Segmentation

What Is Segmentation?

Segmentation is the process of dividing customers into smaller, more manageable groups based on shared characteristics. These characteristics can include demographics, behaviors, interests, or needs. The goal is to tailor marketing efforts to specific segments, making them more effective and relevant. 

Segmentation helps businesses understand their customers better, improve targeting, and increase the efficiency of their marketing strategies.

Types of Segmentation

There are many ways to segment an audience, and each company must decide which is most valuable and relevant to their efforts but most segmentation falls into one of the four categories below. 

• Demographic: Demographic segmentation is usually the first type that comes to mind when considering how to divide an audience into appropriate market segments. This category of segmentation includes user properties such as age, gender, marital status, household income, presence of pets or children, education, etc. 

• Psychological: Psychological segmentation can be a bit more difficult because it requires a more nuanced understanding of why customers make the purchases and choices that they do. This data is often collected through qualitative feedback and may include market categories such as early tech adopters, sustainability-minded buyers, outdoor enthusiasts, cosplayers, frequent travelers, etc. 

• Behavioral: Behavioral segmentation is often tied to the brand relationship of customers and is based on actions they have taken towards the brands’ offerings. In short, behavioral segmentation is based on what customers do while interacting with a company. Some common examples include the audience of an email or SMS list, first-time purchasers, repeat buyers, subscribers, lapsed subscribers, and those with abandoned carts. 

• Geographic: Although occasionally included under demographic segmentation, geographic location can be of particular relevance to digital marketers, especially for companies with a national or international presence. Geographic user data can help optimize the user experience through language, currency, holidays, proximity to brick-and-mortar stores, and more. 

Aside from the four main categories of segmentation, there are other ways that the evolving digital landscape can create and track market divisions. Some emerging methods of audience segmentation include:

• Technological: Customizing a user's experience for mobile vs. desktop is smart segmentation.

• Level of Engagement: The user journey isn’t nearly as linear as it once was, and brand/consumer interactions happen across many platforms and methods of communication. One way to support an omnichannel approach is to segment users by engagement to reward your most active clients or to encourage others to join the conversation. 

• Point of Discovery: This method of segmentation is based on how customers find your brand and products. Some examples include differentiation based on which ad was clicked, where the ad was placed, or which acquisition channel brought them to your website. 

Why Is Segmentation Important?

Segmentation is a critical component of effective marketing strategy for several reasons:

1. Targeted Marketing:

Segmentation allows businesses to divide a broad customer base into smaller, more manageable groups with similar characteristics, needs, or behaviors. This enables more precise targeting, ensuring marketing efforts resonate with each specific group.

2. Personalization:

By understanding the distinct needs and preferences of different segments, companies can tailor their products, services, and marketing messages. Personalized experiences lead to higher customer satisfaction and loyalty.

3. Resource Optimization:

Segmentation helps allocate marketing resources more efficiently. By focusing on the most profitable or receptive segments, businesses can maximize the return on investment (ROI) of their marketing efforts.

4. Competitive Advantage:

Identifying and targeting niche markets or underserved segments can provide a competitive edge. It allows companies to position themselves uniquely in the market and meet the specific needs of these groups better than competitors.

5. Product Development:

Insights gained from segmentation can guide product development. Understanding the preferences and pain points of different segments helps in creating products or services that are more likely to succeed in the market.

6. Improved Customer Retention:

By addressing the unique needs of each segment, companies can enhance customer satisfaction and loyalty, leading to improved retention rates. Happy customers are more likely to repeat purchases and recommend the brand to others.

7. Effective Communication:

Segmentation enables more effective communication by allowing businesses to craft messages that speak directly to the interests and concerns of each group. This increases the likelihood of engagement and conversion.

8. Market Identification:

Segmentation helps in identifying new market opportunities. By analyzing different customer groups, companies can discover unmet needs and expand their offerings to capture additional market share.

9. Enhanced Measurement and Analysis:

With segmentation, businesses can better measure and analyze the performance of their marketing strategies across different groups. This provides valuable insights into what works and what doesn’t, enabling continuous improvement.

10. Adaptability and Flexibility:

Market conditions and customer preferences change over time. Segmentation allows businesses to remain adaptable and flexible, quickly adjusting their strategies to meet evolving demands.

In summary, segmentation is crucial for creating more effective, efficient, and personalized marketing strategies that drive better business outcomes and foster stronger customer relationships.

