Market segmentation is a powerful strategy for companies to understand their customers and target their marketing efforts effectively, resulting in long-term success. By segmenting their market, businesses can identify distinct groups of customers with similar needs and wants. This enables them to tailor their messaging and products to each segment, which can lead to increased brand awareness, customer loyalty, and revenue.
What Is Market Segmentation?
Market segmentation is a marketing strategy that divides a large market into smaller groups of customers who share similar characteristics, known as market segments. This allows businesses to tailor their value propositions and marketing plans to better reach and appeal to each group. Psychographic data is often used in market segmentation to understand the attitudes, values, and lifestyles of customers within each segment.
To understand the concept of market segmentation, it is helpful to first understand the business model. A business model is a framework that describes how a company creates, delivers, and captures value. The nine essential business model blocks include customer segments, which are the different groups of customers that a company targets.
Customer segmentation can be done in a number of ways, but it typically starts with identifying potential customers who share a common need or interest. Further analysis can then reveal narrower groups of prospective buyers who belong to one or more of the following types of market segmentation:
- Demographic segmentation: This type of segmentation divides customers based on their demographic characteristics, such as age, gender, income, and education level.
- Geographic segmentation: This type of segmentation divides customers based on their geographic location, such as country, region, or city.
- Behavioral segmentation: This type of segmentation divides customers based on their behavior, such as their purchase history, website activity, or social media engagement.
- Psychographic segmentation: This type of segmentation divides customers based on their psychographic characteristics, such as their personality, lifestyle, or values.
One way to segment a market is by creating target personas. A target persona is a fictional representation of a typical customer in a particular segment. This persona will have a set of demographic, geographic, behavioral, and psychographic characteristics that help businesses understand their target audience..
For example, a target persona for a high-end bag brand might be a female executive in her 30s who lives in Dallas. She is interested in fashion and luxury goods, and she enjoys shopping online. She is also likely to be influenced by celebrity endorsements.
By creating a target persona, a business can better understand the needs and wants of its target customers. This information can then be used to create marketing campaigns that are more likely to resonate with these customers.
In the example above, the high-end bag brand could create marketing campaigns that focus on the quality, style, and status of its bags. They could also use celebrity endorsements to reach their target customers.
By understanding their target market and creating targeted marketing campaigns, businesses can improve their chances of success.
What Are The Benefits Of Market Segmentation Strategy?
A study by Epsilon found that 90% of consumers find personalization appealing, and 80% of those consumers are likely to do business with brands that offer a personalized experience. Additionally, consumers who find personalization appealing are likely to shop three times more frequently and 10 times more likely to become repeat customers, demonstrating the significant impact of personalization on brand loyalty.
In other words, personalization can be a powerful tool for increasing customer loyalty and sales. By understanding the needs and preferences of your customers, you can deliver a more personalized experience that will keep them coming back for more.
Here are some major advantages of market segmentation:
1. Clear Brand Messaging
When a target market is too broad, it is difficult to create marketing messages that will resonate with everyone. This is because the audience is so diverse that they have different needs and wants. As a result, the marketing messages are often generic and vague, which can lead to low engagement and poor results.
Segmenting the market is a way to address this problem. By dividing the market into smaller groups, marketers can create more targeted marketing messages that are relevant to the specific needs and wants of each group. This can lead to increased engagement and better results.
For example, Samsung Galaxy S is a line of high-end smartphones. Instead of mass marketing its products to everyone, Samsung segmented its market into four groups: content creators, streamers, multi-taskers, and health enthusiasts. By focusing on each group, Samsung was able to create marketing messages that were relevant to the specific needs of each group. This led to increased engagement and sales for Samsung.
In short, segmenting the market can help businesses to create more effective marketing messages and achieve better results.
2. Better Marketing and Advertising Strategies
Market segmentation is a process of dividing a large market into smaller groups of customers with similar characteristics. This allows businesses to develop specific marketing strategies and detailed sales predictions. Market researchers use four main market targeting strategies to identify customer profiles:
- Undifferentiated marketing: This strategy involves targeting the entire market with one marketing message. This is a cost-effective strategy, but it can be difficult to achieve success if the market is too diverse.
- Differentiated marketing: This strategy involves targeting different segments of the market with different marketing messages. This is a more complex strategy, but it can be more effective if the market is diverse.
- Concentrated marketing: This strategy involves targeting a single segment of the market with a highly focused marketing message. This is a risky strategy, but it can be very effective if the target segment is large enough.
