Market Segementation

Market segmentation is the dividing of an overall market into key customer subsets, or segments, who are share similar characteristics and needs. According to Mark R. Rattermann, the defining characteristics of a submarket are property type, property features and market area. Market segmentation is used for price prediction, formulation of appropriate marketing strategy, defining geographical boundaries and for understanding housing market structure.

By delineating housing markets an agent or broker can determine much wasier on properties in particular areas. According to Rattermann, many appraisers define neighborhoods by the price of homes, but that probably isnt the best way since it's because neighborhoods share similar land uses. The area in which homes are located will determine the price; also features on the house will strengthen or weaken the price. Features that can add value to homes can be shopping centers close by, schools and universities, sporting venues and many others. These are features buyers are looking for when buying a home and can make a home more expensive or more attractable to a buyer or investor.

By creating market segmentation it's defining different market areas that will pertain to needs contingent on ones desires. Formulating the proper marketing strategy can be applied after delineating housing markets, becasue you can determine what neighborhoods to target for customers. For example, if a client is looking for a large home with many bedrooms to fit his family, then you will know which areas to show him.

"A neighborhood should be defined geographically," says Rattermann. Market segmentation is a conceptual approach that commercial real estate developers can use to identify unmet needs. By developing properties for which there is an unmet need instead of those that are already supplied, the developer attains a huge advantage over developers. This is why setting geographical boundaries can be very beneficial to someone trying to understand the market and where they should apply their focus.

When market segmentation is implied, it gives better understanding of housing market structure. By outling boundaries to create market areas, it gives a salesperson a greater advantage to catering to potential buyer. Knowing which neighborhoods would best suit the client is something that an agent has to have to be successful. Understanding the unique needs of clients and being able to apply them is crucial.

Ratterman, M.R. (2009). The Student Handbook to the Appraisal of Real Estate. Chicago, IL: Appraisal Institute.