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Identifying your best customers with market segmentation Regardless of whether or not your plan involves a start-up business with only prospective customers, or expanding an existing business with an established customer base, you will need to segment your market. Market segmentation is the process of dividing your market into smaller, more manageable groups of customers (or prospects for a new business) with similar needs or behavior patterns. For instance, a diaper manufacturer might choose to segment the market by identifying "all parents with children under the age of three years old." This manufacturer could of course take the segmentation further by separating "children" into "boys and girls" and then "boys between the ages of 18 and 36 months." Marketing segmentation requires you to identify customer differences based on your product offerings and match them with descriptive information like: demographics, customer, size, business type, geography or psychographics. An owner of a movie theater, showing multiple titles, could segment customers by viewing preference (comedy, drama or action), or by age group (child, teenager or adult). Imagine if the diaper manufacturer, or movie theater owner, did not incorporate market segmentation into their respective business plans. They would be hunting for needles in a haystack. The diaper manufacturer might spend millions of dollars on an advertising campaign that only reached a few parents with young children. The movie theater owner might start showing movies made for a teenage audience in a town filled with empty nesters. Even by using one of the simplest forms of segmentation, like demographics, these businesses can increase their chances of success. Demographic segmentation is one of the simplest and most widely used forms of market segmentation. By using demographics, you can target specific groups of customers or businesses. Demographic variables for consumer markets, include: age; race; gender; occupation; and income level. For business to business marketing, consider: number of employees; type of business (manufacturing, merchandising, or service); sales revenue; or business structure (proprietorship, partnership, or corporation). There are many ways to segment your markets, and create groups of potential customers. The table below summarizes the most common forms of segmentation.
A great way for you to begin your market segmentation is to look at some of the demographic variables used by direct marketing companies, like American List Counsel or Database America. These businesses compile mailing lists, for sale, using some of the following demographics: Example consumer segments
Example business segments
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