Market Segmentation – What is it and How Does it Improve Marketing?

By assuming all members of a large audience will respond the same to a singular marketing message, it’s easy for a company to waste time, marketing budget, and it often leaves customers feeling disconnected from a brand.

 

Market Segmentation is the organization of a particular audience into groups that each have their own characteristics. It’s more efficient to target each of these segmented groups separately because each group will respond better to more targeted messaging. They will feel like their particular problems are understood and addressed, which builds more trust and a better connection between brand and consumer. This often leads to a higher conversion per marketing campaign, and lower customer acquisition costs.

 

In this article you’ll learn the importance and process of market segmentation and how it can help to form a well defined target market.

How Market Segmentation Relates to Your Target Market? 

What’s the difference between target marketing and market segmentation? Market Segmentation divides a particular market into groups based on needs and/or preferences. Target Marketing attempts to address the specific needs of each segment. Each action works hand-in-hand to allow a brand to connect with each of their audience segments in a way that will resonate the best with them. You can sell the same product or service to different segments in very different ways. One segment may be more concerned about price while another segment may be more concerned about quality. Another reason to segment and target is if you have one product or service that is mult-functional and actually solves different problems for different groups of people. 

 

Here, we’ll break down each component of the market segmentation process that connects a specific message to a specific group of people.

 

Segmenting:

Think for a moment about something that has a rather large appeal for the sake of argument, movies. There are roughly twenty movie genres. People are not usually interested in all of them. So, to narrow it down, a market segmentation would filter a certain group of people into what they like. Since I prefer documentaries and thrillers I would be counted in a segment listing those two genres. If this is helpful, but not specific enough for the researcher, then he/she will have to divide the market further to get more detailed information. The question is, “is there enough money for you in a very specific market you may be interested in targeting”? You must find a viable niche in order to save time and money.

 

Targeting:

In order to optimize your ability to zero in on an even more perfect audience, you can target each market segmentation. Using the movie analogy and the general market segment I fit into (documentaries and thrillers), you can now tease out subsets, like new or classic thrillers or specific types of documentaries. Let’s say you’re  developing a game based on classic comedy movies. I will likely not be interested. Therefore, I would not be in the group you plan to target.

 

Positioning:

Marketing positioning refers to how your customers perceive your brand and very importantly how your product compares to your competitors. There are so many criteria in the minds of the consumer including product  features and services, price, quality etc. when he/she is deciding on what product to buy. If you have carefully segmented and targeted the consumer group that seems most likely to be interested in your product, then positioning should be easier than it would be if you attempt to position based on mass marketing. Product reviews are a very important aspect of positioning. Often the consumer uses reviews to decide between two products. This can be a difficult aspect though, because there will be some people who are very difficult to please and won’t provide helpful feedback.  Some consumers are fussy and fickle. This is important to remember when you consider how you will handle customer relations. Look for trends in the feedback people leave in reviews. The more people who are impacted by a particular feature in either a positive or negative way, the more likely it is that you need to focus on that feature when developing your product or service. When you do, the customer will recognize that your marketing is personalized and feel that you are strategizing to meet their needs. 

 

By segmenting your ideal customer base and targeting each segment properly, you’ll create strong and effective positioning for your product. It can’t be emphasized enough how important this part of marketing is. I’ve heard people talk about how a product or service will sell itself, or that “let’s just get as many eyeballs on this as possible and sales will soar”. That’s just not how successful products are launched, especially if you’re just starting out and trying to gain traction. You can have an amazing product or service but if you’re not showing it to people who care about it will be impossible to be successful, and the worst thing is you may never know how good your business really is because you wasted too much time and money putting it in front of the wrong people. It’s sometimes difficult to even understand how specific you have to be. If you’re in the marketing department at Tesla and you think your target market is anyone who needs a car, it will be very difficult to be successful. But that might not seem intuitive. You might think, but Teslas are cars and so anyone who needs a car and can drive could be a potential customer for Tesla. In theory, sure, that’s true, but in reality there are plenty of people that need a car who would never consider a Tesla. Maybe they’re too expensive, they’re not interested or concerned about 100% battery power, they might not like the look and feel of the cars, or maybe they’re looking for a truck (that doesn’t look like it belongs on Mars). You should reverse engineer your ideal customer and figure out every characteristic of them and when you do that with enough ideal customers you’ll find trends. Those trends are what will allow you to segment, target, and perfectly position your business in front of the right customers a majority of the time, and keeping more bills on your bottom line.

