What Is the Market Segmentation Process?
According to Market Research, “The central purpose of market segmentation is to understand prospective customers in order to win over their purchasing decision.” The process of figuring that out is the market segmentation process.
Understanding your customers in order to know who they are and what they value doesn’t always come easy and the process has changed over the years. Not too long ago, there was no e-commerce or Amazon. Mom and pop stores reigned and owners and their employees typically knew their customers by name. They had conversations with them, knew their families and what they purchased. If they wanted to know what their customers wanted, they just asked.
Since then, as technology and consumer buying capabilities have evolved, so have marketing strategies. Understanding prospective customers requires a bit of technology and innovation because there’s so much data around every customer and purchase. Consumer buying habits have changed, particularly now as we are still dealing with the COVD-19 pandemic. Accenture says consumers’ attitudes and buying habits are likely to remain, even after COVID is in our rear-view mirrors.
Companies must be able to pivot their marketing strategies to meet customers where they are at that moment, whether they’re living through a pandemic or a new buying trend surfaces. One-size-fits-all marketing no longer works and a marketing tactic that was effective last year on one segment may not be hitting its mark today. For instance, due to COVID, many consumers are buying more “essential” items and fewer unnecessary items. They have dramatically increased their dependence on digital commerce and buying locally, while others are going on business-as-usual, buying whatever they want across multiple channels. Without an agile market segmentation process, you will waste funds and effort marketing the same way to both audiences.
Why Do You Need Market Segmentation?
As a marketer, your number one goal is to get products and/or services in front of potential buyers. Without a reliable market segmentation process, it’s easy to get the wrong product in front of the wrong person at the wrong time. The equation only works when you know exactly who your segment is, what they value, the best time to reach them, and which channels they’re likely to use.
By breaking down your target market into smaller segments based on similar characteristics, such as demographics, behaviors, geographies or attitudes, makes it easier to pinpoint your marketing strategy and efforts for better outcomes. Trying to reach all people with the same message is less effective and consumes more resources.
When you know your market segments, you can not only deliver what the data shows they want, but you can also identify areas of opportunity to innovate new products or services that your data reveals they would want, even if they don’t know it yet. By using data from across your martech stack, you have data-driven insight your competitors and the market may not have, putting your company in prime position to bring to market the next must-have product or service.
There are many other benefits of the market segmentation process. Here are our top three:
Benefit #1: More targeted marketing messages
Marketing is all about being in the right place at the right time with the right messaging. When you know who and where your potential customers are and what they value, it’s much easier to design marketing content that is likely to resonate.
Understanding their pain points, their buying habits and what motivates them to purchase are just some of the valuable data you can glean from your martech stack. Use it to develop segmented personas instead of mass marketing with general content that is less likely to inspire any new or continued purchasing.
Benefit #2: More customized marketing messages
Just as you want to use the market segmentation process to target your chosen segments, once you know your segments, you can customize your messaging tactics to reach them on a more personal level. There is no way to underscore the value of personalization. Forbes gathered several eye-opening statistics:
- 71% of consumers feel frustrated when a shopping experience is impersonal.
- 70% of millennials are frustrated with brands sending irrelevant emails.
- 74% of customers feel frustrated when website content is not personalized.
- 91% of consumers say they are more likely to shop with brands that provide offers and recommendations that are relevant to them.
- 80% of consumers are more likely to make a purchase from a brand that provides personalized experiences.
- 90% of U.S. consumers find marketing personalization very or somewhat appealing.
- 72% of consumers say they only engage with personalized messaging.
- 63% of consumers will stop buying from brands that use poor personalization tactics
- 66% of consumers say encountering content that isn’t personalized would stop them from making a purchase.
Ouch. Personalization matters. And if you don’t get the market segmentation process right, your marketing tactics may be customized to some but will miss many, even turning them off from your brand.
Benefit #3: Higher conversion rates
This almost goes without saying, but if your market segmentation process yields quality data you can trust, your odds are much better that all of your marketing efforts will translate to conversions. You will succeed at the ultimate goal of marketing: convert potential buyers into confirmed buyers.
And if you really want to over-achieve, you will be able to keep those customers for the long-term with consistent, personalized messaging. Evergage found 98% of marketers believe personalization advances customer relationships. Further, Salesforce found 79% of consumers say they are more likely to stay loyal to a company that understands their personal needs.
What Are the Best Types of Market Segmentation?
When you’re going through your market segmentation process, you’ll eventually have to decide on which segment(s) you want to target. There is no wrong answer here. Each one can yield brilliant results if done properly. It really depends on which segments fit your strategy most.
Segmentation by demographics is the easiest and most common tactic for both B2C and B2B. Most marketers go a step further and break down demographics to subcategories, such as age, location, or a combination of both for B2C, and for B2B, it may be segmented by industry or position.
There are also geographic, behavioral and psychographic segmentation, each with subcategories you can assign to them. Behavioral and psychographic segmentation requires the most data as you are continually collecting bits of information about your consumer from various data points to learn about their values, lifestyles, motivations and more. It isn’t a perfect science, but once you develop personas, you are able to reach people on a more emotional level. Hubspot says emotional marketing works because it makes a first great impression, helps people decide with their hearts, and inspires people to act.
The Key to an Effective Market Segmentation Process
Depending on your marketing goals, which should always be aligned to corporate objectives, you may find different segmentations work best at different times. Your market segmentation process will help you assess your product or service you want to present, create your ideal persona, then back it up with data. If you don’t have good visibility into your martech stack, have fragmented content and resort to manual marketing processes, it’s time for an upgrade.
While martech stacks offer all kinds of functionality, if they aren’t connected, sharing data and accessible without a bunch of manual intervention, you aren’t optimizing the data you have. This is the often critical component in the market segmentation process.
Consider layering software on top of your stack that brings all of the data together for you in one place, ensuring the data is cleansed so it’s accurate, reliable and actionable. You’ll have an easier time developing personas, automating processes, and reaching your target audience with customized content. It makes the market segmentation process much more productive with greater results.