Criteria for Effective Segmentation

For segmentation to be effective, the segments must be:

1. Measurable: The size and purchasing power of the segment should be identifiable.
2. Accessible: The segment should be reachable through existing marketing channels.
3. Substantial: The segment should be large enough to justify the resources required to target it.
4. Differentiable: The segment should respond differently to various marketing strategies, indicating it is distinct from other segments.
5. Actionable: It should be possible to develop effective marketing programs for the segment.

What are the levels of segmentation?

The process of effectively segmenting a brand’s audience is an ongoing one. It can take years for a growing company to find and define its audience(s) and even for established brands, appropriate segmentation can change based on any number of factors including social, political, and economic shifts and trends. There are, however, four levels of segmentation that describe the nuance of a brand’s understanding of its audience, and smart marketing teams are always working to create more effective segmentation.  

Mass Marketing: No segmentation. The message and product is essentially the same for everyone who encounters it. This is most often effective either for younger brands that are discovering their audience, or universally appealing brands that are so firmly established they do not need to segment their audiences, such as Coca-Cola, or Q-tip brand cotton swabs. 

Segment Marketing: There is a broad understanding of different audience segments in this style of marketing and the messages can be tailored to various customer personas. An example of segment marketing would be a clothing brand advertising their maternity collection in parenting outlets and promoting travel gear in outdoor adventure outlets. 

Niche Marketing: For many brands, niche marketing is the goal of audience segmentation. When a brand has found a niche, it can often lead to a high level of success among a loyal customer base that feels a high affinity for the brand and products. Aside from high customer loyalty, another advantage of niche marketing is the ability to control a market share within a well-defined segment. An example of highly successful niche marketing would be Subaru’s American campaign geared towards lesbians in the 1990s. By successfully identifying a segment of their existing audience and purposefully dedicating marketing efforts toward similar potential customers, Subaru enjoyed financial and cultural success. 

Micro Marketing: This level of segmentation is neither attainable nor ideal for all brands, so while it may be the most nuanced level of segmentation, it is not an appropriate goal for all campaigns. Micro marketing functions at a granular level with products and messaging targeted to hyper-specific customer types or even individual buyers. A small-scale example of micro-marketing would be a designer that creates custom wedding dresses, while a large-scale example would be Starbucks’ location-specific drinkware. 

How to determine segments

Determining the segments of one's audience can be a time-consuming and labor-intensive project, but CoSchedule market research has found that segment-based campaigns can be up to three times more effective than mass marketing. To determine your market segments, follow these steps: 

1. Review Existing Customer Data: It’s likely that you already have a significant amount of information from your customer base, from shipping addresses to the frequency of purchases, ratings and reviews, interactions on social media– all of these can be data points that help to paint a picture of who your customers are and their relationship to your brand and offerings. By taking the time to analyze this data, especially if you can do so with the help of a CRM or analytics tools, you can start to define audience segments. 

2. Fill in the Gaps: Once you have a clear understanding of what your existing data is telling you, it’s time to go after what it’s not telling you. What questions do you have about your audience? What insights would be valuable? Which of your past campaigns have soared and which have flopped and why? When gathering audience insights, try to go as close to the source as possible, ideally collecting zero-party data directly from your customer base. Be sure to include both quantitative and qualitative questions in your research so that you can work from measurable statistics as well as more nuanced insights. P.S. Don’t forget to thank your audience for their insight! 

3. Define and Refine Segments: As data comes in and is analyzed, audience segments will hopefully start to emerge. In order to determine if an identified segment is valuable for marketing purposes, consider if it has all of the following five qualities:

• Measurable: A meaningful audience segment should be data supported in terms of demographical data, lifetime customer value, and purchasing patterns, etc. 
• Substantial: An identified segment should represent either a significant percentage of your audience or a significant percentage of potential revenue in order to be worthwhile.
• Differentiable: If the same marketing campaigns or ad strategies would work for multiple segments, those segments are not different enough to be successful audience segments. 
• Actionable: Identifying an audience’s needs means also identifying how your brand can meet those needs. How can you solve each segment’s problems? (And again, if the same solution exists for multiple segments, it might be necessary to reevaluate your segmentation. 
• Accessible: Is the identified segment reachable? How will you communicate with them? If a market segment cannot be reached with existing tools, either a new strategy must be created to connect with them, or it’s best to put your energies elsewhere

4. Humanize Your Audience: Once you have created audience segments that hold up to the scrutiny described above, it’s time to create personas and profiles for them. Best practices advise marketing teams to choose images, create names, and define personalities for their segments. The more real these personas feel to the marketing team, the more effective and motivating they can be for designing effective campaign strategies. 

How to Do Segmentation?

Here’s a step-by-step guide on how to perform market segmentation:

1. Define Your Market:

Start by defining the broad market you want to segment. This could be your entire customer base or a specific market within your industry.