 

Importance of Market Segmentation – Advantages and Benefits

The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. That’s not just helpful to your customers, but critical for you as a business to keep your acquisition costs down. Brands who focus a particular message on a specific group instead of blanketing the entire market with a “one size fits all” message will see much better efficiencies in market costs. Think of ads that you’ve seen where you thought, why the heck am I seeing that? It’s not even remotely relevant to me! That impression and maybe a click, if you’re just curiously browsing, is a complete waste of money for a business trying to connect with the right customer. 

 

Market Segmentation brings organization and control to how you engage and sell to customers. It has significant advantages, but just like anything you can do to improve the efficiency of your business and grow it, segmenting a market and developing a message for each segment is a lot of extra work. That being said, the juice is worth the squeeze and we’ve seen results from clients who wouldn’t go about marketing any other way.

Types of Market Segmentation

You will have to decide which type or types of Market Segmentation will give results that will pinpoint your ideal customer base. In addition, the results will allow you to use your advertising and marketing budgets more efficiently. Customers often know when they are part of your target audience and may be happy that you’re focused on their needs. Here we’ll look at five market segments used for that purpose.  

 

Demographic Segmentation refers to many aspects of the population, the three main ones being age, gender and income. Demographics are often considered one of the easiest ways to segment the market because the information is readily available through census data, analytics software and consumer insights. This information can also be used to change the perception of a brand. In the 1980’s, “Not your father’s Oldsmobile” (https://www.youtube.com/watch?v=8J_ffa-ynNE), was a slogan written to draw a younger driver to the vehicle. However, be careful when blatantly excluding one segment to target another because this slogan insulted a very well established customer base. Instead, a more generationally inclusive campaign might have been to have a father and son fighting over the keys after an exciting joyride in a stylish and sporty Oldsmobile. And it could have been packed with all the corniness of a 1980’s car commercial… or any 1980’s commercial for that matter.  

 

Geographic Segmentation is just what it sounds like. It defines groups by continent,  country, region, city, borough, etc. This would be helpful if a person’s location influences their decision about whether or not they should buy your product or service. For example, there’s a great company based on the east coast of the US called Grassracks (www.grassracks.com). The owners of this company design and produce eco-friendly Bamboo Racks for surfboards, paddleboards, skis, snowboards, skateboards and bikes. If the marketing team for this company decided to allot certain funds to promote its surfboard racks only, their geographic segment would likely not be the Midwest where there are no waves. Don’t get mad Great Lakers, I know there are waves there. That’s not to say Midwesterners don’t surf, but it’s more likely that the majority of surfers, looking for high quality storage racks for their home would be geographically clustered closer to coastal areas where there are more waves. If however, Grassracks was promoting any of their other products (stand up paddleboard, ski, snowboard, skateboard and bike racks), areas of the Midwest would yield much better geographic segments that match with those products.

Behavioral Segmentation requires close attention to consumer’s spending habits. What patterns emerge not only when they purchase, but also when they look at your website? Amazon is a master at this. If you search Amazon  for something specific they’ll position another relevant product in front of you, and they might even retarget the product you were originally searching for. By understanding customers’ shopping habits, both searching and purchasing, you can understand what product they’re more likely to purchase next. You can also find loyal customers this way, and by word of mouth they can help you spread the word about your product or service.

