Thorough market research helps your company create an effective marketing strategy that improves your bottom line. Market segmentation is important because it identifies the characteristics of your customer base and uses it to create the right marketing mix for your products and services. This article will explain market segmentation and offer recommendations for best practices.
What is market segmentation?
Market segmentation is the process of dividing your target market into different groups based on shared characteristics such as personality traits, geographic location, age, gender, lifestyle, interests, or behavior patterns.
Once you identify smaller customer segments, you will be able to use them to plan product development, sales, and various marketing and advertising strategies. Market segmentation allows your company to improve the customer experience by using product differentiation that appeals to your target audience.
Segmentation also shapes your marketing campaign strategy. Knowing more about your existing and potential customers—including how and why they make purchases—lets you create the right marketing mix to reach them in the right place, at the right time.
8 types of market segmentation
There are countless ways to segment your target audience and no single method is always the best choice. The segmentation methods below are just some of the categories used by marketing professionals to create effective market segmentation strategies.
1. Geographic segmentation
One option is to divide your customers by where they live. This could mean segmenting by country, state, or zip code. You could also segment by rural versus urban customers. Geographic segmentation is usually simple to achieve since the data has fewer points and is objective.
2. Demographic segmentation
Another fairly simple method of segmentation is to use demographic information such as age, race, marital status, family size, gender, ethnicity, or income. Demographic information can be obtained directly from customers or through government sources. People from similar demographics often hold similar values and purchasing patterns, so demographic segmentation is helpful for creating targeted marketing messages and tracking changes in a given segment over time.
3. Behavioral segmentation
Insights on customer behavior provide information about how consumers make purchases and how your company can best win their loyalty. Behavioral segmentation is based on purchasing habits, purchasing motivation, the stage of the buying journey, and other factors. Identifying buying behaviors allows you to create a very personalized customer experience.
4. Psychographic segmentation
Just as important as how your customer base is making purchases, is why they are making purchases. Lifestyle, opinions, values, and personality traits help companies to understand the motivations behind purchases. Psychographic segmentation information is often located through surveys and other direct communication with customers.
5. Firmographic segmentation
Similar to demographic segmentation, firmographic segmentation is used by B2B companies to identify the characteristics of businesses. This includes company location, company size, industry, and number of employees. B2B purchasing decisions often follow predictable patterns based on industry standards, so this information shapes effective marketing aimed at your target personas.
6. Seasonal segmentation
If your company has a busy season and a slow season, you will want to consider seasonal segmentation. Seasons may include weather, time of year, certain holidays, or sports seasons. Seasonal segmentation allows companies to save their resources and marketing budgets for the highest revenue periods.
7. Transactional segmentation
Transactional segmentation looks at the way customers make purchases. By examining their purchase history, you can divide your customer segments based on type of product purchased, amount spent per transaction, number of transactions in a specific time period, or the use of promotional codes or coupons. This allows you to create price tiers or create a new product that will be appreciated and used by your customers.
8. Lifestage segmentation
Some industries depend on their customers’ stage of life. Buying a home, having a baby, getting married, and retiring from the workforce are all times when certain purchases are made. Lifestage segmentation is particularly useful when creating niche marketing campaigns or aiming to improve the customer experience.
Why is market segmentation important?
Marketing is not a one-size-fits-all endeavor. If your brand uses a single strategy for all markets, you will miss out on important opportunities and ultimately waste resources. Market segmentation lets your company develop the right marketing mix for each of your customer segments.
There is more to marketing than just ad spend. The products and services your company creates must meet the needs of those you hope will purchase them and be priced appropriately for your target audience. Your products should also be offered where your potential customers will see them and be able to interact with them.
Benefits of market segmentation
There are many ways that your company benefits from market segmentation. Learning valuable information about your customers lets you make informed marketing choices.
Attract new customers
Whether your company has an established client base or is just starting out, there are always more customers out there. Market segmentation increases conversions by reaching out to the right audience in the right way.
Improved customer experience
Market segmentation allows you to create the personalized experiences that consumers want. This increases brand loyalty and helps your company stand out from the competition.
Use resources more efficiently
Time is money. Market segmentation lets you focus on the consumers that are most likely to use your products and services rather than attempting to please everyone at once.
Improve product design
In order for your products to be successful, they must provide value to those that use them. Market segmentation provides insights into what your customers find lacking from your competition, allowing you to implement appropriate product differentiation and meet market demand.
Determine the right price for your products and services
Designing the best product on the market will not improve your bottom line if your customers cannot afford it. Similarly, underpricing your offerings is a missed opportunity for profit. Knowing the income and priorities of your customer base lets you pick the right price point to balance revenue and value offered.
Create more appealing marketing campaigns
When you know what motivates your potential customers, you are better able to run campaigns that are well-received. Use factors like age, location, recent life events, and habits to reach your buyers where they are in life.
Tips for market segmentation
As with any marketing strategy, implementing market segmentation correctly can increase revenue and customer loyalty, but doing it wrong can be costly. Many factors will affect how your company uses market segmentation, but some basic guidelines apply.
Best practices for market segmentation
- Do your homework: Research your target market and determine their needs and preferences. Consider the size of the market and the need for your goods or services within that market.
- Pick a segmentation type: Decide which of the types of market segmentation from the above list you will use to segment your market. The market segmentation criteria you use will depend heavily on your offerings. Depending on your products or services, you may want to use more than one type of segmentation.
- Research your segments: In order for market segmentation to work, you need to learn all you can about each segment. Get data in the form of surveys, polls, or focus groups to ensure that you understand the motivations, beliefs, and other purchasing factors for each group.
- Create your segments: Go through all the research you have done and decide which customer segments are most likely to need or want the goods and services you provide. Make sure that each segment can be easily defined and measured.
- Create targeted marketing strategies: Evaluate your segments and decide what actions you will take to personalize your marketing efforts. This may include product differentiation, pricing tiers, different marketing platforms, or other actions that differ between your target customer groups.
- Evaluate your results: Once you’ve implemented your market segmentation strategy, you have to see how effective it was. Analyzing the results of your campaigns could mean tracking sales data or conducting customer satisfaction polls or surveys. If something did not work as expected, make the necessary adjustments and try again.
Start employing marketing segmentation strategies in your digital marketing activities for a greater customer experience and, ultimately, more revenue
Personalized experiences can and should be employed with today’s technologies to create the best customer experience possible.
Ready to make market segmentation work for your company? Connect with an experienced digital marketing provider in your area.