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What is the role of market segmentation in product development?

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Market segmentation is the process of dividing a large and diverse market into smaller and more homogeneous groups of customers who share similar needs, preferences, or characteristics. It is a key tool for product development, as it helps you identify and target the most profitable and attractive segments for your products. In this article, we will explore the role of market segmentation in product development and how it can help you create better products that meet customer expectations and solve their problems.

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Rafik Zahy

Business Development Director| IFC Certified Corporate Governance Director | Board Advisor| Global Product…
Dr. Badur elgasim mohamed

PhD-FCIM-CPM-CBP-EFQM-Marketing Expert- Business Development Expert| Sales Expert |Professional Trainer|- -
Alena Belikova

Global ecommerce business strategy | Product growth and development | International markets launch and expansion |…

1 Benefits of market segmentation

Market segmentation can help you achieve several benefits in product development, such as improving customer satisfaction and loyalty, enhancing your competitive advantage, increasing your profitability, and optimizing your resources and costs. By offering products that match customer needs and preferences, rather than generic ones, you can differentiate your products from those of your rivals and position them uniquely in the market. Additionally, you can focus on the segments that have the highest potential for growth, revenue, and retention while avoiding unprofitable or saturated segments. This will enable you to allocate resources more efficiently and effectively to the segments that are most relevant and responsive to your products.

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Rafik Zahy

Business Development Director| IFC Certified Corporate Governance Director | Board Advisor| Global Product Management|B2B Expert| Specialty Chemicals| Pharmaceuticals| Ingredients|
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i believe that market segmentation allows businesses to identify untapped or underserved market segments, which in turn enables them to create new products or adapt existing ones to meet the needs of these specific segments. This strategic approach can result in a boost in market share and revenue for businesses. It also helps targeting the Right Audience: Through market segmentation, businesses can pinpoint customer groups that are highly likely to have an interest in their product. This allows them to concentrate their resources and efforts on developing a product that aligns with the preferences and requirements of the target audience.

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Dr. Badur elgasim mohamed

PhD-FCIM-CPM-CBP-EFQM-Marketing Expert- Business Development Expert| Sales Expert |Professional Trainer|- -
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In my experience, market segmentation is more than dividing the market into similar needs regarding the product development. Because product development is continuous process and keep developing with the development of the different segments. So in the market segmentation we should consider the evolving of the target segment aligned with the product development. For example, the radical technology changing reduces the product life cycle and in result accelarate the product development.So when we discuss the role of market segmentation and its impact on product development, we should consider the changing in consumer behaviour, which will shift the customer from segment to another segment.

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2 Steps of market segmentation

Market segmentation involves four main steps: identifying the criteria for segmenting the market, analyzing the market data and research to find out how customers differ, creating segments by grouping customers with similar characteristics and needs, and evaluating the segments by assessing their size, growth, profitability, competition, and alignment with your product vision and goals. It is important to consider demographic, geographic, psychographic, behavioral, or needs-based factors when identifying criteria for segmentation. Additionally, it is essential to ensure that the segments created are measurable, accessible, substantial, and actionable.

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3 Types of market segmentation

When it comes to product development, there are different types of market segmentation to consider. Mass market segmentation is when the entire market is treated as one segment and the same product is offered to all customers. This is suitable for products with universal appeal and low differentiation, such as basic commodities or utilities. Niche market segmentation is when a specific and narrow segment of the market is targeted, which has distinct needs or preferences that are not well served by mainstream products. This works best for products with high differentiation and specialization, such as luxury goods or niche services. Lastly, segment-of-one segmentation is when the product is customized for each individual customer based on their personal data, behavior, or feedback. This works best for products with high personalization and interactivity, such as online platforms or apps.

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Alena Belikova

Global ecommerce business strategy | Product growth and development | International markets launch and expansion | English and Chinese speaker
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Market segmentation in product development is about understanding unique customer needs. It involves demographic, behavioral, and psychographic segmentation. In my experience, this gives a 360-degree view, allowing tailored product strategies and personalized messaging. Demographics cover age, gender, income, and location, while behavior assesses usage, loyalty, and occasion. Psychographics delve into lifestyles, values, and interests. By heeding these segments, product developers craft offerings that resonate, engage, and fulfill specific customer requirements, paving the way for impactful and successful product launches.

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4 Examples of market segmentation

To illustrate how market segmentation can help you in product development, consider the following examples. Netflix uses segment-of-one segmentation to provide users with personalized recommendations and content based on their viewing history, preferences, and ratings. This helps Netflix increase customer satisfaction, retention, and engagement, as well as discover new opportunities. Starbucks takes a niche market approach to target customers who value high-quality coffee, convenience, and social experience, and are willing to pay a premium price. This helps Starbucks differentiate itself from other coffee shops and create a loyal customer base. Toyota employs mass market segmentation to offer a range of products that cater to different segments of the car market. This helps Toyota reach a wide and diverse customer base and maintain a strong market share and reputation.

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5 Challenges of market segmentation

Market segmentation can be challenging, and it’s important to be aware of potential pitfalls and limitations. Choosing the wrong criteria for segmenting the market can result in inaccurate or irrelevant segments that don’t reflect customer needs or behavior. Additionally, relying on outdated or insufficient market data and research can lead to missing important trends, changes, or opportunities. Furthermore, failing to update your segments over time can make your products obsolete or uncompetitive as customer needs change. Lastly, ignoring segments that are not your primary target can cause you to lose potential customers and revenue to competitors who may serve those segments better.

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Alena Belikova

Global ecommerce business strategy | Product growth and development | International markets launch and expansion | English and Chinese speaker
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Market segmentation plays a pivotal role in product development, offering insight into diverse customer needs. However, challenges such as data accuracy, avoiding stereotypes, and evolving consumer preferences can complicate segmentation. From my perspective, understanding and navigating these challenges is key. By embracing accurate data collection and nuanced analysis, businesses can tailor offerings effectively. Remaining flexible and receptive to changing customer dynamics is equally crucial, ensuring that segmented strategies stay relevant.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Dr. Nahid Fawi

Philanthropist | Sudanese | CIM Level 7 | Entrepreneurial Innovator | Marketing Advisor | Agribusiness Consultant | Associate Professor Uni. of Khartoum | Market Research Specialist | SME’s Mentor | CIM Instructor
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Marketers should be aware that markets are unstable, consumer preferences are liable to change specially with Internet dominating each and every day life decisions in addition to global economic fluctuations, all this implies that market segmentation strategies are also changing and hence target segments once chosen will ultimately change. Criteria like demographic segmentation are not the best nowadays to rely on , deeper criteria are needed , to align with product development strategies for the enterprise to stay in market. Well Designed market research should be a continuous attitude for a seemingly perfect segmentation

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What is the role of market segmentation in product development?

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6

1 Benefits of market segmentation

2 Steps of market segmentation

3 Types of market segmentation

4 Examples of market segmentation

5 Challenges of market segmentation

6 Here’s what else to consider

Product Development

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What is the role of market segmentation in product development?

1

2

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4

5

6

1 Benefits of market segmentation

2 Steps of market segmentation

3 Types of market segmentation

4 Examples of market segmentation

5 Challenges of market segmentation

6 Here’s what else to consider

Product Development

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