Guide to Market Segmentation: Types and Benefits
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Guide to Market Segmentation:
Types And Benefits
Table of Contents
Benefits of market segmentation
The importance of market segmentation
How to conduct segmentation research
Different types of market segmentation—with examples
Segmentation mistakes to avoid
How to create a market segmentation strategy
Types of market segmentation strategies
Market segmentation and win/loss analysis
Conclusion
What is Market Segmentation?
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Market segmentation is a particular strategy where you group your possible consumers into groups.
These groups can be based on factors such as:
Companies and businesses can use a variety of market segmentation strategies to better sell to various groups of consumers in distinct ways. Businesses might have many different marketing segments at one time, including:
Knowing the kinds of market segmentation helps you learn about this concept, but learning the specific benefits and how to actually use market segments is what really matters.
Benefits of Market Segmentation
Market segmentation offers many benefits. Here are 12 benefits that you should know:
1. Attract Quality Leads
Targeted marketing attracts and converts consumers already interested in what you have to offer.
2. Better Response Rates
While marketing is often useful in its own right, blanketing everyone with ads yields lower response rates than targeted marketing does.
3. Build Deeper Customer Affinity
Building up brand loyalty creates repeat business and effective word-of-mouth advertising among consumers for you.
4. Create Stronger Messages
When you know certain products or services do well in a particular region, you have the power to come up with more effective marketing messages. Use these to highlight that region so you can target even more potential customers there. Learning what specific customers like, as well as how they shop, means you can design highly effective marketing that draws more of them in.
5. Design Hyper-Targeted Ads
Digital ads let you target very specific groups based on age, habits, purchasing power, and more.
6. Differentiate From Competitors
Some businesses assume that the best thing to do is marketing to anyone and everyone, but this can decrease how effective advertising is. Creating ads that emphasize specific market segments are more likely to register with the very consumers likely to pick your company's products and services, given how they feel a connection to your ads.
7. Drive Growth
The ROI of targeting the right market segment can help spur stagnant sales using the resources that you currently have.
8. Identify the Most Effective Tactics
There are many kinds of market segmentation, and not all of them are appropriate for every company. You might discover that you're sending precious marketing resources into a particular technique that just isn't as effective as other options. Market segmentation lets you identify the specific strategies that will serve your company best.
9. Identify Opportunities
No matter how much you might be rocking your current customer base, new opportunities are showing up all the time.
10. Lower Acquisition Costs
The increased efficiency of market segmentation lets you either make your marketing dollars go farther or you can even generate consistent results while spending less.
11. Stay Focused
By specifying specific groups and aligning objectives with them, you can keep your marketing on track at all times.
12. Stay on Message
Consistent messaging maintains the compounding power of effective advertising without confusing customers about where your brand stands.
The Importance of Market Segmentation
Market segmentation allows you to get a detailed and thorough understanding of your customer base. But, what do you do with all this? There are three primary possibilities you can follow up with.
Reveal Competitive Advantages
Unlock new competitive advantage using market segmentation. Explore new markets as you find growing and even untapped possibilities that feature low levels of competition. High-growth market areas without much competition mean an expansion of your customer base, driving product discovery.
Improve Product Development Process
Your product development process can always stand to improve. Uncover new segments and discover what needs they have. Satisfy the pain points of that group with new products.
Optimize Campaign Performance
Market segmentation work can help your marketing teams tailor their message for stronger communications. Calculated choices reduce your media spending and enhance the cost-efficiency of any marketing campaign.
How to Conduct Segmentation Research
Market segmentation is powerful, but it's also a lot to handle.
Make it all more manageable by breaking it down into the following five stages.
Set an Objective
Identify Customer Segments
Evaluate Target Segments
Develop a Strategy
Identify a Launch Plan
Define the purpose behind your process of market segmentation. Identify the variables and models that apply to the particular market you are in. Formulate a hypothesis based on what you find.
Create a research design. Go about collecting data. Analyze the results. Then, develop your segments. This step either confirms your hypothesis or invalidates it to some degree.
You might have several customers you can pick from, so go with the most viable one. By choosing the optimal customer, you can think of your business as a resource that serves a specific need they have.
