What Is Segmentation Marketing?
Because consumers are so different across demographics, geographies, behaviors and psychographics, it is impossible to capture everyone’s interest with a narrow marketing strategy, such as account-based marketing. Segmentation marketing is a tactic that helps marketers discover their target audiences so they can customize their marketing strategies to specific consumers that share certain characteristics.
Segmentation marketing is all about data, and lots of it. The data is often dispersed among internal and external sources, forcing companies to invest in solutions that pull all of this disparate data together so it can help drive decisions. So many companies believe in segmentation marketing that nearly four out of five U.S. companies planned to increase their spending on audience data and related data activation solutions.
Why Is Segmentation Marketing So Important?
Market segmentation makes for more effective and more efficient marketing. Each failed marketing attempt drains resources and gives marketing a black eye. While not every marketing strategy hits the bullseye, segmentation marketing gets much closer.
Effective communication is the best way to capture the attention of an audience and hopefully, convert them into buyers. Being able to deliver the right messaging at the appropriate point in their purchasing journey is the key to success and can differentiate your business from your competition. But until you understand your audience and can group them together by common characteristics, your communication efforts are, by and large, wasted. Your content will miss a significant portion of your audience, even turning them off to your brand.
For example, if you are a high-end women’s bathing suit retailer, and you write what you think is a clever, on-trend email campaign that is suited to millennials who typically purchase your products and similarly-priced items, why would you bother sending it to broke teens, women over 40 who typically shop at discount stores, or men who wouldn’t know where to start if they even considered buying a bathing suit for their girlfriend or wife? You may hit a few of those in your actual target market, but you could also offend or confuse others with language they don’t understand or cheapen the perception of your brand.
By using market segmentation, businesses can target the groups that are most likely to be interested in their products and services using the marketing mixes that have been customized for those groups. Segmenting your market into “persona” buckets allows you to experience much higher rates of success than mass marketing. Conversion rates on that email, for instance, will be much higher if the email is sent only to the audience your data shows is most likely to respond.
What Should Be the Characteristics of a Market Segment?
There are countless ways by which businesses can divide up the market into market segments, and the best market segmentation considers multiple characteristics simultaneously. This tactic works well because people are not one-dimensional; they are complex. It’s one thing to target an age group and gender, quite another to layer in income level, past purchase history with competitive brands, and seasonal data.
Not all market segments are worth the effort; however, and you need to be able to compare the quality of each segment. For example, size matters. The segment should be large enough and endure for a period of time so that the expected benefits to outweigh the expected costs of implementing a new marketing mix. On the other hand, you want to avoid making the segment so highly-specific that only a small number of people will fit into that segment. Marketing is expensive and you want the most bang for your buck.
What Are the Four Main Bases for Consumer Market Segmentation?
There are four basic market segmentation categories.
Behavioral-based market segments are centered on the potential customer’s behavior. For example, one business might pick out a market segment based on loyalty to their brand. This can be useful because that preexisting positive relationship tends to make it much easier to market to them.
Similarly, another business might choose a market segment based on its sensitivity to price changes, something that can be particularly important for brands with a variety of products and services. Other examples of behavioral-based market segments include the way that people use a particular product or service, the kind of benefits that people want out of a particular product or service, and the purchasing patterns that interested individuals have already shown.
Just about any kind of demographic factor can be used for demographic-based market segments. For instance, clothing retailers often choose to specialize in either men’s clothing or women’s clothing, which may or may not be aimed at a specific age group. Similarly, entertainment companies tend to be interested in knowing who has children in the home, because what is enjoyable for adults might be scary or otherwise unsuitable for children.
Other factors such as ethnicity, income level, and education level are all good pieces of information to know. When combined in market segmentation, they become even more powerful.
The place where people live has a huge influence on their purchases. Compare how people living in urban cores shop compared to their suburban counterparts. For contrast, consider how geography can influence everything from climate to population density and population growth, which in turn, can make for enormous changes in what people buy, as well as how committed they are to buying them.
For example, companies likely will not be selling winter wear to people living in tropical regions in the same way that they sell winter wear in northern states. Their respective climates and possibly geographic proximity to cooler-weather areas mean that different people are going to be interested in such products for very different reasons.
Psychographic-based market segmentation is focused on your customers’ interests, values, and personalities. Psychographic data gets to the bottom of why someone does what they do. While less concrete than demographic data, for instance, psychographic data is extremely useful in understanding what drives your customers.
For instance, if you know that your product sells well to budget-conscious consumers who appreciate products made in the U.S., you can use language in your content that focuses on value and American quality.
What Are the Three Main Categories for Business Market Segmentation?
The main categories used for consumer market segmentation can be used for business market segmentation as well; however, they differ in certain ways.
Buyer behavior-based market segments are very similar to their consumer-focused counterparts. Essentially, these are the market segments based on the business’s purchasing behaviors. For instance, a business might choose to target commercial clients that place orders of a certain size, purchase with a particular frequency, or purchase specific items.
Customer type-based market segments are based on the characteristics of the commercial client. For example, a business may sell products and services to commercial clients operating in different industries. As a result, it chooses to market to commercial clients in each industry in a targeted way that appeals to their particular needs and preferences. Likewise, another business might have commercial clients of varying sizes, leading it to divide its market into multiple segments based on the size of the organization.
Geographic factors are used for business market segmentation in much of the same ways they are used for consumer market segmentation. They tend to be broader in scope and can have multiple locations spread across the globe. As such, a business might divide up its market based on the concentration of potential customers in particular regions or macroeconomic factors.
Implementing market segmentation into your strategy for 2021 will no doubt lead to increased success. The more you can customize your messaging, making it more personal and relevant to your intended audience, the better results you will see. Invest in the right technology that can access and consolidate all of the data required for these insights. Even better, look for software that operationalizes the data to speed decisions.