What Is market segmentation and how do I make It work for me?
READ TIME: 13 MINUTES
Calendly, March 02, 2020
If you could sit down and have a one-on-one conversation with every customer, marketing would be easy. You could cultivate true personal relationships with everyone and send the perfect targeted emails. That might not be possible, but market segmentation is the next best thing.
The basics of market segmentation
Market segmentation is an effective and cost-efficient way of maximizing the relevance — and in turn the ROI — of your marketing efforts.
Audiences aren’t homogenous. They’re not all interested in the same products or services, and they don’t respond to the same marketing messages. If you send one general message to the whole group, some will find it relevant, but others won’t.
Market segmentation lets you divide your audience into smaller groups with particular characteristics in common. Those shared characteristics become the basis for targeted marketing campaigns, every aspect of which is geared toward a specific audience group and what they have in common.
Why is market segmentation important?
Today’s consumers want and expect personalized messages. According to research from marketing expert Accenture, 91% of customers prefer to shop with brands that recognize their preferences and provide relevant suggestions. They engage with relevant messaging, and those messages get results.
On average, segmented campaigns drive 760% more revenue than general campaigns. They also get 14% more opens and 55% more clicks, according to email marketing group Mailchimp. The result is a marketing strategy that brings in more revenue — and reaches more customers — for the amount spent.
What types of market segmentation are there?
The success of any segmented marketing campaign depends on the company’s ability to find and target the right segments. The first step is understanding the types of segmentation that are out there and how you can use each one.
1. Geographic segmentation
Sometimes, where someone lives can make a big difference in what they want and need from a company.
2. Product and location relevance
If you market to more than one geographic region, you probably have different product or service profiles for each. For example, a brand that sells outdoor apparel is unlikely to market parkas and snow boots to customers in Louisiana, but customers in Minnesota and Alaska are likely to still be interested in those products in March. By segmenting the market based on geography, a company like this can reach customers for whom specific products are relevant.
3. Lifestyle differences
The lifestyle of someone in a densely populated city is very different from that of someone in a suburb or rural area. You might find that by changing the language or images in your marketing campaign, you can speak to those segments more relevantly. You may also need to market different products and services based on the lifestyle of a particular area — for example, you should only market backyard leisure products to customers who are likely to have yards.
4. Location-based marketing
If you have physical locations, or different services in different locations, geographic segmentation can help you target your marketing to people in those communities. Consider the following ad from a fitness center in Summerville, South Carolina:
There are several benefits to a message like this. First, you know you’re advertising a location that’s geographically accessible to the recipient. By marketing it to local audiences, you increase the message's appeal.
Segmenting by demographic means sending different messages based on factors like age, gender, family status, income, education level, and so on. These factors impact almost everything about how a person relates to a brand.
1. Age and life stage
If you have a marketing campaign geared to teenagers, you’re better off posting on Snapchat, which is the platform of choice for 69% of 13- to 17-year-olds, as opposed to Facebook, which only attracts 51% of users in that age group. If you’re targeting seniors, though, Facebook is a great choice — it’s by far the most popular platform for adults 65 years old and older.
Marketers are also getting a lot of mileage out of generational segmentation, gearing their content toward baby boomers, Gen Xers, millennials, and members of the up-and-coming “Generation Z.” Segmenting by generation lets you design your campaigns to speak to the common values and lifestyles of a particular age group, and there’s been a lot of research into what appeals to each generational group.
Be careful, though — when you segment by age, it’s important that you avoid pandering or falling into stereotypes. Keep your brand voice authentic, no matter what age group you’re talking to.
2. Family status
In 2007, Johnson & Johnson launched its iconic “Having a baby changes everything” campaign. It’s a perfect example of family status segmentation and an explanation of why family status segmentation works, all wrapped up into one slogan.
The “Having a baby changes everything” ad series spoke to the fact that when someone’s family status changes, so do their priorities. They transition from thinking about how a particular decision would impact them, to thinking about how that decision would impact their children. This dramatic shift influences not just what people buy, but also how they respond to advertising.