Identify specific implications of your chosen persona or segment. Make calculated moves based on that segment, including choosing project goals, ascertaining market viability, and reviewing product status.
Identify who the primary stakeholders are. Communicate your launch plan, and then execute your project accordingly.
Different Types of Market Segmentation — With Examples
There are many different kinds of market segments you can look into. You need to know them to identify and use them, although, they do not all apply to every business.
Behavioral Segmentation
This one is all about customer choices. Looking into the purchasing habits of customers is a very popular way to profile customers to fit them into marketing campaigns. Customer engagement levels and brand loyalty are specific examples of behavioral segmentation. Data is easily collected via consumer digital footprints.
Look into the benefits they were looking for from a product or service, their willingness to buy, the time they spend in the buying process, and specific trends impacting occasions or timing in consumer purchases.
Psychographic Segmentation
This analysis focuses on qualitative traits of customers, including inner traits. These won't be immediately obvious, as they include habits, activities, opinions, values, social status, and lifestyle. It can be anything from certain religious and spiritual beliefs to someone who decides to buy new running shoes every year. Identify something specific about each customer and then cater to it.
Demographic Segmentation
This market segment breaks down customer personas by cursory traits, such as:
● Gender
● Age
● Education
● Income
● Family size
Occupations, political party status, and being a renter or homeowner can also be categories to look into. These segments let you divide up your target audience very quickly, and such information is usually painless to collect. Collecting data is often as simple as interviewing existing customers about their habits, asking quantitative feedback questions. You might also ask qualitative questions. Analysis of customer data can also be useful given the growing efficiency of AI tools.
Geographic Segmentation
The physical location of your customers matters here, since it can impact their lives and decisions greatly. You can zoom in on specific places, such as countries, states, cities, and even ZIP codes, or you can sort by economic status, regional climate, and population density.
Another popular strategy from companies is targeting cities that have a strong presence of their buyer types. If you are targeting tech companies or tech workers do some research to identify cities with a vibrant tech economy.
Firmographic Segmentation
If you serve B2B markets, then firmographics are the equivalent of demographics to people. Firmographics are also useful if you're looking for investment opportunities in other organizations. You can break these down into nonprofits, businesses, government agencies, small retailers, and even independent contractors.
Categorize them by funding, scale, and size, as you consider annual revenue, performance metrics, the average sales cycle, ownership, and organizational trends.
Technographic Segmentation
Getting technical is going to happen with any segmentation, but sometimes, the technical aspects are what deserve attention. Anticipating prospect needs and then timing your product sales or price points for them is one such example. You can also review technical points to improve your current sales efforts either instead of or on top of finding new markets.
Looking for sales barriers is always a good idea, and a technical approach can help you overcome them. Improving marketing messaging will help any segment, and getting a competitive advantage is always something you want to happen. Customized and frictionless sales processes let you provide things others can't.
Generational and Life Stage Segmentation
This particular segmentation strategy revolves around grouping segments based on either age or what stage of life they are in. This allows for precision targeting of what people need or want for where they are in life. Specific examples might include:
● Working adults
● Young married couples
● School kids
● Teens
● Retirees
Transactional Segmentation
This is also known as RFM modeling. Here, you look into consumer spending patterns to identify who is most valuable. RFM stands for:
R - Recency, as in how recently customers bought from you.
F - Frequency, as in how frequently they buy from you.
M - Monetary, as in how much they usually spend.
If you're looking to re-engage customers that have loyalty cards but haven't visited lately, then you can use their transactional data approach to create sales and opportunities that lure them back in.
Ensure Effective Segmentation
Knowing your market segments helps, but you need to also make sure that they are useful segments. Ensure each segment passes the following four tests:
1. Measurable You need to know how much anyone in a particular segment is willing to spend on your products and services.
2. Accessible Are your products and services actually affordable to this market segment? Can you price them where they are willing to spend and still make a profit?
3. Substantial Affordability is important, but does it matter enough to this market segment that they would see value in doing it?
4. Actionable What would it take to actually convert interest into sales?
Segmentation Mistakes to Avoid
The process of market segmentation might look rather simple, but there are still potential errors that frequently happen. Be sure you avoid these when you implement your company's market segmentation strategy.
