“Good communication is the bridge between confusion and clarity.”
There are a lot of places where communication happens, but there are very few instances where the message is conveyed in the right format. There are high chances for a message to get lost, confused or ignored, especially once your audience increases.
The bigger your database or audience, the broader their preferences, needs and opinions become, which increases the possibility of your marketing message getting lost or going unheard. Market segmentation comes as a solution to this vagueness. Let us understand the market segmentation definition and many other associated aspects.
Table of Contents
What Is Market Segmentation?
Market segmentation is a process of dividing your customers and your visitors into segments based on the qualities they share in common. There is no set format for segmenting your market. You can choose to build groups based on the type of service or product you offer. Hence, you will have a different definition of a market segment from your competitors.
As a whole, this practice allows you to focus your marketing efforts on a specific customer segment, which will help you cater to their specific needs and wants.
Market Segmentation: An Overview
Market segmentation is crucial for businesses to understand and effectively cater to their target customers. Market segmentation involves dividing a broad target market into smaller groups of consumers with similar needs or characteristics. This allows businesses to tailor their marketing strategies and product offerings to each specific segment, increasing the likelihood of success.
Importance of Market Segmentation
Market segmentation is a strategic approach to dividing a broad market into distinct, identifiable segments.
This targeted approach is crucial for several reasons:
1. Precision in Targeting
The practice of market segmentation empowers businesses to tailor their marketing strategies to particular groups that are more likely to respond positively to their products or services. This precision targeting helps optimise marketing budgets and increase the effectiveness of marketing campaigns.
2. Tailored Marketing Strategies
Understanding the characteristics of each market segment enables companies to develop personalised marketing strategies. This can include customised messaging, product offerings, and promotional tactics that resonate with each segment’s particular needs and interests.
3. Enhanced Product Development
Segmentation can inform product development, leading businesses to create products that cater to different market segments’ demands. This results in products being more likely to meet the customer’s needs and, consequently, succeed in the market.
4. Improved Customer Satisfaction
When products and marketing messages are designed with a specific segment in mind, customers are more likely to feel understood and valued. This can result in improved customer satisfaction and loyalty.
5. Informed Decision-Making
Market research plays a critical role in successful market segmentation. It provides the data and insights necessary to identify and understand the different market segments. Through market research, businesses can determine each segment’s size, potential, and unique characteristics.
6. Data-Driven Strategies
Data analysis is integral to market segmentation. It helps companies to identify patterns and trends within their customer base. This analysis supports the development of strategies that are grounded in real-world data, ensuring that marketing efforts are well-directed and more likely to yield positive results.
Objectives of Market Segmentation
The primary objective of market segmentation is to understand the customers and their needs. This knowledge can be used to create targeted marketing campaigns and develop products that meet those needs. Market segmentation can help companies differentiate themselves from their competitors by offering unique products or services. Additionally, market segmentation allows companies to optimise their marketing and advertising budgets by targeting specific segments that are most likely to convert.
Types of Market Segmentation
As mentioned above, there can be several ways to segment the market.
Listed below are the four major market segmentation practices.
1. Demographic Segmentation
This is the most commonly used form of segmentation. As the name suggests, this includes dividing the audience on parameters like age, gender, marital status, occupation, education level, income, family size and so on. This is the most basic form of segmentation since the information here is relatively easy to access and incurs a relatively lower cost for the organisation.
For example, this type of segmentation is a good choice for an automobile company. One company can have both luxurious cars and an economical variant. The company can choose to market the audience based on the type of vehicle and the income of the target group and market specifically to the right set to get the maximum ROI (return on investment).
2. Behavioural Segmentation
Another way to segment the market is by observing the consumers’ behaviour. This can include simple habits like their online shopping behaviour, the most visited day and time of the week, and actions taken on the company’s website, among other activities.
Segmenting the audience based on their real behaviours helps to create messaging that caters to those behaviours. Behavioural data is useful because it tells how an individual interacts with the company’s product or service, thereby enabling more effective marketing strategies tailored to their needs.
3. Geographic Segmentation
Geographic segmentation means categorising the market based on location. Like the demographic form of market segmentation, geographic segmentation is basic but highly useful. Especially, when the company wants to target an advertisement at a particular group of people based on nationality or language.
Football, for example, is more popular in the northeastern states of India in comparison to Cricket. If the company plans a sports-based campaign or a series of articles about sports for that region, it must consider such details.
Companies can also consider different needs in different regions. For example, a clothing company will feature warm clothes for people living in cooler climates and feature the opposite of this for people living in warmer climates.
