What Internal & External Factors Affect Market Segmentation?

Market segmentation is the process of identifying specific customers within a broad marketplace that you target with products and promotion. In formulating segmentation strategies, companies have to consider internal factors, such as their abilities to meet the needs of certain customers. You also have to consider external influences that can help or hinder your success in a particular segment.

The ideal market segment is one where the needs of consumers align closely with what your company brings to the table in terms of business philosophies and values and product or service strengths. If you have an ability to develop or deliver high quality products, a market with more income or quality preferences makes sense. If you have low-cost advantages in your operation, a lower-income, budget-conscious market might be your best target.

Your marketing mix often provides a good framework for identifying the best customer segment. Your products or services may lend themselves naturally to certain customer types. Organic, all-natural food sellers, for instance, typically target health-conscious food consumers with moderate to high incomes. Your pricing strategies also impact your target. If you opt for high prices and high margins, you likely need a market segment with more income.

One of the strongest external factors that impacts your ideal target market is the level of competition. When comparing the benefits of offering your goods to two different market segments, the marketplace with fewer existing competitors often makes the most sense. However, customers in some industries rely on a few major providers that already control much of the market. In this case, you may want take a niche approach and offer distinct products to an under-served customer base.

Accessibility is another key issue in segmentation. While the Internet has helped in targeting broader geographic segments, you have to consider your ability to economically market to and distribute goods to target customers. Your local business may want to target geographic segments beyond your local marketplace, but the costs and logistics in getting your goods in front of customers in those areas may make that less attractive.