Let’s Start With Market Segmentation!

Market is heterogeneous. This implies that it includes all those people who share the characteristics of an ideal buyer, but in reality they may not be the potential buyers. For instance, when a product is being developed for the first time, its purpose and features may resemble the demands and expectations of a certain class or group of people. But in reality, this group may not exist in society and even if it exists, it may not be restricted to a certain place or region as such. People  relocate more often nowadays and this has resulted in a distribution that may not have uniform patterns. Hence there is a need to look out for this ideal population and group them in order to identify appropriate means to reach them. In other words, there is a need to create homogeneous subsets of the market and position the product accordingly for best response.

Consider BMW X3 Luxury cars priced between INR 38, 00,000 and INR 44, 00,000. It is targeted at high-end market and in particular those who give preference to style and elegance in cars. Tata Nano is the world’s cheapest and eco-friendly car offering good mileage and has been targeted at a normal man with simple preferences and families. The ideal buyers have been described while describing the vehicle itself, but how do you identify them in a crowd.

Generally Market segmentation involves analyzing consumer-product relationships by studying geographic, demographic, socio-cultural, cognitive, behavioral or combined factors influencing people and their buying trends. Once these segments have been identified, individual segments are studied for the benefit that the consumers are seeking by using certain other products that are already available in market to arrive at satisfaction of consumption. Sometimes psychographic segmentation maybe required to understand what benefit best satisfies the group of consumers.

Let us try and look at it from Software product perspective. The most debated issue continues to be which OS to use, AntiVirus toolkit to use, ERP, CRM, etc. Assume the product being considered is an ERP product. What are the basic questions to ask before starting with segmentation? Perhaps, we could start by understanding the size of organizations that it can address, the nature of business models supported, provision for different processes to integrate such as marketing and sales support, customer transactions, payroll, and other related processes, nature of up-gradation required (is it elaborate or simple) and the extent of integration supported in certain business processes.

Based on these factors the offerings of the product can be decided. Once this is done market can be segmented based on the product features and best segment to target can be chosen. Based on these two choices a market mix can be designed in the next step.