What Is Market Segmentation and Why Is It Important?

All you need to know about market segmentation
Market Segmentation Fundamentals

Why Use a Market Segmentation Strategy?

The main reasons to use a market segmentation strategy are to provide greater value to a particular focus area and to improve the efficacy of your marketing strategy and efforts.

Provide Value to a Focus Area

An eCommerce marketplace is about providing value within a focus area. One of the best ways to do this is to segment a market. This is dividing a consumer or business market based on subgroups, where there are similar characteristics.

There are different ways to segment the marketplace. One of the most important things is to set up the proper taxonomy, categorical and tagging structure, and overall hierarchy. In general, we want to make sure that the business itself is properly focused on a segment or segments that make sense.

Improve Marketing Effectiveness

Proper market segmentation is important for marketing, too. The business can take advantage of things within the market that it otherwise wouldn’t be able to. By focusing on a particular segment, you can narrow the focus and overhead in order to deliver value within that segment.

market segmentation improves marketing effectiveness

This is a way that mid to large sized organizations that are looking to break into a particular space can dominate that space, even against large, international competitors who may be well-entrenched in a particular space.

Determine Your Method of Approach

How to Implement a Market Segmentation Strategy

The key concepts detailed below are:

  • It’s important to identify markets that fit your business.
  • Research is key to making good, well-informed decisions.
  • Focusing your efforts on a key area will help you deliver value to that market segment, and will be a valuable strategy for your business.
  • Providing unique services or products will help you generate success.
  • Once you have a foothold in a market segment, you can expand into other segments to grow your business.

Identify Markets that Fit Your Business

The first step is to identify what segments make sense for your eMarketplace business depending on your model. There are different ways to segment the market with regards to what you’re offering.

For example, you can segment by vendor and focus on serving the market by having a lot of information about vendors and how they fulfill, and work out logistics with them.

You could also have different perspectives on things, so rather than offering just individual products, you have a complete representation of an entire vendor and all their offerings.

Another way to do things is to focus on reviews, packages, and configurations that your team pre-selects.

This is common when there are surplus items that are put into packages, selected for people, and sold either as an auction item, in a marketplace model, or a more traditional route like presenting categories and subcategories.

Research Is Key to Making Good Decisions

research is key to making good decisions

Doing a good amount of research on category and subcategory structure is important so you can understand what makes up your market, and what percentage of the sales in your market is coming from what categories and subcategories.

You can also have goals for the overall revenue you are trying to get to in a particular segment, category, subcategory, or focus area. Ideally, you would present this visually and in a well-articulated way as an offer within the marketplace.

For example, lots of people know they can go to Etsy to find handcrafted and artistic items that can be personalized. Typically, they’re generally going to be experiencing a C2C or a B2C type of marketplace experience.

The Value of Focusing Your Efforts

Etsy in this case has enabled this robust focus around that value add in the market. What they’re not doing is talking about price advantages and selling at scale and dealing with intermodal shipping. This is because that’s not what their segment is that they’re focusing on.

Instead, they’re focusing on a specific niche that they’ve built out of, that started with a specific category.

In fact, if you go back to one of the most popular marketplaces around—Amazon—they started by selling books. Within the book space, they focused on just a few niches at first.

This demonstrates that if you want to dominate, you have to pick and own one or a few segments that you’re going to deliver significant value in.

The reason for focusing on a particular segment is that you only have so many resources that you can provide and deploy. There’s also a lot of competition.

But if you focus on a particular niche in a particular market segment that your team can execute really well on, you could very well be the world’s best in that particular niche. This is a huge advantage for your eMarketplace.

Provide Unique Value in a Market Segment

A key aspect of being the best in a particular market or niche is that clients may use synonyms, or related words and phrases, that tie to a particular product.

For example, one of our clients did a lot of work with old, original parts from devices that were from the 1940s, 1950s, and 1960s. They set up a marketplace eCommerce platform where people could find replacement parts for these original manufactured items, where in some cases the manufacturers had gone out of business.

Provide Unique Value in a Market Segment

This client of ours took a segment of the market where there wasn’t much support, if any, and they own that segment because no one else is doing this.

Amazon isn’t doing it. A bunch of other large marketplaces in this space weren’t offering this value to the market. There are several thousands of orders a year that are coming through this particular niche of these older devices.

Well, this is a great foothold for a business to establish because they can be the dominant player in this segment and command a reasonable price, and make a reasonable margin on their products. Their customers are happy because there isn’t a better solution out there.

This is a nice way to generate profitability and operate the business successfully. This type of strategy gets your marketplace off the ground with a high level of service and support.

Expand Into Additional Markets

Once you’ve established a foothold for a particular segment, that allows you to go into additional segments and create a disproportionate value in these as well.

Over time, once you’ve created value in several segments that are related to each other, then it’s almost a natural effect where you fuse those together.

Once people use the marketplace, and once your brand becomes self-evident as a leader within a particular industry, this creates an exponential movement toward leveraging your eMarketplace platform in order to list and sell and interact with it.

Think of it as an opportunity to own a niche and build a foothold, and then massively improve on your process and workflows so that your governance and processes for delivering value are well refined. Then, from that foothold, expand from there.

Run a Successful Marketplace

Employ Best Practices for Market Segmentation

Employ Best Practices for Market Segmentation

This is a really powerful formula. No matter how dominant a company like Amazon is, or if you go back to the big box retailer days when Walmart and Target were competing to take over the world, there were always niche offerings that were able to compete because they were bringing great value in their particular segment.

Because this was the case, you could see the great operators who were able to find a great process to execute against. In the case of marketplace eCommerce, key factors are having great eCommerce software, and long term partners with experience who can provide service and support, like Clarity Ventures.

We’ve done this for hundreds of businesses in different areas, and helped businesses go from raising funds and developing their business plan, to taking an already very profitable and successful business and continuing to scale it and fully integrate it.

If you can find a partner who can eliminate some of the need to have to recreate things that companies like Amazon and Etsy, for example, have already figured out, then you can instantly enter the market with a level playing field from a software, workflow, and process perspective.

If you’re focusing on a segment and owning that segment, and your goal is to own that segment and share that value with your customers, generally speaking your eMarketplace platform is going to have a high likelihood of being very successful.

Develop Your Market Segmentation Strategy

If you would be interested in discussing your market segmentation strategy for your upcoming enterprise eCommerce marketplace platform, please feel free to reach out to us. We’ll be happy to touch bases with you and provide a complimentary discussion and review around your project.