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How to Write a Market Analysis for a Business Plan
Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .
A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.
Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.
Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.
How to conduct a market analysis: A step-by-step guide
In your market analysis, you can expect to cover the following:
Barriers to entry
Let’s dive into an in-depth look into each section:
Step 1: Define your objective
Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?
If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .
The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.
Step 2: Provide an industry outlook
An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.
Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:
Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?
Product life cycle
If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:
Research and development
How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.
Step 3: Determine your target market
This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?
Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.
With that in mind, your target market section should include the following points:
This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:
Create a customer persona
Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.
What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?
Research and supporting material
Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:
Target group surveys
You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.
Step 4: Calculate market value
You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.
A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.
A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:
Where products are sold
Who your competition is
The price per unit
How many consumers you expect to reach
The average amount a customer would buy over time
While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.
Step 5: Get to know your competition
Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?
There are two types of competitors that you should be aware of: direct competitors and indirect competitors.
Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.
An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.
Also, here are some questions you want to answer when writing this section of your market analysis:
What are your competitor’s strengths?
What are your competitor’s weaknesses?
How can you cover your competitor’s weaknesses in your own business?
How can you solve the same problems better or differently than your competitors?
How can you leverage technology to better serve your customers?
How big of a threat are your competitors if you open your business?
Step 6: Identify your barriers
Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:
Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?
Branding: You need to establish your brand identity to stand out in a saturated market.
Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)
Location: You need to secure a prime location if you’re opening a physical store.
Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).
Step 7: Know the regulations
When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):
Employment and labor laws
If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.
Tips when writing your market analysis
We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:
Use visual aids
Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.
Include a summary
If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.
Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.
Get to the point
It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.
Revisit your market analysis regularly
Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.
Why should you write a market analysis?
Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:
1. Learn how to analyze the market need
Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.
2. Learn about your customers
The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.
3. Get approved for a business loan
Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.
A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.
4. Beat the competition
Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.
There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.
The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.
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What Is Market Segmentation? (How it Works, Careers, and More)
Discover the importance of marketing segmentation to help you target and personalize your marketing. Find out about marketing jobs and market segmentation salaries.
Market segmentation is when a business splits customers into groups based on shared characteristics such as location, age, income, credit rating, or buying habits. Market segmentation can help inform and create a marketing plan that meets the needs of a target audience instead of creating a one-size-fits-all marketing strategy.
Marketing, advertising, publicity, and promotion have changed over the years and have focused more on personalized marketing and retargeting. These two trends have changed how marketing is done and is ushering in an era where market segmentation is key to marketing success.
What is market segmentation?
Market segmentation divides customers in a market into smaller and relatively similar groups. A common way to segment markets is to base the segmentation on demographics, which results in segments such as age, gender, income, and so on. You can segment markets in other ways, such as by usage rates or product benefits.
Retargeting and personalized marketing
Knowing your market needs and reaching out to the right people at the right time may provide potential customers with what they want. Personalized marketing typically lead to higher conversion rates, reduced acquisition costs, and less wasted revenue on marketing efforts that aren’t productive. Marketers are continuously searching for new opportunities to personalize their message. A powerful way to do this is through retargeting, which uses the data on a person's digital footprint.
Retargeting works by placing a cookie on a user's browser, which allows marketers to serve ads based on the pages that user has visited. It is one way marketers can personalize their message to consumers that have already shown an interest in their brand. For example, if someone visits a city vacation destination on your website, it makes sense for you to show them city-based hotel advertisements on other channels that they see. Retargeting also allows you to get the right message to customers at the right time.
Why segmentation is an important tool for marketers
Market segmentation increases the efficiency of marketing campaigns. When specific subsets of customers are targeted, you may become more relevant with your marketing efforts and spend less on marketing activities that don't reach your target audience. Market segmentation helps marketing budgets be spent efficiently with improved messaging.
There are many reasons to segment your market. It helps you see through the clutter of marketing data and develop real, actionable insights. A few benefits include the following:
Understand your target market better.
Market segmentation gives a more complete picture of who your customers are. Developing a clear understanding of your customers is essential because it allows you to adjust your products, services, or content to their needs.
