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What is market segmentation and analysis? Why is this process critical to the planning process a...


What is market segmentation and analysis? Why is this process critical to the planning process a company must undertake in order to determine whether it launches into a new foreign market place?

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Expert Solution

Customers aren’t buying as often? Not enough people are engaging with your promotional posts on social media? Finding it difficult to retain new customers or keep current ones?

You may have a segmentation issue. Specifically, your customers aren’t feeling compelled to buy or interact with your offerings because their needs aren’t being met.

The best way to understand what your customer want requires market segmentation analysis

Market segmentation analysis is the study of customers, divided into smaller groups, to understand their specific characteristics like, behavior, age, income, and personality. It’s easier for companies to advertise when they’re marketing a smaller segment of customers; this way, each campaign can be highly targeted and precise to the characteristics of each group. How a company should showcase a product or service depends on which group they’re targeting.

Why do businesses use market segmentation?

Leverage. It’s the main reason any company will use market segmentation when offering promotions, sales, and new products. When the company can hyper-focus on the details of segmented groups (rather than customers at mass), leveraging the benefits is easier than ever.

Segmentation creates the perfect environment for engagement, customer retention, and acquisition. Because, when a company creates a campaign and sends to the masses, the responses will be hit or miss — with a higher chance of missing than hitting. This is because people want specific things at specific times, but only if the product, service, or promo ticks the right boxes.

Common types of market segmentation in the analysis?

There are actually many ways company’s can segment customer characteristics. But some are more popular (and common) than others. Here are five of the more viable options to consider for your market segmentation analysis.

Geographic segmentation. Segmenting customers by geography means understanding the environment where the customer lives. Needs change based on your physical environment; someone living in Japan may buy items to survive natural disasters like typhoons, tsunamis, and earthquakes. But people living inland, not surrounded by water or have ever experienced an earthquake, are less likely to worry about such dilemmas.

Understanding a customer’s surroundings allows companies to create new products based on location, but it can also shine a light on whether a company wishes to expand in the location too.

Demographic segmentation. Usually combined with geographic segmentation, demographic segmentation is one of the most popular segmentation types used by companies. This segmentation focuses on characteristics like age, gender, income, education, race, and more. It is arguably the most simple segmentation applicable in market segmentation analysis and determines how and what we buy, based on who we are as people. Although there are many segmentation variations, demographic (often combined with geographic) is often the first one conducted.

Psychographic segmentation. Psychographic segmentation focuses on the behavioral traits influencing customer buying habits. In this case, variables like personality, opinions, lifestyle, and values are tracked and measured. Compared to the other two segmentations on the list, psychographic traits can be harder to pin down. But it’s necessary for most industries, especially health and fitness. For instance, some people are gym-lovers and others aren’t; why? This is exactly the type of information psychographic segmentation uncovers.

Price segmentation. Price segmentation is another common segmentation used in market segmentation analysis. Although segmentation by demographic also mentions household income, price segmentation dives deeper. Personal income greatly impacts what people buy; someone with higher personal income can afford to splurge on luxury products, while someone who is working class is more likely to save extra income for a rainy day. This segmentation is popular for luxury brands, particularly automotive companies like BMW and Tesla.

Time segmentation. Less common than other segmentation types, time segmentation can still be effective. Physical stores have an open and close time, and their hours can impact sales. Some stay open all year round, while others choose “dead” days, like Sunday and Monday, to close because of slower sales traffic. Time segmentation also pertains to holiday sales and promotions, like Black Friday and Cyber Monday. These happen only once a year, and customers spend more since they expect the time-gated deals and sales.

Market segmentation analysis involves understanding your customers based on specific characteristics, both physical and behavioral. Companies use this analysis to create hyper-focused sales and promotions. By focusing on the smaller segments (and what they value most), it’ll be much easier to resonate with them. Customers are more likely to pay attention when an offering is tailored to their needs at the moment, rather than showcasing an abundance of benefits that don’t particularly matter to each individual. This analysis pairs well with descriptive research analysis for a greater understanding of customers.

The following 5 factors you must consider while your company is entering to a new market such as

1.economic factors

2.social and cultural factors

3.political and legal factors

4.market attractiveness

5. Capability of the company


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