The Importance of Market Segmentation

One of the core responsibilities of Marketing in an organization is to effectively define and track the marketing segments. This is far more than just an academic exercise, but is essential to many other key tasks within a company.

Segmentation is crucial to effective pricing strategies. You can often target addressable segments with different prices, giving opportunities to both increase volume (units shipped) and profit. By having a well established segmentation model for your business, you can then work on fencing strategies to maximize your revenue and profit in pricing.

Market segmentation is critical to product management, don’t leave it solely in the hands of marketing!

It is also crucial in new product development. Often the temptation to be everything to everyone is great within the organization, yet, the wise marketer and product manager knows that targeting key segments makes for a much greater chance of success. Knowing who buys your products, and what they value allows better targeting of your development effort, and justification for not chasing segments that might not be as fruitful.

For coordinating structured customer visits as part of a marketing research program, having a complete segment map of your market aids in the selection of target customers to visit, ensuring that the money you spend on cross functional voice of the customer visits is optimally used. It is as important to know who not to visit, than to identify targets.

Even for strategic planning, having a well defined segmentation provides insight to the senior leaders in their long range planning. Understanding the strengths of your offering, and how it relates to the segments of your market allows you to better guide your investment strategy.

Yet, many marketers struggle with segmentation, either making the segmentation too simple, or too complex. This is particularly true for B2B, as often in the B2C world, the sheer volume of transactions and analytics that can be extracted and modeled makes the job more straightforward. When your customers are fewer, and the sales process is complex, there is much less “Simple” approaches.

Regardless of your business, your product, rest assured that you can define rational segments for your marketing, and that these segments can then be applied to better target product development, and these benefits cascade across many groups in the business.

Future posts will discuss how to segment your markets, giving some tips to get started.

Author image
Product Manager, physics educated, avid cyclist, dog rescuer, guitar noodler.
San Jose, Callifornia Website
You've successfully subscribed to The Product Bistro
Great! Next, complete checkout for full access to The Product Bistro
Welcome back! You've successfully signed in.
Unable to sign you in. Please try again.
Success! Your account is fully activated, you now have access to all content.
Error! Stripe checkout failed.
Success! Your billing info is updated.
Error! Billing info update failed.