- Micromarketing: This strategy involves targeting individual customers with custom-made marketing messages. This is the most complex strategy, but it can be the most effective if the business has the resources to implement it. There are two main methods of running micro-marketing campaigns:
- Local marketing involves adapting brands and products to the needs and desires of local customers.
- Individual marketing (also known as one-to-one marketing) involves adapting products and marketing campaigns to individual needs and preferences.
The choice of market targeting strategy depends on the size and diversity of the market, the resources of the business, and the goals of the marketing campaign.
3. Better Response Rates and Cheaper Acquisition Costs
Marketing campaigns fail when the audience is unable to connect with the brand messaging. Companies that communicate successfully with their target markets, on the other hand, are likely to be more successful.
A cosmetics company, for example, may undertake a social media marketing campaign. LinkedIn would have been less effective because its users are mostly engaged in professional and business networking. Instead, Facebook and Instagram would be superior platforms.
The corporation wastes money on non-buyers after running an ad campaign targeting a broad audience. As a result, they should employ filters to target a more specific group of women based on age, marital status, income level, and region.
As a result, the cost of gaining new clients is reduced, and their messaging is more tailored, resulting in improved response rates.
4. Develop New Value Propositions
Startups and small companies often start with a single product line, but as they grow, they may choose to expand their product line to capture new customer segments. This can be done by adding new products to the existing product line, or by creating entirely new product lines.
OnePlus is a good example of a company that has successfully expanded its product line through market segmentation. The company’s first product, the OnePlus One, was a flagship killer that offered high-end specifications at a mid-range price. This product appealed to a customer segment that was looking for a high-quality smartphone without breaking the bank.
In 2020, OnePlus launched the Nord series, which is an entirely new product line targeting a customer segment that prefers mid-range smartphones. The Nord series has been very successful, and it has helped OnePlus to expand its market share in the mid-range smartphone segment.
Types Of Market Segmentation
Companies can segment their markets in a variety of ways, using one or more segmentation strategies. For example, digital marketers often combine different segmentation strategies to optimize their websites and eCommerce stores. This allows them to target their marketing efforts more effectively and reach a wider audience.
Here are some of the most common marketing segmentation strategies:
1. Demographic Segmentation
Demographics are the socio-economic or statistical characteristics of a population. Marketers use demographic segmentation to divide the market into smaller groups based on factors such as age, education, ethnicity, family size, gender, income, nationality, occupation, and religion. This allows companies to target their marketing efforts more effectively and reach a wider audience.
There are four main benefits of demographic segmentation:
- Identifying target markets: Demographic segmentation can help companies to identify their ideal target markets for their value proposition or product line. This allows them to run their marketing campaigns with better efficiency and capture more value.
- Developing products: Demographic segmentation can help companies to develop new products or create variations to target a particular demographic. For example, a personal care company can create two types of products for males and females.
- Creating custom marketing campaigns: Demographic segmentation can help marketers to create targeted marketing strategies. For example, a luxury brand may focus on people with high incomes, not wasting resources on poorer demographics who cannot afford their prices.
- Advertising in the right channels: Demographic factors influence media consumption. For example, the largest number of social media consumers are aged 20 to 29. So companies targeting this age group should run marketing campaigns on those channels.
It is also common practice to use more than one demographic factor when segmenting a market. This can help companies to expand their product lines and markets, and help them to add more income streams to generate higher revenues.
2. Geographic Segmentation
Geographic segmentation is a market segmentation technique that divides a market into smaller groups based on where people live, work, and travel. This is because purchasing habits can vary depending on location.
Some of the factors that are commonly used in geographic segmentation include:
- Zip code: This can be used to target people in specific neighborhoods or areas.
- County: This can be used to target people in a particular county or region.
- City, municipality, or town: This can be used to target people in a specific city or town.
- State, province, or region: This can be used to target people in a particular state, province, or region.
- Country: This can be used to target people in a particular country.
In addition to location, other factors that can affect buyer decision-making include:
- Geographical features: These include things like mountains, rivers, and oceans. These features can affect the availability of products and services, as well as the cost of transportation.
- Climate: This can affect the demand for certain products and services. For example, the demand for winter clothing is higher in colder climates.
- Population density: This can affect the availability of products and services. In areas with high population density, there are more businesses and more competition.
- Community type: This includes things like urban, suburban, and rural areas. These types of communities have different needs and preferences.
- Culture and tradition: These can affect the demand for certain products and services. For example, the demand for certain foods may be higher in certain cultures.
