing efforts, establishing a rapport with customers based on social status or opinions.
4) Behavioral segmentation
This final type of segmentation seeks an understanding of how customers behave and why they make certain decisions based on past purchasing decisions, browsing history, consumption patterns, and usage trends. This is another valuable way for manufacturers to personalize their marketing efforts.
Using Market Segmentation: The Four Ps
Market segmentation can inform a product manager’s decision-making in more ways than one. In fact, the total utility of market segmentation can be understood in terms of the four Ps:
- A product manager is ultimately responsible for determining which products to develop, iterate, and bring to market. Market segmentation can yield insight into the kinds of products most likely to connect with the target audience.
- What are customers in a particular segment willing to pay for a product or service? That’s a critical insight that can inform the product’s development and its brand positioning.
- Market segmentation can also give product managers insight into where they should sell their product: Online? At brick-and-mortar locations? Which stores and in which geographic areas?
- Finally, market segmentation can help product managers determine the best ways to promote a product, appealing to their customer segment’s values, pain points, opinions, preferences, and more.
All told, market segmentation can guide the entire product development process, helping product managers to be informed and strategic in their decision-making. Effective product managers can use each type of segmentation to guide their efforts, always ensuring the right product at the right price, sold in the most appropriate place, and supported with the best kind of promotion.
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