Making Segments Too Small
If you make market segments too small, it might be because you are getting far too specialized. Smaller segments can prove difficult, imprecise, and limiting regarding your total addressable market. Keep your objectives in mind, and be sure your market segment size is enough to let you actually meet your goals.
Not Letting Segments Change
Your return on investment is the one metric that tells you if a market segment needs to be changed or tweaked. Review your tactics and pricing to identify specific factors that might need attention.
Ignoring New Segments
As much as you might need to change a specific market segment you've identified, also keep in mind that markets will change on their own over time. Don't miss out on possible customers by only paying attention to your current or older segments. Always look for new options to open up.
How to Create a Market Segmentation Strategy
Knowing what market segmentation is can help you deeply understand your company's business. However, it's most useful if you actually apply it. Utilize these market segmentation processes to discover more about your audience while you also find new opportunities for both products and marketing:
Analyze Existing Customers
Create a Buyer Persona
Identify Opportunities
Research Potential Segments
Test and Iterate
Audience analysis helps you to get to know your current customers so you can identify common characteristics and trends within them. Market research questions are how you do this. This process should involve:
● Customer interviews
● Interviews with your sales team
● Reviewing current business data
● Going through website analytics
● Seeing what customers are looking for
Audience analysis helps you find out who your existing customers are. The next logical step is taking that data to create a specific buyer persona, a quasi-fictional description of what your best customer looks like. Visualizing them helps you understand how to attract them.
When you have a sound buyer persona representing your ideal customer, you can start hunting out new opportunities for market segments. Consider what your brand solves, does better than the competition, where you excel, and who you like to serve. Look for segments that are underserved or not served at all, as well as common qualities and characteristics.
Before launching your marketing campaign in a new segment, be sure that it's actually viable. Look at what your competitors do. Also, verify that audiences are actually interested. Looking into the share of voice can tell you the websites that get traffic for particular keywords as well as how much traffic they have. Doing so lets you identify potentially competing brands already in that market segment.
Once you have a new market that you'd like to look into, don't jump in feet first right away. Run a few different campaigns for idea testing. Try out a new market with multiple campaigns to see which idea hits off with audiences the best. Even tiny market tweaks can yield significant results, so keep doing testing iterations while always learning.
Types of Market Segmentation Strategies
The two primary kinds of market segmentation strategies you can use include targeting and positioning. Targeting can include:
Identifying a market share broad enough to warrant spending.
Noting what is different about every segment and associating values with those differences.
Estimating the potential profit from any investments made in a certain project or campaign.
Analyzing the accessibility of a target segment.
Product positioning is the next strategy, where you use focus groups and surveys to identify customer feedback trends, ask customers to provide ratings of competing products, and use other techniques to evaluate gaps between your product, the competition, and the market need.
Market Segmentation and Win/Loss Analysis
Win/loss analysis has typically been viewed as a one-off market research project. Clozd provides services and technology that make win/loss analysis a core part of you company's ongoing strategic decisions. To build a winning culture the reasons your company wins and loses and the initiatives to win more should be a constant, living and breathing part of your business.
One of the strongest growth strategies is deeply understanding how your buyers make decisions, and what they think of your company's offering and sales approach. Clozd provides multi-channel analysis programs that include adaptive buyer interviews, buyer surveys, sales interviews, and sales surveys. This data is gathered into the Clozd platform where stakeholders in your business can identify actionable insights.
Win/loss analysis works hand-in-hand with market segmentation because you are getting real feedback from buyers about what is working, what isn't, and what is impacting purchasing decisions. You can use win/loss analysis to build segments that you will win more in. Alternatively, you can use it to figure out how to win more in weaker segments.
In Conclusion
Mastering market segmentation can mean mastering success for your business. We encourage companies that are getting started with an immature win/loss program to use market segmentation techniques to point the program into areas of concern. For large companies with multiple product offerings this is critical. It takes time and money to build out a multi-product, full pipeline covering win/loss program. Using market segmentation to identify possible geos, products, pricepoints, or more can help you narrow your focus and get started.
If you want to truly learn the ins and outs of utilizing this to its utmost potential visit here to learn how to do win/loss analysis and start winning more in your most important segments.
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