Psychographic Segmentation refers to all those attributes unique to an individual. These  include personality, interests, beliefs and values to name a few. An example of this segmentation would be something you might be marketing to sell during an election year. If you’re positioning a product targeted to Democrats, it would be tough, and maybe dangerous, to sell your products at the Republican National Convention. On the other hand, if you produce a high quality, nutritious dog treat and use a picture of the cutest puppy you can find to advertise it, you will appeal to the psyche of the dog lover. If you don’t believe me, have a look through an L.L Bean catalogue. They know their customer base of campers, fishermen, and generally outdoorsy people take their dogs everywhere, and so they include plenty of puppies in many of their advertisements.

       

 

Firmographic Segmentation is the process of distinguishing what businesses would be complementary to your product or service, and determining how they market and to whom. Looking again at Grassracks www.grassracks.com, there are many complementary businesses such as board and bike manufacturers, board and bike dealers, and relevant accessory manufacturers, to name a few. Although it is always possible to sell an item in an unusual location, Grassracks products would probably not do well in a store that sells wrestling equipment. The importance of the symbiotic relationship that exists among manufacturers can not be stressed enough. In the Grassracks example above this is very clear. One of the products Grassracks makes is a freestanding surfboard rack. People who surf need a variety of equipment including racks. They also need surf wax, wetsuits, and surfboard covers to name a few items. All of the manufacturers of these different products can help each other when it comes to marketing and identifying common market segments. In addition, surfers create a persona that includes style and fashion, and that transcends surfing. Surf shops often carry t-shirts, jeans, sweatshirts, sandals, shell jewelry, handmade candles etc. They don’t carry evening wear. I’m not suggesting that surfers don’t dress  formally sometimes, but they don’t buy those clothes in surf shops.  (And  let’s face it fellow surfers, which do you prefer, a wetsuit or a formal suit?)  In short, look for other relevant companies whose production lines include products in the same vein as yours. You can help each other thrive with collaborative marketing efforts.   

Criteria for Market Segmentation

We’ve covered what market segmentation is and why it’s important for the marketing campaigns of any business, but how do you know if a market segment is viable and worth targeting? There are certain criteria a market segment should meet. A market segment should be:

 

  • A group of people that can be clearly identified.

  • Large enough to justify a marketing campaign.

  • Accessible and able to receive a marketing message.

  • A group of people that responds to particular, targeted market messages in a similar way.

 

Let’s say you’ve invented a tool that helps plumbers install a particular valve in the field. Plumbers are the general group of people you’ll want to target, but you should be more specific than that and dial in your target audience by finding a segment of that market that will be most likely to purchase your new product. So run down the list of criteria to make sure you’re meeting each one. Can you clearly identify the group of plumbers who typically install the type of valve that requires your tool, or is it difficult to pinpoint exactly what type of plumber is installing that valve? Is the group of plumbers who are most likely to install the valve large enough to justify a marketing campaign, assuming you can only reach a few percent at a time and of that few percent only a few percent will purchase your product. For lower value products you need a larger segment and for higher value products you can sometimes get away with having fewer ideal customers in your target segment. Next, how will you reach your segment? Are they typically buying products online, in stores, through distributors, etc. Then how will you get your marketing message and value proposition in front of your segment without wasting time and resources getting it in front of the larger market of plumbers? Finally, will your segmented group of plumbers all respond similarly to your marketing message, or will they be divided about how it resonates with them? These are all critical things to consider when you’re trying to maximize the return on investment (ROI) of your marketing dollars.

 

Final Thoughts

Segmentation of a market allows for a more personalized experience for your customers than does mass marketing. This in turn will yield a greater ROI for your marketing dollars. You can divide the population into homogeneous subsets using data analysis, and oftentimes just by using common sense. Or you can observe the similarities of those visiting your site and make groupings based on commonality. Regardless, you will be using your time and your dollars more wisely. Instead of “working harder” you will be “working smarter”.