2. Collect Data:

Gather data on your customers. This can include demographic information (age, gender, income, education), geographic information (location, climate), psychographic information (lifestyle, values, personality), and behavioral information (purchasing habits, product usage).

3. Identify Segmentation Criteria:

Choose the criteria for segmentation. Common criteria include:

• Demographic: Age, gender, income, education, occupation.
• Geographic: Region, city, urban/rural.
• Psychographic: Lifestyle, values, interests, attitudes.
• Behavioral: Purchase behavior, brand loyalty, user status, readiness to buy.

4. Segment Your Market:

Use the chosen criteria to divide your market into distinct segments. Each segment should be unique and consist of individuals who share similar characteristics.

5. Analyze Segments:

Evaluate the segments to ensure they are measurable, accessible, substantial, differentiable, and actionable:

• Measurable: You can quantify the size and purchasing power of the segment.
• Accessible: You can reach and serve the segment.
• Substantial: The segment is large and profitable enough.
• Differentiable: The segment is distinct from others and will respond differently to different marketing strategies.
• Actionable: You can develop effective programs to attract and serve the segment.

6. Develop Segment Profiles:

Create detailed profiles for each segment. These profiles should include information about the segment’s needs, preferences, behaviors, and demographics. This helps in understanding and targeting each segment more effectively.

7. Evaluate Segment Attractiveness:

Assess the potential of each segment based on factors like segment size, growth potential, competitive position, and alignment with your company’s objectives and resources.

8. Select Target Segments:

Choose the segments that you will target. This could be one segment (concentrated marketing), multiple segments (differentiated marketing), or the entire market (undifferentiated marketing).

9. Position Your Offering:

Develop a positioning strategy for each target segment. Positioning involves creating a distinct image of your product or service in the minds of the target segment. This includes defining the unique value proposition and the key benefits that appeal to the segment.

10. Implement and Monitor:

Implement your marketing strategies for each target segment. Continuously monitor the performance and make adjustments as needed. Use metrics to measure the success of your segmentation and targeting efforts.

What Is Segmentation In Marketing?

Segmentation in marketing refers to the process of dividing a broad consumer or business market into sub-groups of consumers or segments. Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and demonstrate similar buyer behavior. The world is made up of billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behaviors. Such a group is known as a 'segment'.

What Is Market Segmentation?

Market segmentation is the process of dividing a large, heterogeneous market into smaller, more homogeneous groups based on certain characteristics or behaviors. The objective is to identify high-yield segments—groups of consumers who are more likely to respond positively to a particular marketing strategy than others. By understanding these segments, businesses can tailor their products, services, and marketing messages to meet the specific needs of these groups.

Why Market Segmentation Is Important

1. Focused Marketing: Instead of trying to market to everyone, businesses can focus their resources on the most promising segments.
2. Efficient Resource Use: Segmentation helps in allocating marketing resources more efficiently, ensuring a higher return on investment.
3. Customer Satisfaction: Tailoring products and services to specific segments often leads to higher customer satisfaction and loyalty.
4. Competitive Advantage: Understanding market segments allows a company to identify underserved segments and target them effectively, gaining an edge over competitors.

What are some examples of market segments?

Marketing segments can be divided many ways, but the idea behind all is the create a set of accurate customer personas that help focus marketing efforts toward those segments. Some market segments include parents of young children, dog owners who enjoy camping/hiking with their dogs, season ticket holders of a sports team who missed a year of subscription, military families, retirees, and eco-shoppers.

Conclusion

Segmentation is an essential strategy in modern marketing, enabling businesses to effectively reach and engage their target audiences. By dividing a broad market into smaller, more homogeneous groups based on shared characteristics, companies can tailor their marketing efforts, enhance personalization, optimize resource allocation, and ultimately drive better business outcomes. Whether through demographic, psychographic, behavioral, or geographic segmentation, understanding and targeting specific segments allows for more effective communication, improved customer satisfaction, and a competitive edge in the market.

Implementing a thorough segmentation strategy involves defining your market, collecting relevant data, identifying segmentation criteria, and continuously analyzing and refining your segments. This strategic approach not only helps in addressing the unique needs of different customer groups but also in discovering new market opportunities and adapting to changing market conditions.

By leveraging segmentation, businesses can create more relevant and impactful marketing campaigns that resonate with their audience, foster stronger customer relationships, and achieve higher returns on their marketing investments. In an ever-evolving digital landscape, mastering the art of segmentation is crucial for any brand looking to stay ahead and succeed in today's competitive environment.