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How to Do a Market Segment Analysis

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A market segment analysis is one of the fundamental tools for a sales and marketing professional. Very few products can be all things to all people; hence, it is important to accurately analyze a market, and then choose the appropriate segment to target. A market segment analysis includes demographic and psychographic information as well as estimates of consumer purchasing power. This article explains how to conduct a thorough and accurate market segment analysis.

Market Metrics

Determine the appropriate metric to use to segment the market. Some of the most commonly used metrics include age, gender or income bracket. The specific metric will depend on the product. For example, if you are introducing a line of clothing, you may want to segment the market according to income since it will help determine if you should introduce luxury, everyday use or affordable clothing.

Carry out a consumer behavior survey to determine their purchasing habits. You could conduct the survey yourself, or hire a professional consultant to do it. A good survey will identify how frequently customers purchase a given item, how much they spend on the item per year, and what factors cause them to purchase the item.

Supplement the consumer survey with your own research. Nielsen is a marketing and advertising research firm that provides demographic information on consumers. For example, Nielsen data will determine how much adults ages 25 to 39 who make $50,000 to $100,000 per year and live in the Chicago, Illinois, metropolitan area spend on household items. There are multiple types of Nielsen subscriptions; a base subscription, which costs $550 per year, will provide the level of data needed to complete a market segment analysis.

Download the data from the consumer behavior survey into Excel, and use the "Sort" function (under the "Data" tab in the tool bar) to organize the data according to the specific parameters you outline.

Run a series of regressions in Excel using the specific parameters as independent variables and the predicted amount spent on the product as the dependent variable. You can locate the regression functionality by clicking on the "Analysis" tab, then the "Data Analysis" button in Excel. The regression will indicate which parameters will most strongly influence the willingness of consumers to spend money on a product. A positive coefficient in front of a variable means the parameter will influence consumers to spend more. For example, if the variable for income has a coefficient of 1 and the variable for gender has a coefficient of 2, it means that gender is twice as likely to influence consumer spending as income.

Select which market segment to target based on the regression data. If the variable for income has a large, positive coefficient, it probably makes sense to zero in on consumers in the high-income market segment.

Tip

Be sure to run separate regressions for each parameter. If you try to combine numerous parameters into a single regression, the results are likely to be inaccurate due to the correlation of variables.

Warning

Be sure the sample of consumers in the behavior survey is diverse with respect to age, race, gender and income level.

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