Single people buy different consumer goods, take different vacations, and seek out different entertainment than people with children. An outdoor goods company, for example, might market a “tough and rugged” patio dining set to a parent of three small children, while the advertising for singles and child-free couples might feature a patio bar or fire pit.
Family status segmentation also lets you target your messaging based on relevant values and priorities. A pool company might have images and messaging of splashing children for their young families, lounge chairs and cocktails for their singles, and a vibrant gray-haired couple poolside for their empty nesters.
Gender is also a popular segmentation variable, particularly in industries like personal care and clothing that target products specifically for men or women.
Gender segmentation is a straightforward way of reaching relevant audiences with your messaging. Tread lightly, though — it’s easy to make assumptions that audiences will interpret as sexist.
Don’t target women in the marketing for your new line of cleaning products. Avoid assuming that all men like sports and dislike dancing. Assumptions like these will narrow your market, which is the opposite of what segmentation is designed to do.
4. Income and spending levels
A marketing campaign will only get conversions if it’s selling a product or service that’s within the recipient’s price range. With income segmentation, you can market your offerings only to those recipients who can afford them. It’s an effective way to reduce marketing spend waste, and it improves your relationship with your customers at the same time.
Think of it this way. If you can barely afford your studio apartment, which brand would you have a more favorable impression of — the one that sends you an email ad for Gucci, or the one that sends you coupons for household essentials?
It’s not just the content of ads that resonates differently with people of different socioeconomic statuses, either. Lower-income consumers tend to respond to statements of value, and that doesn’t just mean savings and promotions. It means telling them what they’ll get for their money and why the purchase will benefit them.
On the other end of the income scale is the luxury consumer, who is most interested in being part of an exclusive experience. Sometimes that means they’re after the sensory experience — the streamlined look of the high-end handbag, for example, or the comfort and convenience features that come with the luxury lifestyle. For other buyers, it’s more about presenting themselves to others as successful and fashion-forward.
Keep in mind that the highest spenders aren’t always in the highest income brackets, just as the lowest spenders aren’t always the poorest. Segmenting based on price match means considering purchase patterns as well as earnings.
5. Multiple demographics
Demographic segmentation can be particularly effective if you segment based on multiple qualities. For instance, if you create a marketing campaign to promote your new line of luxury coats to women ages 35-55 who live near your store locations, you dramatically increase the chances that your recipient will find the message relevant.
Another popular technique is to segment audiences based on how they interact with your brand and make shopping decisions in general. Salesforce defines six aspects of behavioral segmentation:
1. Pre-purchase behavior
You can learn a lot about how to market to a customer by analyzing what they do before they buy. If your customers research products extensively before clicking Buy now, comparing prices and reading reviews, your marketing materials will look very different than if you sell mostly to impulse buyers.
You can learn a bit about your customers’ pre-purchase behavior by analyzing your marketing and website data, but you’ll get more detailed information if you add customer surveys to the mix. Different people will probably have different pathways to purchase, so make sure you also ask demographic questions. That way, you can craft even more relevant messages.
2. Occasion purchasing
It’s important to know whether your customers are regular shoppers, special occasion buyers or something in between. Some of this information will come naturally from your industry, but there will be some surprises. If you own a flower shop, for example, you’ll probably have some occasion buyers, but there may also be shoppers who come in for a new batch of fresh flowers for the kitchen table every Friday. You’ll want to create different segments for these two groups.
3. Heavy, medium or light use
To maximize the ROI of your marketing spend, you want to gear your messaging to how often people shop and how much they spend. It’s worth wooing your biggest spenders with regular messages and highly personalized campaigns, but you also need to keep middle-of-the-road shoppers coming back regularly with special promotions and ads. You’ll invest a bit less in your lighter shoppers, but that’s okay — the return will probably be less anyway.
