For any business to succeed, they must know what their customers need. This makes market segmentation an essential part of their marketing strategy. A considerable percentage of new products fail because their companies could not segment their potential market.
Every customer has particular unique needs when it comes to the product. It is folly to accept all of them to behave in a similar manner. By using market segmentation, companies can divide their customers into different groups, base their requirements and target accordingly.
Doing that offers a competitive advantage to each company as the one who grasps the tactics of segmenting the market rules it eventually. Here we will tell you all about marketing segmentation and its types.
What is market segmentation?
If you are thinking about what is segmentation in marketing then let us tell you it is a very simple exercise. It is the process of dividing your market into smaller categories. In this segmentation, you prepare separate categories of your customers based on their interests, demographics, needs, and location.
The act of segmenting your market gives you detailed insights into your customers. You can identify what is needed in your market segment and then decide how your product will satisfy those needs.
With segmentation of the market, the companies can comprehend how the market will respond in certain situations. For example, the responses to a survey conducted in a particular segment of customers a company can decode if their product will receive a positive response from them.
Benefits of market segmentation
Before moving ahead, we need to understand why companies should do market segmentation. Let us have a look at some benefits.
- Creating strong marketing campaigns
If you know all the details about your customer base, it is evident that you will frame clear marketing messages. You will avoid any vague language as you have a fair idea of the psyche of the customer. It is like directly talking to him without any barriers in between.
- Finding out the most effective marketing strategies
Marketing scope is very vast, and you have to work hard to find which method would deliver optimum results. By segmenting your market base, you can select the strategies that you know will succeed.
- Attracting and converting the leads
You are sending the correct marketing messages to your customers. They, on the other hand, grasp what you are trying to say and explore more about you. Once that happens, it will be a matter of time before this lead converts and becomes a loyal customer.
- Design targeted ads
You already know the details of your customers and their preferences. The ads you put on digital ad space are created keeping this information in mind. These ad campaigns are likely to be more effective as you just know what the customer needs.
- Gain foothold over competitors
Every market these days has many players vying for the same segment of customers. However, if you are specific with your brand campaigns, the customer would choose you over the other players. Instead of fighting for his attention, you create an online presence in his mind that increases brand recall.
- Identifying any niche market opportunities
If you think your product is suitable only for a particular group, then marketing segmentation is all the more valuable. You can only focus on the group that will have the inclination to purchase the product. This will save you both effort and money as you will work only in the required areas.
- Build a bond with your customer
Brands these days are more than just products to customers. To some of them, these brands are more about the experience they provide. When you create any such valuable experience for them, thanks to segmentation, they appreciate the effort. In the future, they maintain this trust level as they know you will only provide the best possible product quality.
Types of market segmentation
In most places, the segmentation is done on the following parameters:
- Demographic segmentation
- Psychographic segmentation
- Geographic segmentation
- Behavioral segmentation
- Firmographic segmentation
Let us talk about these in detail here.
Demographics are the first criteria when we talk about segmentation marketing. Though it is the most straightforward way, it is also the most impactful. In Demographic segmentation, you look at a customer based on factors like:
- Education level
- Profession or designation in a company
Demographic segmentation clarifies a lot of things. For example, if your product is only for 20-30 years, there is no point in spending money on targeting people who are not in that age bracket.
Market segmentation, in reality, is not just about you talking to your customers effectively. It is also about reaching out only to those customers who will show genuine interest.
The second is Psychographic segmentation, and it segregates the customers on the basis of their personality characteristics. Criteria for a psychographic segmentation will include the following:
- Personality attributes
- Psychological influences
- Conscious and subconscious beliefs the person may hold
Unfortunately, psychographic segmentation is slightly subjective. Therefore it is harder to differentiate in comparison to a Demographic segmentation. Since there is no data proving their existence, you require adequate research to find out its details and understand it.
As an example, a luxury hotel brand would like to target customers who travel first class and appreciate high-end products. You can use psychographics to create a brand persona that exemplifies the personality traits that your customer holds.
For example, your marketing team finds your customers buy new sports shoes every year. This implies they are pretty focused on their fitness and believe in living their life fiercely. Now you can focus on these attributes as a means to project your shoes for those who are solid and fast-paced.
The most superficial segmentation criteria are on the basis of geographic location. Some criteria that are included in this are:
- Particular radius around a location
- Whether Urban or Rural
You can divide the geographic segmentation either based on the location (zip code, city) or type of area (like climate or size). An example of geographic segmentation is a soda company targeting individuals living in heat zones.
Geographic segmentation may also include regions that are not defined like your neighborhoods. For example, a company selling home cleaning services would first like to target homes near its present location of operations.
So far, the demographic and psychographic segmentation were focused on your customer. The behavioral segmentation focuses on how he is going to act or respond. This will include the following:
- Purchasing habits
- Spending habits
- Brand interactions
- User status
Behavioral segmentation needs you to enquire about your customer’s actions. These acts could involve how that customer base interacted with your brand. An example could be a luxury car company targeting individuals who purchased a luxury car in the last five years.
You may use behavioral segmentation to gain knowledge into the customer’s mind space. Ask the following questions to get in-depth information about his actions.