Here are some examples of geographic segmentation:
- A company that sells winter clothing might target markets with four seasons. During the winter, consumers in these markets would need ample clothing to keep them warm.
- In the early 1980s, McDonald’s introduced McSpaghetti in the United States. However, it failed to gain traction. The only place where it is still available is in Orlando, Florida. In the Philippines, on the other hand, McSpaghetti was a big hit.
Geographic segmentation can help companies understand the nuances of different markets. This way, they can provide desired or needed products to a target market and create campaigns that effectively boost sales.
3. Behavioral Segmentation
Behavioral segmentation is a marketing strategy that divides a market into groups based on how consumers interact with brands. This can include things like browsing habits, purchasing habits, spending habits, and loyalty to brands.
Behavioral segmentation can help companies to learn more about their customers and how they make decisions. This information can then be used to create more personalized and targeted marketing campaigns.
Here are some examples of behaviors that can be used for behavioral segmentation:
- Reason: What are the consumers’ needs or problems? How do they choose products? What criteria do they use?
- Benefits: What do customers want to get from buying a product? Do they want to be one of the first to own a product? Are they attracted to technology or some other attribute?
- Occasion: Are the consumers buying because of an anniversary, holiday, or event?
- Engagement: Are buyers enthusiastic fans of a particular brand or product line?
- Buyer journey: Are customers buying now, or are they seeking information for future buying consideration? Are they trying a brand for the first time?
Once marketers identify the appropriate behaviors, they can create personalized marketing plans that are more likely to be successful. This can lead to increased sales, improved customer retention, and a stronger brand reputation.
Behavioral segmentation is also widely used in digital marketing. For example, search engine optimization (SEO) experts use behavioral data to create more effective landing pages. They look at things like session numbers, page views, time spent on the page, referral source, and exit intent. This information can be used to create pages that are more likely to convert visitors into leads or customers.
Overall, behavioral segmentation is a powerful tool that can help companies to better understand their customers and create more effective marketing campaigns.
4. Psychographic Segmentation
Psychographic segmentation is a way to segment markets based on people’s psychological or intrinsic traits. This can be challenging to identify, but it can be very helpful for understanding customer motivations.
Marketers can use interviews, surveys, focus groups, and other methods to understand the psychographic profiles of their target markets. Some of the factors that can be used for psychographic segmentation include:
- Personality traits
- Life goals
- Conscious and subconscious motivators
Psychographic segmentation can be used to complement demographic segmentation, which is based on factors such as age, gender, and income. By understanding both the psychographic and demographic profiles of their target markets, marketers can develop more effective marketing strategies.
Here are some examples of psychographic market segmentation:
- A fitness company might target customers who value healthy living and physical exercise. They might also segment their customers by gender and age group.
- A cafe might target several customer segments. They might offer a variety of exotic beans for sophisticated coffee lovers, while also offering other drinks like frappuccinos and teas to appeal to a wider range of people. They might also cater to families by providing children’s favorites.
Psychographic segmentation can be a powerful tool for understanding customer motivations and developing effective marketing strategies. By understanding the psychographic profiles of their target markets, marketers can create the right messages that resonate with their customers and drive sales.
How To Create Great Market Segmentations?
Here are some tips on how to create great market segmentations:
- Understand your target market: What are their needs and wants? What are their pain points? What motivates them to buy? The more you understand your target market, the better you’ll be able to segment them.
- Choose the right segmentation variables: There are many different ways to segment a market. You can use demographic variables, psychographic variables, behavioral variables, or geographic variables. The best segmentation variables for your business will depend on your target market and your goals.
- Create distinct segments: Your segments should be distinct from each other. This means that the customers in each segment should have more in common with each other than they do with customers in other segments.
- Make the segments actionable: Once you’ve created your segments, you need to be able to take action on them. This means that you need to be able to reach your target customers with your marketing messages.
- Review and update your segmentation regularly: Your target market and their needs will change over time. As a result, you’ll need to review and update your segmentation regularly.
Best way to utilize Customer Segmentation Strategy
Once customers have been segmented, businesses can use this information to create more targeted promotional strategies. For example, a business that sells clothing could segment its customers by age and gender, and then create different outreach initiatives for each group. The promotional efforts for younger customers could focus on trendy styles, while the promotional activities for older customers could focus on classic styles.
Customer segmentation can also be used to improve customer service. By understanding the different needs and wants of their customers, businesses can provide better support and create a more positive customer experience.