 

 

 

 

Market Segmentation - What is it and How Does it Improve Marketing?

By assuming all members of a large audience will respond the same to a singular marketing message, it’s easy for a company to waste time, marketing budget, and it often leaves customers feeling disconnected from a brand.

Market Segmentation is the organization of a particular audience into groups that each have their own characteristics. It’s more efficient to target each of these segmented groups separately because each group will respond better to more targeted messaging. They will feel like their particular problems are understood and addressed, which builds more trust and a better connection between brand and consumer. This often leads to a higher conversion per marketing campaign, and lower customer acquisition costs.

In this article you’ll learn the importance and process of market segmentation and how it can help to form a well defined target market.

How Market Segmentation Relates to Your Target Market?

What’s the difference between target marketing and market segmentation? Market Segmentation divides a particular market into groups based on needs and/or preferences. Target Marketing attempts to address the specific needs of each segment. Each action works hand-in-hand to allow a brand to connect with each of their audience segments in a way that will resonate the best with them. You can sell the same product or service to different segments in very different ways.

One segment may be more concerned about price while another segment may be more concerned about quality. Another reason to segment and target is if you have one product or service that is mult-functional and actually solves different problems for different groups of people.

Here, we’ll break down each component of the market segmentation process that connects a specific message to a specific group of people.

Segmenting:

Think for a moment about something that has a rather large appeal for the sake of argument, movies. There are roughly twenty movie genres. People are not usually interested in all of them. So, to narrow it down, a market segmentation would filter a certain group of people into what they like.

Since I prefer documentaries and thrillers I would be counted in a segment listing those two genres. If this is helpful, but not specific enough for the researcher, then he/she will have to divide the market further to get more detailed information. The question is, “is there enough money for you in a very specific market you may be interested in targeting”? You must find a viable niche in order to save time and money.

Targeting:

In order to optimize your ability to zero in on an even more perfect audience, you can target each market segmentation. Using the movie analogy and the general market segment I fit into (documentaries and thrillers), you can now tease out subsets, like new or classic thrillers or specific types of documentaries. Let’s say you’re  developing a game based on classic comedy movies. I will likely not be interested. Therefore, I would not be in the group you plan to target.

Positioning:

Marketing positioning refers to how your customers perceive your brand and very importantly how your product compares to your competitors. There are so many criteria in the minds of the consumer including product  features and services, price, quality etc. when he/she is deciding on what product to buy. If you have carefully segmented and targeted the consumer group that seems most likely to be interested in your product, then positioning should be easier than it would be if you attempt to position based on mass marketing.

Product reviews are a very important aspect of positioning. Often the consumer uses reviews to decide between two products. This can be a difficult aspect though, because there will be some people who are very difficult to please and won’t provide helpful feedback.  Some consumers are fussy and fickle. This is important to remember when you consider how you will handle customer relations. Look for trends in the feedback people leave in reviews.

The more people who are impacted by a particular feature in either a positive or negative way, the more likely it is that you need to focus on that feature when developing your product or service. When you do, the customer will recognize that your marketing is personalized and feel that you are strategizing to meet their needs.

By segmenting your ideal customer base and targeting each segment properly, you’ll create strong and effective positioning for your product. It can’t be emphasized enough how important this part of marketing is.

I’ve heard people talk about how a product or service will sell itself, or that “let’s just get as many eyeballs on this as possible and sales will soar”. That’s just not how successful products are launched, especially if you’re just starting out and trying to gain traction. You can have an amazing product or service but if you’re not showing it to people who care about it will be impossible to be successful, and the worst thing is you may never know how good your business really is because you wasted too much time and money putting it in front of the wrong people.

It’s sometimes difficult to even understand how specific you have to be. If you’re in the marketing department at Tesla and you think your target market is anyone who needs a car, it will be very difficult to be successful. But that might not seem intuitive.