Read more: What Is a Target Market? And How to Define Yours
Focus on products and content.
When you know your customers, you can focus on creating products or content that meets their needs. This allows you to offer more specific products and services.
With market segmentation, you can spend money on promoting products to people who may be interested. You can focus on those segments that are more likely to buy from you. For example, if your product is expensive and designed for business users, you may not want to invest your budget on social media channels dominated by teenagers.
Become more competitive in your niche.
Having market segmentations may build brand awareness among a subset of customers and become a leader in that specific market niche.
What is market segmentation analysis?
Market segmentation analysis involves research to divide a market into relatively similar, identifiable, usable segments or groups. It is an integral part of the marketing research process and seeks to find different ways to identify and define consumer segments to understand how potential customers think, behave, and engage with products.
Useful criteria to segment markets.
To have effective segmentations there are four criterias that need to be met to gain valuable insight into potential customers.
Measurability : The size of the segment and its potential can be measured.
Accessibility : The segment can be effectively reached and served.
Substantiality : The size and purchasing power of the segment are sufficient to sustain your business.
Differentiability : Ensure that target markets with differences all respond positively.
Actionability : You have the resources to serve the segment and can deliver a suitable marketing mix.
What types of market segmentation can your business do?
You can segment your market in many ways. As a marketer, you’ll need to decide which marketing strategy best fits the product or service. Here are four broad segmentation strategies that appear consistently in marketing.
Behavioral segmentation groups consumers based on their knowledge, attitude, use of, or response to a product. Behavioral segments are typically difficult to identify because behavior is not always consistent over time.
Example: Banking customers can be segmented by those who use online banking versus those who use physical branches. Online banking products may then be more successful when marketed to a receptive group of online banking users.
Demographic segmentation is a very common form of segmentation. Your market can be divided based on characteristics such as gender, family size, age, income, occupation, education level, and nationality.
Example : Diapers will likely sell best to families with infants and young children.
Geographic segmentation groups consumers based on where they live. This could mean country (national marketing), state (regional marketing), city (local marketing), or neighborhood (micro-marketing). Firms that employ geographic segmentation may market differently in different areas to maximize the effectiveness of their marketing efforts.
Example : New Orleans marketing might mention the Saints and the term Big Easy.
Psychographic market segmentation is a system that groups consumers by their interests, opinions, and lifestyle perspectives. This system rests on the idea that people's psychological traits influence consumer behavior.
Example : Outdoor gear companies may choose to target people who consider themselves active, adventurous, and outdoorsy.
The market segmentation process
The segmentation process is the initial step in marketing, where the market is split into segments and then applied to marketing strategies to target the particular segments. The steps involved in this process are as follows:
1. Define your market and the opportunity.
The first step is to define the boundaries of the market, for example, geographic area, age, gender, and income level. Develop a clear picture of the products or services you offer and the type of consumers who might want to buy them. If you’re highly specific, you can build better segments.
2. Segment your market.
This involves splitting up the market into groups that share common characteristics. Divide your potential customers into groups based on the segmentation strategies you have chosen.
3. Research your market to understand it.
You need to develop a good understanding of each segment. They may have different needs, wants, desires, and buying behaviors. Your research can involve surveys, or other types of research, such as focus groups and interviews.
4. Create your product or marketing strategy.
Once you have defined and researched each segment, you can develop the products and marketing strategies to best target each group. Your strategy should tell you how each product fits into the market, what price to charge, what promotions to run, which channels to sell through (e.g., online vs. in person), and so on.
5. Test your marketing strategy.
Before launching a new product or marketing campaign, test it out with a small group of people from within that segment. Improvements can then be made before going ahead with a full launch. Real-world feedback from consumers is important for a product’s sucess.
6. Get feedback and review your success.
After launching a new product or marketing campaign, collect customer feedback and review how successful it has been. Evaluate success based on sales volume, profit margins, and other key metrics. Make any necessary changes, and use the process again with future products or services.
