Segmentation – an Integral Part of Market Research

Segmentation – an Integral Part of Market Research
June 5, 2014 Kabir Raja

Do you want to secure active loyalty from your customers? Well! You need to develop strong relationships that truly fit the needs of your customers. However, different customers have different needs which can be driven by different factors including demographics, attitude or product/service needs. But how do you understand their needs and wants? Segmentation market research helps to accomplish this task by targeting needs, wants and attitudes more effectively, enhancing customer loyalty and maximising profits. Segmentation is an effective marketing tool to understand complex categories of customers in an existing or emerging market.

Why do you need segmentation in market analysis?

Segmentation is used to determine the following factors within a market:

Understanding customer behavior

It is often found that a few companies fail to retain their customers. So how do they identify ways to preserve them? Market analysts segmented the former customers based on their attitude and found that distinct groups who perceived the service differently had distinctive motivation to turn to the competition. For instance, some customer were satisfied with the service, but left because of the better deal offered by the competitors, while others were extremely unhappy with the service and therefore decided to switch to gain better service.

Understanding different level of services require

Not all customers want the same type and level of services when they purchase a product. Analysts segmented the customers on the basis of their needs and found that customer needs are sometimes based on their personal choices. Some of them require a ‘hand-holding relationship’ that indicates consistent contact through phone or frequent meetings with the service representatives while a few other customers want to maintain formal relationship with the representatives. This means they would only call them when needed.

Evaluating the emerging market

Segmenting the emerging market enable marketers to identify the potential target markets within the wider market and understand how best to approach the consumers. So, when the market researcher segmented the emerging market, including both the users and the potential users for a particular category, they found that different users have different attitudes towards a product or service. Also they have different unique uses for a particular product and service.

What are the different types of market segmentation that analyst can use?

Usage segmentation

There are two methods to carry out usage segmentation. To begin with, customers are divided according to their weight of use- heavy and light users. The segmentation is carried out directly on customer database and can be helpful in focusing activity based on the value of the business and not just the number of contacts. Secondly, the usage is used in terms of time and place. For instance, a restaurant might serve sandwiches at lunch but main meals in the evening because the consumers are demanding for different things.

Needs-based segmentation

Needs-based segmentation is the clustering of customers according to common sets of needs and purchasing behaviours. This type of segment is typically the most actionable forms of segment as they directly reflect and predict the existing market share. The approach helps get to the heart of what your customers want and how to differentiate your offers to them as used by Redshift Research. With needs-based segmentation, a supplier is able to clearly communicate based on the buyer’s needs. By understanding what elements are key drivers for individuals, specific requirements of the consumers can be identified and most importantly met.

Cluster analysis

Cluster analysis is used to assign observations to groups and see that observations within each group are similar to one another with respect to variables or attributes of interests. The primary purpose is to divide the observation into homogenous and distinct groups. Cluster analysis seeks to discover the number and composition of the groups. The analysis embraces variety of techniques. For instance, this approach is used in revising a questionnaire on the basis of the responses received to a draft of the questionnaire. Grouping of questionnaire by means of cluster analysis helps to identify redundant questions and reduce their numbers. Therefore, it improves the chances of a good response rate to the final version of the questionnaire. The aim of this analysis is not just to comprehend common opinions, but also to understand what factors make one group of users different from another.

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