You might think, but Teslas are cars and so anyone who needs a car and can drive could be a potential customer for Tesla. In theory, sure, that’s true, but in reality there are plenty of people that need a car who would never consider a Tesla. Maybe they’re too expensive, they’re not interested or concerned about 100% battery power, they might not like the look and feel of the cars, or maybe they’re looking for a truck (that doesn’t look like it belongs on Mars).

You should reverse engineer your ideal customer and figure out every characteristic of them and when you do that with enough ideal customers you’ll find trends. Those trends are what will allow you to segment, target, and perfectly position your business in front of the right customers a majority of the time, and keeping more bills on your bottom line.

Importance of Market Segmentation – Advantages and Benefits

The importance of market segmentation is that it allows a business to precisely reach a consumer with specific needs and wants. That’s not just helpful to your customers, but critical for you as a business to keep your acquisition costs down.

Brands who focus a particular message on a specific group instead of blanketing the entire market with a “one size fits all” message will see much better efficiencies in market costs. Think of ads that you’ve seen where you thought, why the heck am I seeing that? It’s not even remotely relevant to me! That impression and maybe a click, if you’re just curiously browsing, is a complete waste of money for a business trying to connect with the right customer.

Market Segmentation brings organization and control to how you engage and sell to customers. It has significant advantages, but just like anything you can do to improve the efficiency of your business and grow it, segmenting a market and developing a message for each segment is a lot of extra work. That being said, the juice is worth the squeeze and we’ve seen results from clients who wouldn’t go about marketing any other way.

Types of Market Segmentation

You will have to decide which type or types of Market Segmentation will give results that will pinpoint your ideal customer base. In addition, the results will allow you to use your advertising and marketing budgets more efficiently. Customers often know when they are part of your target audience and may be happy that you’re focused on their needs. Here we’ll look at five market segments used for that purpose.

Demographic Segmentation refers to many aspects of the population, the three main ones being age, gender and income. Demographics are often considered one of the easiest ways to segment the market because the information is readily available through census data, analytics software and consumer insights. This information can also be used to change the perception of a brand. In the 1980’s, “Not your father’s Oldsmobile” (https://www.youtube.com/watch?v=8J_ffa-ynNE), was a slogan written to draw a younger driver to the vehicle.

However, be careful when blatantly excluding one segment to target another because this slogan insulted a very well established customer base. Instead, a more generationally inclusive campaign might have been to have a father and son fighting over the keys after an exciting joyride in a stylish and sporty Oldsmobile. And it could have been packed with all the corniness of a 1980’s car commercial… or any 1980’s commercial for that matter.

Geographic Segmentation is just what it sounds like. It defines groups by continent,  country, region, city, borough, etc. This would be helpful if a person’s location influences their decision about whether or not they should buy your product or service.

For example, there’s a great company based on the east coast of the US called Grassracks (www.grassracks.com). The owners of this company design and produce eco-friendly Bamboo Racks for surfboards, paddleboards, skis, snowboards, skateboards and bikes.

If the marketing team for this company decided to allot certain funds to promote its surfboard racks only, their geographic segment would likely not be the Midwest where there are no waves. Don’t get mad Great Lakers, I know there are waves there. That’s not to say Midwesterners don’t surf, but it’s more likely that the majority of surfers, looking for high quality storage racks for their home would be geographically clustered closer to coastal areas where there are more waves.

If however, Grassracks was promoting any of their other products (stand up paddleboard, ski, snowboard, skateboard and bike racks), areas of the Midwest would yield much better geographic segments that match with those products.

Behavioral Segmentation requires close attention to consumer’s spending habits. What patterns emerge not only when they purchase, but also when they look at your website?

Amazon is a master at this. If you search Amazon  for something specific they’ll position another relevant product in front of you, and they might even retarget the product you were originally searching for. By understanding customers’ shopping habits, both searching and purchasing, you can understand what product they’re more likely to purchase next. You can also find loyal customers this way, and by word of mouth they can help you spread the word about your product or service.