Segmented market strategies and their benefits
Marketing segmentation strategies allow you to create tailored messages that will resonate with your target audience. Here are three main ways that marketing segmentation strategies can help:
You may offer different prices to different groups based on location, demand, and income level. A good example is flexible airline pricing, where prices rise and fall based on who will travel and how much they are willing to pay. By changing your price based on the type of customer you're dealing with, you'll maximize profitability.
Personalized content and messaging
This form of segmentation involves delivering customized content to a particular audience based on their interests. An e-commerce website showing recommendations based on browsing history is an example of content personalization. Customers are more likely to engage with content relevant to their needs and interests.
A precise target market is a specific subset of a larger market you can target with your marketing efforts. The precise targeting strategy involves narrowing down the larger market to a small, specific group of people who are likely to buy for similar reasons.
The precise targeting approach aims to improve conversion rates by carefully targeting prospects with similar characteristics and needs. Instead of casting a wide net, identifying and targeting specific segments helps you reach customers who are more likely to make a purchase.
How different jobs use market segmentation
Many marketing-related professionals use market segmentation in their work. Some have to carry out analysis themselves while others use the analysis provided by other professionals.
*All salary data is sourced from Glassdoor as of February 2023*
Average annual base salary (US): $102,221 [ 1 ]
Product managers are responsible for defining and establishing a product’s product strategy, roadmap, and features. They are responsible for getting feedback from customers, gathering market intelligence, and using this information to guide their product decisions.
Read more: What Does a Product Manager Do? And How to Become One
Segment marketing manager
Average annual base salary (US): $89,664 [ 2 ]
Segment marketing managers deal with a particular segment of the market. For example, a bank might have one segment marketing manager who deals with small businesses and another with large enterprises. A segment marketing manager should understand the needs of the customer segment they are targeting and define what messaging and products will appeal to them.
Average annual base salary (US): $67,689 [ 3 ]
Brand managers are responsible for defining a brand's voice and managing its presence in the marketplace. This involves overseeing the content creation that communicates consistently with the brand's positioning and objectives. By forming different buyer personas, brand managers can develop specialized messaging for customers as part of the brand voice.
Read more: What Does a Brand Manager Do? Guide
Digital marketing manager
Average annual base salary (US): $73,454 [ 4 ]
Digital marketing managers are responsible for marketing products or services using digital channels, such as search engines, email, social media, and websites. Their primary focus is to drive specific types of people to the company website. Segmentation is important when planning pay-per-clicks, search engine optimization, and social strategies.
Read more: Digital Marketing: What It Is and How to Get Started
Content marketing specialist
Average annual base salary (US): $52,380 [ 5 ]
Content marketing specialists create content, such as blog posts, videos, or podcasts that engages customers and supports a brand's message. These specialists have to understand how to segment customers based on what type of content they like. They can produce content for each customer segment that will catch their attention and make them more likely to buy from the brand.
Average annual base salary (US): $62,224 [ 6 ]
Marketing analysts collect data from customers' responses to different types of marketing. This data can help companies determine which segments are profitable, which need more attention, and which are no longer valuable.
Read more: Marketing Analytics: Definition, Benefits + Career Guide
The strategy to landing a marketing segmentation role is to consider the marketing coursework in a degree. You must have relevant skills that will make you stand out. A market segmentation analyst's main responsibilities include:
Collecting data about the target audience
Analyzing that data to identify trends and insights that will help the company better understand its customers
Using these insights to create campaigns to increase customer sales, retention, and loyalty
A marketing degree with a focus on data analysis can be particularly useful to learn more about market segmentation. The marketing degree you choose should cover the following:
Marketing communications is the process of communicating information about products, services, and brands to customers. Marketing communication requires various methods to inform consumers about products, including advertising, PR, sales, and promotion. As a marketing student, you’ll learn how to create marketing messages intended for specific audiences and then deliver those messages through various media.
In marketing management, you’ll learn to develop strategies for products or services. You’ll cover coursework about how to advertise, manage a marketing team, and sell to desired customer segments.
