Saturday, September 26, 2009

Market differentiation vs. segmentation

There are lot of concepts that rely on the grounds of choosing the right market as well as clearly describing your position there.   If you're making a mistake here, the whole strategy applied later can fail even if executed extremely well.

So what are the possible markets to address?

You can be either creating a new market or entering an existing one.  And while creating a new market is something sounding more straight (nonetheless, very hard and timing process), entering an existing market is not a one-way option, as it can be done in different ways.  So this is when the question of market differentiation and segmentation comes up.

So what is market segmentation?  This means choosing a very clear, unique, important spot in the existing market, when you product has a very clearly articulated value for customers as well as it really solves an important problem for them.  Market segmentation divides the market into distinct groups of people who have similar problems, while still residing within the same market.  Members of two different groups have different needs, clearly stated and important to them.  Imagine car dealership that sells SUVs and sedans.  Two different segments.  Two different needs.

And what does market differentiation do?  A lot of people mistakenly think it to have the same meaning with segmentation, and this is wrong.  Differentiation comes into play when you need it if you plan to sell something very much the same as other 1,000 of companies do, but you need to buy the interest of a customer with something.  Something, that makes a difference between you and all those 1,000.  Better service, better value, broader range of products, etc.  You're not hunting for the different group of people here.  Imagine grocery store, that have the same food as everywhere, but gives you a chance to try it before buy.  Same price, same clients.

P.S. Market segmentation and differentiation is something that is way more complex that what I described here.  I just tried to cover the difference of concepts between two terms.

# Posted via email from opportunity__cost