Psychographic Segmentation refers to all those attributes unique to an individual. These  include personality, interests, beliefs and values to name a few. An example of this segmentation would be something you might be marketing to sell during an election year. If you’re positioning a product targeted to Democrats, it would be tough, and maybe dangerous, to sell your products at the Republican National Convention.

On the other hand, if you produce a high quality, nutritious dog treat and use a picture of the cutest puppy you can find to advertise it, you will appeal to the psyche of the dog lover. If you don’t believe me, have a look through an L.L Bean catalogue. They know their customer base of campers, fishermen, and generally outdoorsy people take their dogs everywhere, and so they include plenty of puppies in many of their advertisements.

Firmographic Segmentation is the process of distinguishing what businesses would be complementary to your product or service, and determining how they market and to whom. Looking again at Grassracks www.grassracks.com, there are many complementary businesses such as board and bike manufacturers, board and bike dealers, and relevant accessory manufacturers, to name a few.

Although it is always possible to sell an item in an unusual location, Grassracks products would probably not do well in a store that sells wrestling equipment. The importance of the symbiotic relationship that exists among manufacturers can not be stressed enough. In the Grassracks example above this is very clear.

One of the products Grassracks makes is a freestanding surfboard rack. People who surf need a variety of equipment including racks. They also need surf wax, wetsuits, and surfboard covers to name a few items. All of the manufacturers of these different products can help each other when it comes to marketing and identifying common market segments.

In addition, surfers create a persona that includes style and fashion, and that transcends surfing. Surf shops often carry t-shirts, jeans, sweatshirts, sandals, shell jewelry, handmade candles etc.

They don’t carry evening wear. I’m not suggesting that surfers don’t dress  formally sometimes, but they don’t buy those clothes in surf shops.  (And  let’s face it fellow surfers, which do you prefer, a wetsuit or a formal suit?)  In short, look for other relevant companies whose production lines include products in the same vein as yours.

You can help each other thrive with collaborative marketing efforts. 

Criteria for Market Segmentation

We’ve covered what market segmentation is and why it’s important for the marketing campaigns of any business, but how do you know if a market segment is viable and worth targeting? There are certain criteria a market segment should meet. A market segment should be:

Let’s say you’ve invented a tool that helps plumbers install a particular valve in the field. Plumbers are the general group of people you’ll want to target, but you should be more specific than that and dial in your target audience by finding a segment of that market that will be most likely to purchase your new product.

So run down the list of criteria to make sure you’re meeting each one. Can you clearly identify the group of plumbers who typically install the type of valve that requires your tool, or is it difficult to pinpoint exactly what type of plumber is installing that valve?

Is the group of plumbers who are most likely to install the valve large enough to justify a marketing campaign, assuming you can only reach a few percent at a time and of that few percent only a few percent will purchase your product.

For lower value products you need a larger segment and for higher value products you can sometimes get away with having fewer ideal customers in your target segment. Next, how will you reach your segment? Are they typically buying products online, in stores, through distributors, etc.

Then how will you get your marketing message and value proposition in front of your segment without wasting time and resources getting it in front of the larger market of plumbers?

Finally, will your segmented group of plumbers all respond similarly to your marketing message, or will they be divided about how it resonates with them?

These are all critical things to consider when you’re trying to maximize the return on investment (ROI) of your marketing dollars.

Final Thoughts

Segmentation of a market allows for a more personalized experience for your customers than does mass marketing. This in turn will yield a greater ROI for your marketing dollars. You can divide the population into homogeneous subsets using data analysis, and oftentimes just by using common sense. Or you can observe the similarities of those visiting your site and make groupings based on commonality. Regardless, you will be using your time and your dollars more wisely. Instead of “working harder” you will be “working smarter”.