People are key to marketing because they are the decision makers who purchase products, and they do not purchase products in similar amounts. Different people with different cultures, social factors (e.g. family, social class), personal factors, and psychological factors value products differently and buy different products. In fact, according to the Pareto principle, the top 20% customers of a business account for 80% of the business’s sales. Hence, it is important to divide people into market segments of people/organizations with similarities in their problems/desires, ability to purchase, and willingness to purchase the product at a profitable price (segmentation) and then offer products to those segments with the biggest problems/desires as well as the ability and willingness to purchase (targeting).
Segmentation involves researching and identifying profiles of people with similar geographic, demographic, psychographic, and behavioural attributes who have similar needs/wants related to our product, and the ability/willingness to purchase your products. This profiling helps in targeting potential customers and in identifying what changes to make to your product if and when you decide to target different segments.
Identifying relevant needs/wants requires a deep understanding of the product’s value proposition by answering the following questions before starting the segmentation process:
- What is the problem this product addresses?
- Are the customer’s needs functional or psychological?
- What could the product be used for?
- How could the product be used?
- What are the product’s characteristics?
After gaining insight into the product’s value proposition, you should research how people’s different attributes influence their perception of value in the product and their buying habits. Here is a list of attributes to consider. Finally, the validity of segments generated must be evaluated according to whether these segments are measurable, substantial, accessible, differential, and actionable.
Targeting involves market research with the goal of identifying a few target segments who need/want the product the most and have the most ability/willingness to purchase the product. Needs and wants are evaluated by identifying the top use of the product, who most values the product, who uses the product the most, who purchases the product the most, and the buying habits of the purchasers: their rituals, caretaking responsibilities, and tendency to buy gifts. It is especially crucial for start-ups to target a single segment that would help them achieve their short-term and long-term goals.