- How engaged the customer is through his interactions with you?
- What are the specific times and occasions that the customer buys your product?
- How much time does he take during the buying process?
- As a business, how do you define a good customer?
Marketers also use behavioral segmentation to find out any future leads and prospects in the market. Just like psychographics, you can gauge his behavioral traits from the digital presence he maintains. Metadata is collected from the customers, and the same is analyzed to know their preferences.
Firmographic segmentation is used to segregate the businesses and firms as per their nature. Companies could use this segmentation to find if a smaller company is suitable for investment. You can easily divide prospective firms in the following ways:
- Governmental entities
- Independent contractors
- Small shops
Remember, there is always an element of risk involved when we talk about investing in a small firm. Variables to look for in this case are:
- Performance and revenue
- Annual sales cycle
- Size and number of employees
- Type of ownership
- Organizational trends
Common market segmentation mistakes that you should avoid
Despite being focused on segmentation, marketers tend to make mistakes. Some common ones that you should not repeat are:
- Making small or niche segments
Small segments could be highly inaccurate, and targeting them would be difficult too. Plus, an over-segmented group could give you data that is factually incorrect and therefore of no use to you. Eventually, you might get diverted from your entire objective as the information you have is not worth anything.
- Not changing the segments
Even though the segments are not yielding results, we do not bother changing them. This makes the entire exercise of segmentation pointless. Eventually, you need solid ROI from the marketing efforts you make. By ignoring such a fundamental error, your marketing efforts get wasted.
- Ignoring new customer personas
Customer’s interests and desires keep changing. If you keep maintaining the old personas, you are refusing to acknowledge the new changes and thus missing out. Very soon, any of your competitors would realize this gap and take advantage of the same. Keep research work on and make changes in your segments basis any persona deviations you notice.
- Ending at segmentation
Companies think that now they are done with segmentation, the benefits should start pouring. However, this does not happen as segmentation is just the first step of your strategy. You now have to start targeting the customers by finding ways to interact. This could include conducting polls, surveys, and social media events to see the exact details of your customers.
How to set up a market segmentation strategy
Now that you know everything about segmenting your customer base, it is vital to set up a formal strategy to do so. Read on to understand how you can set a market segmentation strategy.
1. Analyzing the existing customers
If you already have an existing base of customers, start by conducting audience analysis on them. Use the following tricks to gain insights.
2. Interviewing the customer
Firstly go to the source and interview existing customers, past customers, prospects, and ideal customers. Ask them questions that you think will help you fill the blanks that you need.
3. Interview the sales team
You will have a sales team in place; their opinion is important too. Enquire the trends they see when they deal with the customers. You will be able to define market segment once this exercise is over.
4. Refer to the business data
Your research efforts would have already yielded a lot of data for you to consult. Use the various CRM tools to understand how your customer makes their purchase. Find how much they spend, how often they come to your store, and the products they mostly pick.
5. Use website analytics
Google Analytics can give your insights about which pages your customers visit, how long they stay there, and sites that led them there.
6. See what the customer’s search for
It is crucial that you know which sites your ideal customer visits. Use tools to check the top 10 websites and find out the keywords that most of them use. Apart from that, you can also check on the topics and themes they are using to attract customers.
7. Create a Buyer’s persona
Once you have completed the steps mentioned above, use the data to create a buyer persona. The buyer persona is like a description of your customer and helps you find the kind of person who buys your product.
8. Identify opportunities for marketing segmentation
Now that you have a buyer persona, start finding all market segment opportunities. Ask yourself the following questions.
- What problems will your brand solve?
- Which problems do you tackle better than other competitors?
- What are the things that you excel at?
- Who do you plan to serve?
- Which large segments are obviously showing?
- The most common customer qualities?
- Which are the segments you have not looked at?
- Which segments does your brand caters to?
9. Research any potential segments you see
Before you implement a marketing campaign for a potential segment, check if it is a good idea. Perform basic keyword research to gauge your customer base interest. You may use a keyword research tool to measure audience interest. Find out phrases that have high interests yet are untapped by your competition.
Also, figure out which kind of competition is present in the market. Use a particular phrase to find brands that own the share of voice for it.” Share of voice” is the amount of traffic that a specific website receives for any particular keyword.
Now that you have accomplished all your work, you must test your strategy. Create a few campaigns to start with. Try any new markets and track the results to find the places where your customers appreciate you. Even small changes in markets can lead to significant results. Move through this process, test and iterate your findings to get maximized returns.
Intelligent customer segmentation serves more than just one purpose for a business. They can focus all their resources on reaching out to customers who matter. The marketing efforts now are targeted at the customer’s needs. The budget you are working on will be focused on achieving this need fulfillment.
However, for any kind of return, you must know which segmentation type to focus on. You must analyze every decision of your customer depending on what they want versus what they need. Market segmentation helps you recognize these subtle signs. You can now directly talk to them without wasting any resources targeting the wrong group.
Whether you want to tell students about a new headphone or share info on lounge chairs to people who live near beaches, segmenting gives you many ways to make your customers see you the way you want them to.