4. Psychographic Segmentation
Along the lines of demographic segmentation, market segmentation based on psychographics deals with more intangible characteristics like mental and emotional sides. These attributes might not be as easy to get as demographics are, but they provide valuable insight into the motive of the audience. Some examples of psychographic characteristics include interests, beliefs, values, attitudes and lifestyle choices.
5. Firmographic Segmentation
It is a strategic approach used in business-to-business (B2B) markets to categorise organisations into distinct groups based on shared characteristics. This concept is akin to demographic segmentation, commonly employed in business-to-consumer (B2C) markets to classify individuals according to age, gender, income, and education. Similarly, firmographic segmentation considers various attributes of organisations to create segments that can be targeted more effectively.
Unlike demographic segmentation, which focuses on individual consumer characteristics, firmographic segmentation zeroes in on the traits of organisations. These traits include industry type, company size, revenue, number of employees, location, etc.
For instance, a software company may use firmographic segmentation to target small businesses with limited resources by offering a simplified, cost-effective version of their product. Conversely, they might target larger enterprises with more complex requirements by providing a comprehensive version of their product.
How to Get Started With Market Segmentation?
To get your business into the execution phase for this exercise, you can choose to follow this 5 step process:
1. Collect All Available Data
The most important aspect here is to look at all the available data. Explore all the possible channels and create a dump of them.
2. Decide What All Segments You Want to Create
Sit back and think of end goals – business goals & marketing goals. Think about the audience and what gets you the maximum revenue. Further, reduce your list to the required number of segments.
3. Use All Available Marketing Tools
Check the e-mail & SMS marketing tools. Take a sneak peek into the CMS and other tools like Hotjar. Spend time diving deep into these platforms and analysing the behaviour of users.
4. Draft Your Content for Different Platforms
Create the right content for the right set of people. Talk to each of them in the way they would acknowledge.
5. Initiate the Conversation and Track the Metrics
Reach out to all the segments and analyse the difference. Track the metrics and compare the two sets. Repeat the practice that works in favour of a particular segment and revamp the one that does not.
Use Case Examples of Market Segmentation
Market segmentation divides a broad customer base into smaller subgroups based on shared characteristics. This leads to more personalised marketing and product development.
Here is a practical market segmentation example to help you understand this concept.
1. Market and Opportunity Assessments
This involves analysing different market segments to identify growth opportunities. For example, a company might use geographic segmentation to target urban areas with a higher demand for electric vehicles. By focusing on specific segments, businesses can tailor their products and marketing approaches to match the unique needs of each group, thus maximising their market potential.
2. Segmentation and Targeting
This aspect is all about identifying the most promising market segments and crafting messages that resonate with them. A tech company, for instance, might target millennials with mobile apps that emphasise social connectivity, leveraging behavioural and psychographic segmentation. This targeted approach ensures that marketing efforts are concentrated on the segments most likely to convert, leading to better resource allocation and higher ROI.
3. Customer Needs Research
Companies can discover the specific needs of different segments through surveys and focus groups. For example, a healthcare provider may find that one segment values telemedicine for convenience while another prioritises in-person visits for a more personal touch. This knowledge allows for the development of tailored services that directly address the needs of each segment.
4. Product Development
By understanding the preferences of different market segments, companies can design products that appeal to each distinct group. For instance, a food company may develop a new line of gluten-free snacks to cater to health-conscious consumers, a decision driven by demographic and behavioural segmentation.
5. Campaign Optimisation
By understanding each segment’s unique characteristics, marketers can develop personalised campaigns that are more likely to engage and convert. For example, an online retailer might use retargeting advertisements to reach consumers of the niche market who have abandoned their shopping carts. They apply behavioural segmentation to recapture lost sales.
Market Segmentation Strategies
There are five key strategies for market segmentation: researching the market, identifying segmentation criteria, market segmentation, developing targeted marketing strategies and evaluating the segmentation strategy’s effectiveness.
1. Research the Market
Companies should conduct research to gather information about their customers, such as demographics, psychographics, and buying behaviour. This information can be gathered through surveys, focus groups and other market research techniques.
2. Identify Segmentation Criteria
Once companies have gathered data about their customers, they can identify the criteria that will be used to segment the market. This could include demographic factors such as age, gender, or income, geographic factors such as location or climate, or psychographic factors such as values or lifestyle.
3. Market Segmentation
Using the identified criteria, companies can divide their customer base into different segments. These segments should be distinct from one another and should have different needs and preferences.
4. Develop Targeted Marketing Strategies
After identifying the market segments, companies should develop targeted marketing strategies for each segment. This could include creating specific advertising campaigns, promotions, or product offerings that appeal to the needs and preferences of each segment.
5. Evaluate How Well the Segmentation Strategy Worked
Companies should evaluate the effectiveness of their segmentation strategy to determine if it meets their marketing goals. This could include analysing the sales data, evaluating customer feedback, and devising other metrics to determine if the strategy was successful and if any changes are required.