Marketing is all about data. Marketers collect as much data as possible about their target audience to sell their products or services better. In your marketing degree program, you should learn how to gather and analyze different types of data to help you make smarter product development and marketing decisions. You’ll need to interpret this data and use it to increase sales and profits.
The MBA is not specifically tailored to any career path, but rather designed to allow you to learn and apply a set of business management strategies that are applicable across many different fields. An MBA, combined with market segmentation professional certificates, can be an excellent route to a well-paid job.
Read more: Master's in Marketing: A Guide
Professional certificates are a great way for you to learn about the latest marketing trends without committing to a full degree program. To learn more about digital marketing, consider the Digital Marketing Specialization offered by the University of Illinois or the Meta Marketing Analytics Professional Certificate offered by Meta.
Glassdoor. “ Product Manager Salaries , https://www.glassdoor.com/Salaries/us-product-manager-salary-SRCH_IL.0,2_IN1_KO3,18.htm.” Accessed January 25, 2023.
Glassdoor. “ Segment Marketing Manager Salaries , https://www.glassdoor.com/Salaries/us-segment-marketing-manager-salary-SRCH_IL.0,2_IN1_KO3,28.htm?clickSource=searchBtn.” Accessed January 25,2023.
Glassdoor. “ Brand Manager Salaries , https://www.glassdoor.com/Salaries/us-brand-manager-salary-SRCH_IL.0,2_IN1_KO3,16.htm?clickSource=searchBtn.” Accessed January 25, 2023.
Glassdoor. “ Digital marketing Manager Salaries , https://www.glassdoor.com/Salaries/us-digital-marketing-manager-salary-SRCH_IL.0,2_IN1_KO3,28.htm?clickSource=searchBtn.” Accessed January 25, 2023.
Glassdoor. “ Content marketing Specialist , https://www.glassdoor.com/Salaries/us-content-marketing-specialist-salary-SRCH_IL.0,2_IN1_KO3,31.htm?clickSource=searchBtn.” Accessed January 25, 2023.
Glassdoor. “ Marketing Analyst Salaries , https://www.glassdoor.com/Salaries/us-marketing-analyst-salary-SRCH_IL.0,2_IN1_KO3,20.htm?clickSource=searchBtn.” Accessed January 25, 2023.
This content has been made available for informational purposes only. Learners are advised to conduct additional research to ensure that courses and other credentials pursued meet their personal, professional, and financial goals.
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How to Write a Business Plan: Target Market Analysis
The Business Plan and the Importance of Defining Your Target Market
Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.
Conducting a Market Analysis
Polling your target market, writing the market analysis, online tools for market research, u.s. online market research sources, canadian online market research, local sources of market research, doing your own market research.
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The market analysis is basically the target market section of your business plan . It is a thorough examination of the ideal people to whom you intend to sell your products or services.
Even if you intend on selling a product or service only in your community, you won't be selling that service to everyone who lives there. Knowing exactly what type(s) of people might be interested in buying your product or service and how many of them reside in your projected area or region is fundamental in creating your market analysis.
Once target market data has been established, you'll also work on sales projections within specific time frames, as well as how prospective sales might be affected by trends and policies.
Research is key and cornerstone of any solid business plan .
Don't Skip This Step!
Don't skip market research; otherwise, you could end up starting a business that doesn't have a paying market.
Use these general terms as linchpins in research data for the market analysis section of your business plan, and to identify your target market:
But don't stop here. To succinctly define your target market, poll or survey members of your prospective clients or customers to ask specific questions directly related to your products or services. For instance, if you plan to sell computer-related services, ask questions relating to the number of computing devices your prospective customers own and how often they require servicing. If you plan on selling garden furniture and accessories, ask what kinds of garden furniture or accessories your potential customers have bought in the past, how often, and what they expect to buy within the next one, three, and five years.
Answers to these and other questions related to your market are to help you understand your market potential.
The goal of the information you collect is to help you project how much of your product or service you'll be able to sell. Review these important questions you need to try to answer using the data you collect:
- What proportion of your target market has used a product similar to yours before?
- How much of your product or service might your target market buy? (Estimate this in gross sales and/or in units of product/service sold.)
