What is geographic Segmentation?
Geographic Segmentation, in simple words, is to divide a market into different geographical regions. This can be done for various reasons, depending on the situation at hand. Companies have used geographic Segmentation for years, and it will give them a competitive advantage when they use it effectively.
Why do we need it?
In a more general sense, geographic Segmentation is simply an excellent way to target customers more effectively. For example, some people will never go to a football match or even watch one on TV. While others won’t miss a game of their favorite team at any opportunity they get. If a company was selling football tickets and jackets in the UK. Their market is minimal, and they would be missing out on a huge potential client base.
Geographic Segmentation is also used to divide up markets based on spending power. For example, there might be two areas in the same city with significantly higher income levels than the other. In this case, it makes sense for companies to focus their marketing activity on the wealthier region and ignore the other one.Geographic Segmentation is also used to divide up markets based on spending power. #geographicsegmentation Click To Tweet
More important reasons why companies need to use it.
Apart from the factors we mentioned before, several external factors influence how you should segment your market. Examples include:
Legal restrictions: Different laws can define geographic regions. For example, if you are selling prohibited items in some countries but allowed in others, you have to consider this.
Political differences: If your target is a foreign country, you have to consider its political and economic situation. For example, if one country region is at war, that will influence your decision because it’s not safe for your company to invest in it.
Market size: Even though you want your business to grow as much as possible, there are some regions where the population is too small to justify an investment (unless you want to localize your products).
Local Competitors: Pay attention to the presence of competitors in each region. They might not be fighting for the same market share. If you are trying to gain a larger piece of the pie. You might end up stealing their client base, which can cause many problems.
The two types of geographic Segmentation.
There are two main types of geographic Segmentation:
Geographic Segmentation: This is when a company divides its market into different regions or states. You can do it based on many factors such as population, geographic size, average income, etc. A statistical method called Cluster Segmentation can help companies divide their market into different regions based on many variables.
Regional Segmentation: This is when a company divides its market into different countries within the region, even if they are relatively close to each other. For example, some rules allow companies to sell their products throughout Europe using one central warehouse in European Union countries. These warehouses often have a minimal range of products available as they do not need to worry about competition from other countries. This is part of regional Segmentation, as those warehouses only serve people from one particular country.
In this type of geographic Segmentation, there are three different types:
- Concentric Area: A company divides its market into several zones that get bigger the further away they are. For example, if a company divides its market into Europe, Asia, and North America.
- Multidomain: A company divides its market based on continents or regions with different taxes or specific products laws. For example, there may be one region where you can buy alcohol at any store, but you can only buy it at specialized stores in another one.
- Multiregion: A company divides its market based on regions relatively close to each other, for example, the US, Canada, and Mexico. This type of Segmentation is often used by companies selling products like music or movies. Because the laws regarding copyright are different in each country.
How to create your own geographic segments?
Market segmentation can be done in many ways, and for this reason, the company must know exactly what they want to achieve with their Segmentation.
The following steps should help:
Start by deciding on the geographic units you’ll use to divide your market into regions.
Remember, these units don’t always have to be countries. Depending on your industry, you can also split your market by states or even regions within a state.
Determine the different variables that will define these regions (population, average income per capita, etc.) It is essential to determine all the possible variables before moving on to Step 3.
Create segments based on these variables.
Remember that the more variables you take into account, the smaller your segment will be. This can be a problem if you have a limited marketing budget, as it would mean targeting a region with only a few people living in it.
Use those segments to determine how much money or time you should invest in each one. One way of doing this is to use the Rule of Seven. Which states that you should target only the top seven regions or at least 70% of your market share.
Remember that sometimes there is no correlation between the size of a region and how attractive it is to invest in.
For example, if you were selling luxury items, it would make more sense to divide your market by state or city rather than a country. You have to be careful with this because you might end up with too many regions that are not very different from one another.
Benefits and drawbacks of using geo-segments in your business strategy.
There are some benefits and drawbacks to using geographic Segmentation in your business strategy.
Targeting people from a particular place makes it much easier for you to create an emotional connection with them. For instance, if they think about New York or Paris when they hear your company name, that can add value to your brand.Targeting people from a particular place makes it much easier for you to create an emotional connection with them. #geographicsegmentation Click To Tweet
You can focus on a specific group of customers or demographics. Allowing you to optimize your products and marketing strategies for them. In other words, the more segmented the market is, the higher the chances are that your company will grow faster.
Much easier to create localized products for each region – This allows you to take advantage of local language and cultural differences.
If you make a mistake when creating your segments, the results can be pretty bad. For example, if you divide your home country into too many or too few regions, there is a good chance that you will not reach the entire population and generate less revenue than you were expecting.
Some regions may not be large enough to justify the effort and expense of targeting them. For example, if your company sells a product that people only use over 50 and you decide to segment your market by US state, two states out of fifty might not justify all the efforts.
How to determine the best geographic Segmentation for your niche.
Before deciding on which Segmentation method to use, you should first determine your business goals.
If you want to create an emotional connection with your customers to increase brand loyalty, it would be wise to base your segments on the region where they live. This way, you will make them feel like they are part of a specific community. If you are selling products based on national identity, you might want to segment your market by country – For example, if you make clothes with the US flag on them.
The size of each region is also something you should consider when deciding how to do geographic Segmentation. If you’re selling expensive items and there’s not much difference in population or wealth between regions. It might be better to segment by state or city rather than the country. On the other hand, if you sell something used by everyone (landline telephones), your best bet would be to target countries rather than states since everyone has access to the same technology.
When selecting your geographic Segmentation, you should also think about who your competitors are. If there are many similar companies in the market and they’re using only one method of segmenting their market (for example dividing by country), then you can’t afford to do less than that. On the other hand, if all your competitors are using a different method than you, you can go with the one that makes the most sense for your business.
Finally, you should consider whether or not it’s possible to create localized products and services for each region of your market. If it is not, then geographic Segmentation will be useless for you since you won’t be able to make a profit from it.
Geographic Segmentation is a great way to get your business going faster and growing larger than it usually would. However, you should always research the pros and cons of each method that’s available to you before deciding which one will work best for your situation.