How to use market segmentation to your advantage

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“You can have any colour as long as it’s black” — those were the famous words spoken by Henry Ford when he offered the Model-T Ford for the first time.
This is mass marketing. Coca-Cola also did this initially when it sold only one kind of Coke in a 6.5 ounce bottle.

The argument for mass marketing is that it creates the largest potential market which leads to the lowest costs which, in turn, can lead to lower prices or higher margins.
However, this approach has its many critics that claim mass marketing is dying. Segmentation of your market is now considered best practice where a “flexible market offering” is required.

This should consist of two parts — a naked solution containing the product or service element that all segment’s members value, and discretionary options that only some segment’s members value.

You can segment your market in many different ways, and the trick is to identify which way is best. For example, you may have geographic segmentation (ie, by location), or demographic segmentation such as age, gender or income, or perhaps psychological segmentation which is based on values, lifestyle or personality traits.

If you have developed a business plan you would firstly have identified just what business you are in. Most important!
Once that is established (and this can change, based on market conditions), you need to identify your target market. This is where segmentation is important. Once you have done this you can then develop a marketing plan to seek opportunities to sell your services.

You may be fortunate enough to get through these tough times relying on word of mouth or referrals. If not, it will be essential for you to decide how you will go about generating forward work by marketing yourself to your target market.

For any segmentation to be effective it should meet certain criteria, namely:
• Measurable — the characteristics of the segments can be measured or defined;
• Substantial — the segments are large enough and profitable to service;
• Accessible — the segments can be effectively reached and served;
• Differentiable — the segments are distinguishable and respond differently to different marketing-mix elements and programmes; and
• Actionable — effective programmes can be formulated for attracting and serving the segments.

At the Federation our business plan recognises very clearly that we are in the business of providing members with benefits.
Traditionally we have always segmented our membership demographically, ie, based on income, but now realise that this alone is insufficient as it does not meet the necessary criteria.
Our naked solutions are not all equally valued by our members, and our ability to develop discretionary options is limited due to our current approach.

Relevant membership segmentation

Accordingly, we have decided it is necessary to explore changing this and introducing more relevant membership segmentation that accurately reflects our market.
We are fortunate in that we have what are known as “clustered preferences” where natural market segments exist (believe me, many marketers would kill for such a thing).

These natural market segments reflect those that the RMBF is proposing. They meet all the criteria mentioned above, and provide a real opportunity going forward by allowing us to identify members’ needs and provide you with the benefits that, in turn, give you a competitive advantage.

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