- What proportion of your target market might be repeat customers?
- How might your target market be affected by demographic shifts?
- How might your target market be affected by economic events (e.g. a local mill closing or a big-box retailer opening locally)?
- How might your target market be affected by larger socio-economic trends?
- How might your target market be affected by government policies (e.g. new bylaws or changes in taxes)?
One purpose of the market analysis is to ensure you have a viable business idea.
Find Your Buying Market
Use your market research to make sure people don't just like your business idea, but they're also willing to pay for it.
If you have information suggesting that you have a large enough market to sustain your business goals, write the market analysis in the form of several short paragraphs using appropriate headings for each. If you have several target markets, you may want to number each.
Sections of your market analysis should include:
- Industry Description and Outlook
- Target Market
- Market Research Results
- Competitive Analysis
Remember to properly cite your sources of information within the body of your market analysis as you write it. You and other readers of your business plan, such as potential investors, will need to know the sources of the statistics or opinions that you've gathered.
There are several online resources to learn if your business idea is something worth pursing, including:
- Keyword searches can give you an overall sense of potential demand for your product or service based on the number of searches.
- Google Trends analysis can tell you how the number of searches has changed over time.
- Social media campaigns can give you an indication of the potential customer interest in your business idea.
The U.S. Small Business Administration (SBA) has information on doing your market research and analysis , as well as a list of free small business data and trends resources you can use to conduct your research. Consider these sources for data collection:
- SBA Business Data and Statistics
- The U.S. Census Bureau maintains a huge database of demographic information that is searchable by state, county, city/town, or zip code using its census data tool . Community, housing, economic, and population surveys are also available.
- The U.S. Department of Commerce Bureau of Economic Analysis (BEA) has extensive statistics on the economy including consumer income/spending/consumption, business activity, GDP, and more, all of which are searchable by location.
The Government of Canada offers a guide on doing market research and tips for understanding the data you collect. Canadian data resources include:
- Statistics Canada offers demographic and economic data.
- The Business Development Bank of Canada (BDC) offers market research and consulting with industry experts.
- The Canada Business Network provides business information to entrepreneurs by province/territory, including market research data.
There are also a great many local resources for building target market information to explore, including:
- Local library
- Local Chamber of Commerce
- Board of Trade
- Economic Development Centre
- Local government agent's office
- Provincial business ministry
- Local phone book
All of these will have information helpful in defining your target market and providing insights into trends.
The above resources are secondary sources of information, in which others have collected and compiled the data. To get specific information about your business, consider conducting your own market research . For instance, you might want to design a questionnaire and survey your target market to learn more about their habits and preferences relating to your product or service.
Market research is time-consuming but is an important step in affording your business plan validity. If you don't have the time or the research skills to thoroughly define your target market yourself, hiring a person or firm to do the research for you can be a wise investment.
Small Business Administration. " Market Research and Competitive Analysis. " Accessed Jan. 13, 2020.
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5 Types of Market Segmentation with Examples
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You’ve invested a large amount of money and much time into an efficient marketing strategy, and you really hope your message resonates perfectly with your potential customers. Is it right?
This is the reason why market segmentation is important. This practice enables you to concentrate your marketing efforts on each customer segment so you can better satisfy their demands. Your brand can leverage this method to combat your competitors as you show your potential customers that you understand them and apprehend what they need.
Therefore, to know more about What is Market Segmentation? 5 Market Segmentation Examples that will Inspire You , please read on.
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What is market segmentation?
Market segmentation is the process of classifying a market of potential customers into small groups or segments based on multiple features significant to you. In a group, customers share the same characteristics and react similarly to your messages.
The aim of segmentation is that you are capable of introducing a more tailor-made message that will be accepted successfully. This is beneficial for organizations that have a product or service in the marketplace that shows off different uses for different groups of customers.
Market Segmentation based on business types
So what criteria can we base on to implement market segmentation? Here are the two criteria we want to introduce to you:
Except for professional customers or prosumers, customers are often more sensitive to price and tend to come up with an impulsive decision. Segmentation of these types of consumers shows their purchasing habits.
