How to determine which market segment is your optimal target segment.

As I have mentioned before in previous pots, making business decisions (related to business development and marketing) based solely on intuition and guesswork is not ideal. Doing so can get you into some unfavorable situations and cost your company big time! It is always best to utilize evidence-based and data-driven approaches to base your decisions on.

When deciding the best target market and market segments, the advice is the same… use the data to guide you. One way to be able to determine the best segments is to gather insights from a Cluster Analysis. This form of data analysis can be performed by a marketing research firm that you hire to conduct primary and secondary research for business, or if you’ve completed a Marketing program then you would have likely learned how to do this form of analysis.

Without getting too technical, a Cluster Analysis enables better segmentation because it takes data that is gathered from primary and/or secondary research on your target market and statistically calculates how many segments you should divide your market into, and it also helps you to determine which segments you should focus your marketing efforts on. The statistical calculations are based on variables you select, i.e. the factors that you asked your respondents about or the data you already have about your respondents such as demographics and consumer behaviors like the importance of price, loyalty, purchase frequency, willingness to switch brands, etc.

The output of the cluster analysis provides information on each segment including averages for each variable and provides a Sum of Squared Error (SSE) that tells you how similar your customers are within each segment. This, therefore, enables you to make better marketing decisions because more homogenous segments would be likely to respond in very similar ways to your marketing approaches.

In a nutshell, what this means is that cluster analysis the antithesis to throwing mud (random marketing tactics) at the wall (your entire target audience) and hoping that something sticks.   

Check out last week’s post

Why Consumer Behavior Research is important for decision making.

This Post Has 2 Comments

  1. Magda Becker

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    1. Jewel

      Thank you! I appreciate the feedback.

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