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Managing your money

Market Segmentation Part 1 – understanding your client and what they want

Not all clients are created equal. Every possible business or person that may require your services has different motivations, circumstances and budgets. This means it is impossible to provide a service to every client that fits their requirements perfectly. But should you try to? And how can you know which potential customers you should target?

Market segmentation is a way to better know your client base and their needs. Through understanding your ideal market segment you can better look after your existing clients as well as successfully target new ones.

What is market segmentation?

First of all, let’s define a market. A market is a total group of people or businesses that have the desire and ability to purchase a product or service.

The market that’s relevant to your business depends completely on the type of goods you sell.

For example, if you sell gym memberships in London, your total market is the number of people who can afford a gym membership, are interested in exercising and live in London.

A market can be broken down into different segments.

Market segments are groups of customers within the total market who share characteristics. They have the same motivations for purchasing a product or service.

Market segmentation, also known as customer segregation, means splitting customers into different groups based on their characteristics. There are three main types of criteria that you might segregate your groups by:

Demographic characteristics

Demographic characteristics usually refer to easily measurable socioeconomic states.

B2B demographic characteristics could include company size, industry and role, while B2C factors include socioeconomic status, age, gender and marital status.

Psychographic characteristics

Psychographic characteristics divide the market by principles such as lifestyle, values, social class, and personality.

Again, this can be split into B2B and B2C! An example of B2B psychographic characteristics may be how willing a client is to spend money. So you could segment your market by grouping clients by different budgets – budget conscious, high spenders, medium spenders, etc.

Behavioural characteristics

Behavioural segmentation is the practice of dividing consumers into groups according to their previous behaviour.
Examples are: usage, loyalties, awareness, occasions, knowledge, liking, and purchase patterns.

You could use this type of segmentation to send repeat customers a specific message via advertising, whilst sending a different message to prospective customers who have yet to work with your company.

In B2C companies, a common way to segment is on occasions. For example, if a customer has a pattern of spending on Black Friday then they might be more interested in receiving Black Friday deals than a different customer who never purchases at that time of year.

What are the advantages of market segmentation?

By segmenting your market and targeting sales and marketing efforts to a specific group, you avoid wasting marketing budget. It’s a way to make sure that you’re only putting effort towards clients who are likely to find what they are looking for with your company.

Marketing campaigns can be tricky for smaller accountancy firms. This is often because they make the mistake of going for mass appeal – trying to appeal to the whole market. Market segmentation allows you to focus on what you do well – for example you don’t want to spend your time (and marketing budget!) working with a construction business if you have no experience in that field.  It’s important for you to know what you’re good at and therefore know the type of audience that your services will appeal to.

Focusing on a particular niche yields a higher success rate than mass appeal. It also gives you a competitive advantage as potential clients will see you as an expert in that niche.

Market segmentation separates your existing and prospective clients into groups that share the same needs, desires and budgets. You can then specifically target each of these groups in your marketing. This approach is cost effective and time efficient, delivering specific and focused messages. It also allows your marketers to be more relevant and to produce messaging that will resonate well with your desired target market.

Segmenting will help you to identify which type of clients are more or less lucrative. Your sales team can then use this to pursue only the higher percentage opportunities.

Segmenting your market and becoming selective about the customers you approach also allows you to reduce credit risks by identifying and eliminating clients or markets which cause credit issues.

Watch out for Part 2 coming soon – a step-by-step guide to market segmentation for accountants!

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