B2B purchasers are a different type. They are not sensitive to price. As your products can save the business money and time or make money, then it’s worth it. Price is just a secondary factor.
They will consider how much it impacts on their workflow and how difficult it is to carry out.
5 Types of market segmentation and examples
Demographic segmentation is the easiest and the most popular applied type of market segmentation. Organizations utilize it to form broad segments of the population in terms of age, gender, location, religion, family size and so on.
These are typically black and white groups that provide you a profile of whether or not someone can purchase your products. For instance, if you offer a product for people 21 and beyond, then those who under that age would not be for you.
Correspondingly, products for men usually won’t be relevant to women unless you offer it as a gift.
Behavioral segmentation involves the way people decide over time or react to stimuli. For instance, the method that a business uses during Christmas time will differ from the rest of the year.
They recognize that people are more receptive and may be willing to make bigger orders. Younger generation and athletes would love brands like Jordan and Air Max whereas older people would vote for brands like New Balance.
As its name, the market segmentation type divides people into different groups based on their physical location. This type may be helpful for your company as the demands of your consumers are different from area to area.
For instance, people living in the countryside wouldn’t need a subway but those who work in the city would.
It’s also possible for you to use geographic segmentation to bring special deals to your potential consumers. Besides, you can use it to acclimate the language and tone of your messages.
In Georgia, people would consider soda as coke until you ask several questions. In Chicago, every soda is called pop.
Psychographic segmentation is used to form groupings based on customers’ lifestyles, interest and activities. Demographic segmentation shows you someone is a younger male, while psychographic segmentation tells you they go to the cinema on the weekends.
This type of segmentation indicates what customers do and why they purchase. It is quite similar to behavioral segmentation, but there exists a difference.
Behavioral segmentation lets us know that this demographic segment buys paper straws. Psychographic segmentation tells us this demographic segment buys paper straw because they can be recycled and the buyers are environmentally conscious.
Lenovo collaborated with Newstar, carried out market segmentation, and built personalized banners on their homepage that boosted click-through rates by 30% and conversion rates by 40%.
This type of market segmentation refers to analyzing and grouping business-to-business audiences and customers according to similar features that are important to your business. The way a firmographic grouping will search for one company may differ from the way it searches for another company.
Does this mean one organization is compatible with their firmographic segmentation and another is not?. No, it just means their KPIs are different from each other. For instance, a domestic brand may divide their leads based on location and these locations are north, south, east and west. Meanwhile, an international brand may also divide based on location, but their groups are Asia, Europe, South America, North America, Australia and so on.
Firmographic segmentation can have an effect on the way you access potential customers, the information you push forward as advantages, and the solutions being recommended. For instance, if you have an accounting solution that can be suitable for small businesses and enterprise customers, you would not use the same method to access them.
For small businesses, you can implement paid ads and try to achieve direct sign ups. For enterprise clients, you may concentrate on lead generation, demos, and create tailored solutions to satisfy their demands. Firmographic segmentation provides you with the insights to come up with those decisions.
Examples of successful market segmentation business
The automobile industry can be a good example of market segmentation. Every person needs a car to travel. However, is traveling from one place to another is the one and only “need” on the basis of which brands market their products? Then why are there a lot of various makes, models and versions from one single company?
This is because purchasers mainly need private and convenient transportation. Nevertheless, there are some other considerations that people want to make. Some people want to buy a large and spacious car to have enough rooms for family members. Some may wish to own vehicles with strong power and high speed. And even others purchase a car as a status symbol.
Automobile companies totally understand how to identify and make use of these differences.
Regarding the Volkswagen Polo, what will spring to people’s minds would be some attributes such as robust, affordable and hatchback. But do you know the Volkswagen group produces Audi , Lamborghini and the Porsche among others?
Volkswagen has some different characteristics for different customer groupings. It can be trustworthy to some and elite to others. It has boosted the science of clustering purchasers with the same demands and invents a focused marketing mix for every cluster to position its vehicles as the perfect choice in the market.
