Market Segmentation 101

A thorough knowledge of customers and their needs is the foundation for any successful business enterprise. You must work out some initial estimates on how many customers you can reach out to so that you will know whether there is some chance that your business idea will succeed. However, what kind of information can you use to forecast your market segmentation? Here is a simple guide for those who wants to have an understanding in market segmentation.

So, you have a business idea that comes in the form of a product or service. An interested investor will ask you the following questions:

• 1. What is your market segmentation?
• 2. What is your market share and the level of sales which you expect to achieve in the next few years?
• 3. Who are your customers or customer groups? What is your coverage?
• 4. How can you distinguish your company from the competition (or positioning) for your customers?

Who are your customers?

You need to decide who your customers are. You know that a person is totally lacking oinexperience when he or she says things like, “Like everyone who uses the computer, therefore our product can touch everyone.” Take a step back and ask yourself, “Is that really true?” You need to come up with the criteria on how you decide who your customers are, such that your product or service is catered to your customers. If you really know how to classify who your customers are, you can start to innovate on product design, pricing, publicity and distribution.

Of course, you can try the following. If you are selling a new branded t-shirts which cater s to the youth market between 18 to 26, your product design must be funky and your pricing must be cheap such that your customers can afford it. You need to know how many people in that age group you want to sell to. Your publicity materials will hover around something that will excite that market, and finally, you know where to distribute them. For example, if you know that most youths like to hang out in a particularly shopping complex (for example, Cineleisure in Singapore), you should figure out a way to distribute and supply your product to be sold there.

Customer segmentation helps to define the market coverage and design a specific and effective marketing strategy. One common mistake is to overestimate and underestimate the market. Different customers may be interested in your idea for different reasons. A few things come to mind: the size of the market segment (how many customers you can get), the growth of the segment, the match between the product and customers (are you selling a solution to a problem) and potential in differentiating your product against your competitor.

Here are some tips to help in figuring out your customer segmentation:

• Geographic: Is your product country specific or touch an entire region, for example Southeast Asia?
• Demographic: What is the age group, gender, income earnings, profession that your product and service is reaching out to?
• Lifestyle: Is your product or idea for the computer geeks, the health conscious women, those who like the latest fashion, the environmentally conscious or the young punks out there?
• Behaviour: What is the frequency of usage of your service or product?
• Purchasing behaviour: Is there a brand preference or price consciousness involved?

Once you work out your market segmentation, you should be able to working out how much revenue and sales you can make to keep your business sustainable.

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