The Importance of Market Segments

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The Importance of Market Segments

The Importance of Market Segments

by John McMillan

© 2007 All rights reserved

The Importance of Market Segments

The Importance of Market Segments
Successful companies almost all have a significant market share; it is rare for more than three or four companies to be truly successful in any segment of the mar ket. It is not unusual for one company to dominate with every other company trying to catch up. Consider some examples.

There are around three really successful supermarkets in the UK, with Tesco dominating
Software is dominated by Microsoft and Google.
BMW, Mercedes and Audi dominate the market for executive cars For many years. the US car market was dominated by just Ford and General Motors with American Motors trailing
There are a number of reasons for this:
A dominant supplier controls the market and sets expectations of price and quality He develops a reputation and brand, he is highly visible
There is a “comfort factor” in buying from a market leader Customers come to him first
Marketing becomes very much easier if you are a big player in your mark et place. It you are not, you will always struggle to be seen.
This is all very well for very large companies. But unless you are a Microsoft or Ford, you won’t be able to dominate sales to the whole world, you can only ever end up with an insignificant market share.

Specialise
It is often said that it is better to be a relatively big fish in a small pond than a small fish in a big pond and the way to achieve this is to shrink your target market. You should specialise on a particular sort of customer. This is called segmenting the market. When you do this, it is much easier to become known and develop a reputation. You can concentrate your marketing activities. Referrals are both easier and more effective. You learn the special needs or desires of your customers.

So, how do you select your segment?
To be useful, a segment must be:
Different
Relevant
Significant

© 2012 All rights reserved

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The Importance of Market Segments

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Difference
Difference is what really defines the segment. There are any number of ways to define a segment. Some of the commonest ways are:
Geographic
(e.g. a town, county or region)
Industry or profession
Consumer interest
(e.g. discotheques, koi carp, classic cars)
The most suitable segment will depend on the type of business of the supplier. Businesses like shops or restaurants mostly sell to customers within a certain area and geographical segments work well for them. Other businesses like manufacturing or design are often more successful when they sell to a specific industry. The terms vertical and horizontal markets are often used – a horizontal market refers to a geographical segment and a vertical market to an industry one. It may help to combine both geographic and industry, for example supplying builders in Hertfordshire, or garages in the Midlands. The important thing is to define a segment of the right size.

There are other ways of defining segments. Size of company is one. Few small companies supply companies of all sizes. Some specialise in selling to very large companies, some to small, some to SMEs, some to the public sector. Price brackets are another. Supermarkets aim at customers in different spending brackets. Waitrose aim at the high end of the market, Tesco for the middle, Aldi and Somerfield for the low end. Supermarkets take the trou ble to attract their target customers and make them feel comfortable in the stores. Garages sell cars within price ranges, some sell new cars and second hand ones less than three years old, others sell cars from two to five years old, others sell cars costing less than £3000. The clothing industry tends to segment customers by age.

It is possible to break an industry or product type into further segments. The car market is a good example of this, there are several segments...
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