4. Reasons for choosing you
You need to know why customers buy from you if you want to create a strong behavioral segmentation strategy. Find out why they choose you over a competitor. Is it a feature of your product? The convenience of your store? Your shipping policies?
Customer surveys will help you get these answers. You can even send out just one survey and get useful information on the entire shopping journey, including how people get to you and why they buy from you in the end.
Some people choose you because they’re loyal, and you want to focus some special attention on these buyers. Surveys can reveal your most loyal buyers, but so can your purchase records. Who’s been with you for a long time? Who buys from you regularly? Consider making this group into its own market segment, because you'll want to target them more often and send them special offers.
6. Buying stages
One extremely useful way to segment is by buying stage. If you’re targeting people who have only just discovered your company, you’ll send them a different message than you’d send to long-time customers. Likewise, if someone buys from you often, you’ll speak differently to them than you would to someone whose last purchase with you occurred a year ago.
If behavioral segmentation is partially about getting into your shoppers’ heads, psychographic segmentation goes the rest of the way. With this technique, you determine your marketing divisions based on how your shoppers think, feel and perceive the world.
Psychographic segmentation helps you to develop campaigns based on interests and hobbies. A sporting goods company would use this technique to promote running shoes to marathoners and cleats to soccer players. It’s highly effective in making your marketing relevant, but it does involve more in-depth research techniques like focus groups and detailed surveys.
This kind of personal segmentation also involves researching and speaking to people’s personalities and values. You learn who they are as people and what inspires them to take action.
Are they trend-conscious, motivated to buy when something’s in style?
Are they helpers who prefer to buy from brands that give to their communities?
Are they politically conscious, supporting brands that take a stand on certain issues?
Do they value their time, meaning they’ll spend on convenience, or are they more interested in saving money?
The answers to these questions will help you cut through the noise and craft messages that matter to your customers. There’s a short-term benefit to this technique as well as a long-term advantage because when you connect to people’s deeply held values, you nurture more meaningful relationships.
How do you implement market segmentation?
Every market segmentation effort begins with research and strategy. It’s about matching what you want to promote with who will be most likely to respond, then designing your promotion so that it takes advantage of the match.
Step 1: Choose your segmentation factors
You don’t need to segment based on just one factor, or even just one category. You can target a particular campaign to parents of young children who live in a particular geographic area and enjoy cartoons, for example, or young professionals who buy luxury home goods. The goal is to create a segment that you can target precisely.
Step 2: Create buyer personas
If you’re segmenting based on multiple factors, it’s especially important to have a clear picture of who you’re talking to. Create a buyer persona, which is essentially a character sketch of your target customer.
Add as many details as possible, including inferences that you’re able to make using your available information. For example, if people in a certain segment usually buy from a particular price range, you can add that shopping habit to your persona.
Step 3: Decide on your method of delivery and craft your messaging
Your chosen segments and buyer persona will help you decide how you want to market to this group of customers. Will it be social media or email? A YouTube video or a pop-up? Consider your segment and what media the people in that segment tend to consume.
Once you know your medium of communication, you can think about the message. What will resonate with this particular customer grouping? How will you phrase it and what kinds of visuals will you use?
A/B testing can help. Send two versions of a message to your target segment and see which gets the stronger response. The results will inform your current and future campaigns.
Step 4: Track results and keep collecting data
Make sure you have your marketing tools set up so you can collect information about how your chosen segments respond to your campaign. That way, you can refine your strategy even further in the future.
Collect information about who buys your products and what they buy, and continue to gather that data as you go forward. That includes information that you learn when meeting with customers. Even a customer’s preferred meeting time can tell you when they’re most receptive to marketing.
A final word
Market segmentation isn't a one-and-done effort. It's a way of reaching out to customers, making sure that you're sending relevant messages, and using your marketing budget as efficiently as possible.
Every bit of customer data you collect can help you to refine your segments more effectively. Keep collecting and analyzing, and remember — no piece of information is too insignificant. It’s all about getting as specific as possible!
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