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Every product manager knows they must meet their target audience's needs to succeed. However, they also know that while consumers may ask for a laptop computer, not all their needs will be the same. For example, a customer who loves to play online games will value a powerful CPU and pay more for a smooth experience, while a college student majoring in the arts will value a lightweight model that doesn't add bulk to their stuffed bag. They only need their laptop for general use, and they will not pay more for additional speed or memory.
Meeting the needs of both these customers is where a product segmentation strategy offering different variants of a single model proves useful. Product managers are responsible for researching the market and fulfilling customer needs to generate high revenue and profits for the company. When implemented with care, a product segmentation strategy offers the perfect opportunity to achieve this.
What Does Product Segmentation Mean?
Segmentation is a product strategy where a company alters its product to create multiple variations to cater to diverse customer groups or markets.
Product segmentation is commonly used to achieve the following:
- To expand market share
- To penetrate new markets
- To increase company revenue
How to Get Started
Entering a new market with a product requires research. You'll need to understand the buying practices of the customers in that market. How much are they willing to pay for different options? What are their values? What solutions do they need? And how can your product satisfy those needs? From there, you'll need to define the products you want to build and the order of which ones you'll produce first.
Why Use Segmentation to Reach New Users?
Using product segmentation allows you to design variations of products that satisfy different customer groups, broadening the buyer base for that particular product. Having an affordable model and a high-end model captures two different types of customers rather than focusing solely on one. The key is to satisfy each customer group by knowing their needs and what they'll pay for.
Identify Growth Opportunities and Define Your Products
By analyzing your entire product range, you can use information about your target audience to discover fresh opportunities for expansion. Identifying new customer segments that may benefit from a different version of your product could be possible.
One method of defining your product segments is to create a Market Segmentation Grid. This allows you to compare your current products with the needs of each market you hope to target. This grid will show you the gaps and opportunities between your existing product lines where you can develop a new product variation to meet the needs of the new market.
When you identify several unique markets and understand how the product can be adapted to meet the needs of each one, it is best to release each product in stages. To be successful over the long term, you might consider implementing a beachhead strategy.
Beachhead Strategy
The Beachhead Strategy is a strategic approach helps define your target audience and strengthens your return on investment. The ultimate goal is to go after the market that will allow you to gain a dominant market share. Once you have established yourself in that market, you can create different versions of your product for other markets and penetrate adjacent markets with new opportunities.
With the laptop example earlier, if a company is known for lightweight models of laptops, it could start by creating a specialized variant targeting college students. They could make the laptop compact and lightweight, perfect for taking from class to class. Once they've established leadership in that market, they can expand to adding power and memory to target the gamer market.
Once you've researched and defined your customers, you can differentiate your product models either by cloning and owning or creating a platform.
Clone the Product
When you want to create multiple similar products, the logical place to start is by creating the first one from scratch. Afterward, you can adapt the original product based on user preference by duplicating it and making any necessary adjustments to the duplicated product. This process is referred to as cloning.
Cloning in product development and management is an effective method to use when a product cannot be broken down into parts to make small changes. If there is no other option than to build a new variant from scratch, then cloning makes sense.
Create a Product Platform
With segmentation, you can create and adapt one base model to suit the user's preference. This method wastes less money on testing different models and allows for better use of resources. Segmentation allows product teams to use economies of scale to source components and parts common to all models.
This method is called platforming. A product platform consists of a set of common elements or core hardware or technology that is shared across multiple products. While the core elements of the product are the same, other components are added to differentiate each model and adapt it to a particular customer segment.
Examples of Platforming
A good example of using segmentation to appeal to diverse audiences is with cars and motor vehicles. Automotive manufacturers commonly use the same platform across different brands; while the base of the car is essentially the same, the body and the trim differentiate the product to appeal to a different customer base.
With the laptop example, the model designed for Gamers could have several variants to appeal to different budgets. A basic model offering high speeds and larger memory will appeal to the beginner gamer. That same model with better speakers and a high-resolution screen will appeal to more serious gamers who have a bigger budget. Adding another model with even more memory and exclusive colors will appeal to the high-end gamer who likes to make a statement. All three laptops will have the same core components, with variations to appeal to different buyers.
The Benefits of Using Product Segmentation
Better Use of Resources
Creating products with common underlying features wastes less time and money as you don't have to test different models. You simply have to add the various components to the vase model to cater to each demographic segment.
Take Advantage of Economies of Scale
By building one base model that shares components and parts, you can take advantage of economies of scale and keep production costs down.
Create More Choices for Consumers
By following a market segmentation strategy focusing on geographic, demographic, behavioral, and psychographic segmentation, you can create more choices for consumers but with less cost to develop and launch the product.
Improve Your Pricing Strategy
With several variations of a product that provide different features and benefits to the consumer, you can create a pricing strategy to drive volume sales. A lower-cost product will likely result in the bulk of your sales, whereas a higher-end product may result in a lower sales volume, but you can benefit from a higher price.
Align With Your OKRs
When developing the product vision and outlining the strategy, it is important to know how much of each product you expect to sell. This helps to keep the organization aligned to meet the company objectives and key results (OKRs).
Use Product Roadmaps To Enhance Your Segmentation Strategy
Product segmentation is a common strategy companies use to adapt their portfolio to the needs of various markets. In order to successfully create a variety of products and engage in effective product marketing, successful product managers stay on top of the process and map the product lifecycle using product roadmaps. This helps internal stakeholders align with the business goals and move toward achieving the company objectives.
At Gocious, we have designed product roadmap software to help product managers create and manage multiple products efficiently. Book a free demo to see how Gocious can help you to better segment your products for the market.