Why is it important to understand market segmentation before making an investment?

Question

The problem for many investors is entering the market without a clear plan. The result is wasted capital and lost time. Segmenting the market is a powerful tool that helps you see the big picture of who your actual customers are, what they need, and where profits will come from.

The Truth About Segment Stratification in the Market

Market segmentation, or in Thai called การแบ่งส่วนตลาด, is not just about casually grouping customers. It’s about identifying the true identity of groups with similar needs and behaviors, then tailoring sales and marketing strategies specifically for those groups.

From an investor’s perspective, understanding segment means analyzing demand and supply to forecast which companies can generate the most profit. This is the foundation of making rational investment decisions.

5 Important Data Points to Know Before Choosing a Segment

1. Each market segment has different buyers

When you segment the market:

Management aged 35-50 and students aged 20-25 are not the same group, even if they live in the same city.
They have different income levels, purchasing behaviors, and purchase frequencies.
Trying to sell the same product to both groups results in no sales.

2. Not all segments are profitable

When considering a segment, check:

The amount spent per purchase
The total revenue from the group
Average price per transaction
Purchase frequency and consistency

A large group with no purchasing power is just a waste of time.

3. Geographical segmentation alone is insufficient

Dividing segments solely by location is outdated. Examples:

Large US cities vs small towns require different strategies.
Coastal customers often prefer wellness and travel products.
High-tech districts tend to be interested in digital products.

But this is just the beginning; deeper analysis is needed.

4. Behavioral segmentation reveals the truth

Search history, purchase history, website visit frequency are the “fingerprints” of customers:

Who searches for “stock investment” vs “side income” = different groups
Who buys expensive products for the first time vs repeat cheap purchases = different motives
This data is more helpful than direct questions because people may lie when asked.

5. Customer values change rapidly

Health-conscious, environmentally conscious, socially aware customers have varying levels of interest in sustainability, and these interests evolve yearly. Therefore, do not cling to old segments.

5 Methods to Segment Effectively

Method 1: Demographic Segmentation (Demographic)

Divide based on biological factors:

Age, gender, income
Education level, occupation
Marital status, family size

Best suited for: beauty, food, health businesses where needs differ clearly across age groups.

Method 2: Geographic Segmentation (Geographic)

Divide based on geographic areas:

Country, region, city
Climate and terrain
Development level of the area

Best suited for: food, travel, distribution businesses where products need to be adapted to the location.

Method 3: Behavioral Segmentation (Behavioral)

Divide based on actual actions:

Online search history
Purchase history and frequency
Brand trust
Response to promotions

Best suited for: e-commerce, digital services, membership services with abundant behavioral data.

Method 4: Psychographic Segmentation (Psychographic)

Divide based on values and personality:

Personal values, beliefs
Attitudes and lifestyles
Interests and hobbies
Environmental, religious, social interests

Best suited for: jewelry, fashion, sustainable products where buyers choose based on their values.

Method 5: Firmographic Segmentation (Firmographic)

Divide based on company characteristics (used in B2B):

Industry and business type
Company size, number of employees
Annual revenue and capacity
Buyer roles and responsibilities

Best suited for: software companies, B2B services targeting specific segments.

6 Steps to Create Successful Segments

Initial step: Focus on profit, not group size

Forget about size; focus on profit:

Small groups with high purchasing power > large poor groups
Check LTV (lifetime value) of each group
Choose groups with repeat purchase potential

Second step: Collect data from multiple sources, not just surveys

Don’t rely solely on surveys:

Use digital analytics tools (Google Analytics, CRM)
Conduct focus groups (focus group) for insights
Interview real customers directly
Observe actual behavior via social listening

Third step: Study competitors and position yourself

Before entering a segment:

How fierce are competitors in this segment?
What strategies do they use?
What are their weaknesses?
What is your unique advantage?

Fourth step: Test with a small group before full expansion

No strategy is perfect:

Try selling to 100-200 customers in the segment to see conversion rates
Learn from mistakes and refine
Gather feedback
Then expand to the full group

Fifth step: Design products and pricing tailored to the segment

Now that you know your target:

What should the product be?
What price point?
Where to sell? (online or offline)
What promotions will be used?
What will your sales message be?

Final step: Monitor and adapt continuously

Markets are dynamic:

Track KPI metrics for each segment
Customer behaviors change
Values evolve
Update your segments every 6-12 months

5 Common Mistakes That Lead to Failed Segmentation

❌ Mistake 1: Over-segmentation (Over-segmentation)

If segments are too small:

50 true customers may be meaningless
Unreliable statistics
Higher marketing costs than budget

Solution: Segments should have ≥ 1,000-5,000 people to be measurable.

❌ Mistake 2: Choosing a segment without purchasing power

Large but poor groups = waste of time:

If they lack budget, they won’t buy
Even if they want the product

Solution: Analyze actual purchasing power before targeting.

❌ Mistake 3: Sticking to old segments, not updating

Needs change:

Customers in 2020 ≠ customers in 2024
Values evolve
Buying channels shift

Solution: Regularly update your segment data.

❌ Mistake 4: Products not matching segment needs

If the segment is only estimated:

Decisions based on guesses, not research
Products don’t solve the group’s problems

Solution: Gather genuine feedback before full product development.

❌ Mistake 5: Having effective segments but no market share

Sometimes competitors have already taken the market:

You entered too late
Competitors dominate the space
You are just a secondary player

Solution: Analyze how much market share competitors hold before expanding.

The True Benefits of Segmentation

✅ Benefit 1: Precise targeting

No waste:

Focus on the right audience, no need for broad advertising
Offer solutions that meet their needs, high engagement
Advertising ROI is measurable

✅ Benefit 2: Cost-effective marketing

When segments are well-defined:

Avoid attracting the wrong audience
Use budget efficiently
Reach 1,000 real customers instead of 1,000 “fake” leads

✅ Benefit 3: Better market understanding

Knowing your segment:

Understand customers more deeply than competitors
Develop products that truly fit
Reduce trial-and-error from the start

✅ Benefit 4: Build long-term brand loyalty

Aligned segments:

Feel the brand understands them
High repeat purchase rate
Positive word-of-mouth
High lifetime value

Real-world Examples of Segment Application

B2B Example: Software companies

Segment 1: Small firms 10-50 employees, budget $5,000-$20,000/month, offer low-cost entry options
Segment 2: Medium firms 100-500 employees, budget $50,000-$200,000/month, provide 24/7 support
Segment 3: Large firms 5,000+ employees, offer custom solutions and consulting

B2C Example: Lifestyle brands

Segment 1: Teenagers 16-25, affordable, trendy, active on social media
Segment 2: Adults 26-40, high quality, status-oriented
Segment 3: Seniors 50+, focus on safety, health-conscious ingredients

Summary: Segmentation is a Smart Investment

Market segmentation is not just marketing; it’s an analytical tool that reveals the true profitability of a business. To succeed in your investments, you must understand your market segments, select groups with clear purchasing power and needs, and craft tailored strategies.

Segmentation is not a curse but a science that requires study, testing, and continuous refinement. Once you truly understand your market segments, profits will follow.

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