Victoria’s Secret deals are creating and marketing women lingerie and beauty products. They concentrated on women and “women” is the main market segment in their marketing campaign. Applying demographics segmentation, this company is also classifying their target market with product differentiation as PINK for adolescent girls.
The company Victoria’s Secret also uses geographic segmentation to serve their customers not only in America but also in the UK and Europe. They currently own more than a dozen stores.
Victoria’s lingerie brand is available in nearly 75 countries with about 1000 stores worldwide. It also owns 990 sales points in the USA. In addition, this company developed geographical segments to China in the lingerie market.
Moreover, as an example of psychological market segmentation, Victoria’s Secret also grouped its consumers according to women’s personalities and self-confidence. Victoria is growing towards a sexy, fashionable and open-minded trait.
Furthermore, in behavioral segmentation, this company has loyal consumers because Victoria makes them feel alive and self-assured. Clients buy Victoria lingerie product lines for prestige and they also go for this brand during birthdays and holidays.
In demographic segmentation, Coca Cola company aims to serve youngsters from 15 to 25 years old. This organization creates income level groups including different packing, for instance, returnable glass bottles, plastic bottles and tins with various pricing programs.
Using geographic segmentation, Coca Cola has many customer groups in different regions such as Asia Pacific, North America, Latin America, Europe, and Eurasia and Africa.
Besides, Coca Cola is considered a great example of psychographic segmentation. They created Diet Coke for those who are health conscious, offered a number of energy drinks for those who need energy particularly in sport, and also provided Real Gold for busy people in offices.
Plus, in behavioral segmentation, Coca Cola consumers are classified into segments on the basis of their knowledge of, attitude toward, use of and response to a product. Coca Cola buyers can be recognized according to occasions such as weddings, festivals or birthdays. Sometimes, to promote Coke - a drink to quench thirst and to refresh, the company includes prizes in the top cover.
Apple has divided the overall electronics market into mainly early adapters and wealthy market groupings.
Wells Fargo and JP Morgan
The bank industry is another great example of market segmentation. Both Wells Fargo and JP Morgan are large banks with a variety of different products that request market segmentation to best market them individually.
What are the benefits of market segmentation?
Segmentation marketing was invented to serve one main goal: increase ROI
With the aid of customer segmentation and personalized marketing strategies, organizations decrease the risk of implementing campaigns to uninterested customers. This improved campaign effectiveness concentrates resources on more ROI-generating efforts. Now we’ll look deeper to see how it exactly works.
Boosted competitiveness and market expansion
By concentrating on a certain subset of potential customers, your competitiveness in that market group naturally accelerates. If you’re concentrating mainly on retired seniors, investing much time and a lot of resources into them, your brand recall and brand loyalty are probably to be enhanced, knocking out other competitors.
Your market share can also rise by concentrating on specific market segments. For example, with a geography-based market campaign, you can begin market your products to San Francisco, then the bigger bay area, and consequently the state of California.
Enhanced time and money efficiency
If you launch marketing campaigns tailored particularly for distinct groups, you are able to prioritize consumer segments that are likely to get involved and convert. By putting more conversion efforts on them, rather than distributing resources evenly throughout all segments, tie and money are spent more effectively.
Better relationships and customer retention
The process of market segmentation refers to continually learning more about your customers so you can better satisfy their demands. The more you understand them, the stronger your interaction and your relationship with them becomes.
Closer relationships make it more difficult for them to leave you - improved customer retention . As you implement customer segmentation to track their changing situations - they age, have families, change jobs, grow more interests, have more purchasing patterns - you can certainly market to them. By offering products and services that intrigue consumers at different life stages, you are able to keep customers who might switch to your competitors.
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Market Segmentation can help your business to target the right audience and the right goals. You can understand more about your customers, see how to better approach them and find new markets to expand.
If you feel it’s hard to have the exact data and implement it in your business, hope that the 5 Market Segmentation Examples can be useful. Let us know how you’re implementing Market Segmentation in the comment box or leave any questions you have.
Thank you for your time. Have a nice day!
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