Benefits of Market Segmentation
Have a look at the market segmentation benefits below:
1. Helps to Convey the Message in the Right Way
When the audience is properly segmented, the possibility of vague content almost vanishes. Edit and talk directly to the audience in the way they would relate to.
2. Tells What Works Best With the Audience
When there are multiple ways of marketing, it gets difficult to understand what exactly attracts the audience. Segmenting helps you personalise and get more visibility as it becomes easier to avoid doing generic marketing throughout.
3. Increases Returns on the Money Spent on Advertisements
Whether it is an advertisement on Google, Facebook or any other platform, having a proper target audience in place helps to get the right metrics. Imagine a scenario where a company spends money showing an advertisement to a generic audience. There is a high chance that the company will spend more and yet not get the expected traction. Here, demographic segmentation plays a massive role in getting the desired results.
4. Attracts the Right Set of Potential Buyers
When the message is accurate and clear, there are high chances for the brand to stand out from the competitors. With the right set of segmentation, you draw in ideal prospects who are likely to convert into customers.
Many companies across the globe have tapped into the power of market segmentation and transformed their business. With proper segmentation, it is easier to save on advertisement spending and have a set of all-happy customers. Remember that there is no one way to do this. It is important to test what works best and choose the best for your business.
Market Segmentation’s Limitations
Market segmentation is a useful tool for businesses to target their marketing efforts to specific groups of customers. However, it has some limitations that should be considered before implementing it.
1. Increased Up-Front Marketing Costs
Businesses may need to invest in market research and advertising to effectively reach their segmented target markets. This can be expensive and may not yield immediate results, leading to increased financial risks.
2. A More Complex Product Line
As businesses try to meet the specific needs and preferences of each segment, they may end up offering a wide range of products or services. This can increase operational costs and may be challenging to manage.
3. A Higher Risk of Misassumptions
While businesses may use data to create customer segments, they may not always accurately capture the needs and behaviours of the segment. This can lead to misassumptions about customer preferences, leading to ineffective marketing strategies.
4. Increased Reliance on Reliable Data
Without accurate data, businesses may not be able to create effective segments, leading to ineffective marketing strategies. This requires significant investments in data collection and analysis to ensure that the segments accurately reflect the needs and preferences of the target customers.
How to Ensure Successful Market Segmentation?
This targeted approach can lead to more efficient use of marketing resources, higher customer satisfaction, and, ultimately, increased profitability.
1. Measurable Segments
Measurable segmentation variables are essential because they provide quantifiable data about the market, such as size and purchasing power, which are directly related to purchasing behaviour.
2. Accessible Target Audiences
Accessibility in market segmentation refers to the ease with which a business can reach its segmented target audiences. Aligning marketing strategies ensures that messages are delivered through channels that the target audience prefers.
3. Substantial Market Potential
Segments must represent substantial market potential. This means they should be large enough and have sufficient purchasing power to justify the marketing efforts. Targeting a segment that is too small or lacks the economic means to purchase could result in wasted resources and lower ROI.
4. Actionable Segments
Actionable segments can be effectively targeted with marketing strategies that elicit differential responses. This means that the segments are defined to respond uniquely to certain marketing initiatives.
5. Adaptation and Continuous Improvement
The market is dynamic, and customer preferences evolve. Therefore, market segmentation should not be static; it requires continuous monitoring, adaptation, and improvement to remain effective. Businesses must stay agile and responsive to changes in the marketplace to maintain a competitive edge.
Conclusion
Market segmentation is a powerful tool that allows businesses to target their ideal customers with laser focus. By dividing a broad market into smaller groups with shared characteristics, companies can develop targeted marketing campaigns, create products that resonate with specific needs, and ultimately, achieve greater success.
Frequently Asked Questions (FAQs)
1. What are the 4 types of market segmentation?
The four types of market segmentation are psychographic, which considers motivations and personalities; demographic, which focuses on basic characteristics like age and income; behavioural, which is based on actions and behaviours; and firmographic, which is used for B2B characteristics.
2. What is market segmentation and examples?
Market segmentation divides a target market into approachable groups based on shared characteristics. For example, an athletic footwear company might segment its market into athletes and casual wearers to tailor specific marketing strategies.
3. What is meant by market segmentation?
Market segmentation refers to aggregating prospective buyers into groups or segments with common characteristics, such as demographics, geography, behaviour, or psychographic factors to understand and target them with marketing efforts.
4. What is the process of segmentation?
Market segmentation involves several steps, including determining the segment’s needs, identifying it, assessing its attractiveness, and deciding on the most profitable segments to target with tailored marketing strategies.
