What is Product Segmentation?
According to one of the best definitions of product segmentation available at smallbusiness.chron.com, “Being all things to all people isn’t always the best business strategy. Sometimes, channeling slight variations of different products and services to different groups of your customer base helps to increase market share, improve revenues and reduce costs. This differentiation process is called “segmentation,” and when done to products, it can lead to several slightly different product lines geared toward dissimilar target markets. The core theory of product segmentation is that a company can produce a single product with relatively minor variations, market it to different customer groups — sometimes under different brand names — and thereby increase market share while reducing the cost of developing radically different products. Segmentation relies on market research to identify the product characteristics that resonate with target markets. Product development engineers then provide different iterations of the same basic model that meet the preferred traits for each market segment.” Moreover, “Product segmentation proliferates at large enterprises. For example, General Motors segments its products into different brands — Chevrolet, Buick, Hummer, Cadillac — that are aimed at different socioeconomic groups. Although most of the parts in these different brands are interchangeable, thus saving GM money, the marketing strategy differs. Likewise, smartphone manufacturers segment their products. Apple’s iPhone and Samsung’s Galaxy class Android phones come in different models — different storage, different features, different price.”
Why Do I Need Product Segmentation
Again, according to smallbusiness.chron.com, “Product segmentation provides a mechanism for a company to distribute the risk of selling a high-cost product across different target markets. Instead of having one product with one market and one supply-and-demand curve — essentially putting all of the manufacturer’s eggs in a single basket — the manufacturer can sell sister models of the product at different prices to different market segments. Even if one segment reacts poorly, another segment may respond better than expected. In addition, segmentation allows for economies of scale. Although there are differences associated with manufacturing toasters, for example, it’s easier for a company to sell five different types of toasters than to sell one type of toaster, one type of dishwasher and one type of foam-rubber action figure. The goal of a well-executed product segmentation strategy is to sell more products to more people at lower marginal production costs. As sales progress, marketing professionals can evaluate the profitability of individual items within the product family to identify opportunities to discontinue specific products or to further refine the segmentation model. If a particular product outperforms expectations, marketing analysts can learn what worked and apply the lessons to other products.”
Why Choose Competitive Analytics to Conduct Product Segmentation?