Wednesday, November 23, 2016

How to Improve Financial Performance Through Market Segmentation

Companies decide whether or not they want to focus on market segmentation  or try and create a broad based marketing approach that nets as many customers as possible. Organizational performance is often dependent on the strategic approach the company takes. Effectiveness and productivity concerns revolve around 1.) links between segmentation, performance and measurement and 2.) productivity gains from full segmentation implementation (Dibb & Simkin, 2009).

It can be hard to determine whether higher performance can be realized simply by focusing on a specific market segments. The right kind of metric measurements will need to be developed that ensure improvements are fully realized. This requires a level of research and analysis to pull off well and understand where one should focus their efforts.

Let us assume for a minute that 60% of a businesses customers make purchases for $15 but 40% make purchases around the $45 dollar mark. Further analysis shows that the lucrative $45 purchase price customers have some similarities in characteristics that can be defined into a lucrative segment. Pushing to gain high value customers has an influence on investment returns.

Not only will the marketing approach need to change, but the very way the business conducts its daily operations will also need to change to improve performance. Just about everything the company promotes and offers should adjust towards serving its most lucrative customer base. As the company becomes skilled in meeting new objectives they should be able to reap more of the financial rewards.

Segmentation should be considered carefully as changing customer base can cause issues with brand image. Sometimes the market is too small and at other times the company has a value proposition such as cost effective manufacturing but can switch its operations to follow broad trends. Each company is unique and carries their own strengths, weaknesses, opportunities and threats.

How to Improve Your Market Segmentation:

-As yourself essential questions of what your product/service actually offers as a value proposition.
-Research the customer demographics that are most likely to purchase that product/service on a regular basis.
-Determine the most likely channels that will reach those customers
-Align your business operations to better serve the need of those customers and raise your business's value..

Dibb, S. & Simkin, L. (2009). Editorial: bridging the segmentation theory/practice divide. Journal of Marketing Management, 25 (3/4).