What is Market Segmentation
Is the pet rock a perfect birthday gift for everyone? How about a football or lipstick? Products need to be tailored to a specific customer who makes up a target market. A market is people or organizations that have the ability to purchase a product or service. A market can be further broken down into segments.
A customer segment is a subgroup of people or organizations that have one or more characteristics in common that cause them to have the same product needs. Everyone needs water to drink, but does everyone need bottled water? For companies to successfully reach their precise customer, they need to divide a market into similar and identifiable segments through customer segmentation.
What types of market segments can a company have?
- Geographic – based on land, rural or metropolitan area.
- Demographic-based on age, gender, income, occupation, education, nationality.
- Psychographic – based on social status, lifestyle-type, personality type.
- Behavioural-based on the intensity of product use, brand loyalty, user behaviours, price sensitivity, technology adoption.
This is the most common type of segmentation. A target audience is divided based on qualities such as age, gender, occupation, education, income and nationality.
Demographic segmentation is the easiest way to divide a market. Mixing demographic segmentation with another type of market segmentation can help to narrow your market down even further.
The information required for demographic segmentation is easy to gather and doesn’t cost a company too much to obtain.
For example, a common product which is segmented based on demographics is body wash. Generally, you’ll see body wash for women and body wash for men.
A company can segment their market based on consumer’s behaviours. By dividing your target audience based on their behaviours allows you to create specific messaging that will accommodate to those behaviours.
- What actions were taken on a website?
- What are their online shopping habits?
- How loyal are they to the brand/ product?
- What is their usage rate of your product?
- What need is a consumer trying to satisfy?
This information is relevant because it’s directly related to how a consumer interacts with your products. Therefore, marketers can market more effectively to customers by knowing their behaviours.
This involves splitting up a market based on location. Even though this is a basic form of segmentation it is highly effective. By knowing where a customer is located can help a company better understand the needs of their customers and companies can then target customers with location-specific ads.
You can divide a segment based on their locations, such as a town, county, zip code or country. But you can also identify customers based on the climate they live in or the population density of their location. Dividing a segment based on the characteristics of their location, allows marketers to be even more specific with their targeting and messaging.
When targeting different geographic segments, marketers need to take into consideration elements such as language. Language may change depending on the region you are targeting.
This form of segmentation is very similar to demographic segmentation however, it deals with characteristics that are related to mental and emotional attributes. Psychographic segmentation divides a group of customers based on their personality traits, values, interests, attitudes and lifestyles. Demographics, as we discussed earlier, are much easier to observe than psychographics, however, psychographics gives marketers valuable insights into customers motives, preferences and needs. By understanding psychographics, marketers can develop content that is more relatable to their customer segments.
Demographic segmentation can merge very well with psychographic segmentation. If you feel your messaging isn’t appealing to your demographic segment, you can try including psychographic information. It is psychographic information that informs you why people purchase or don’t purchase a product or service.
What are the benefits of market segmentation?
Market segmentation makes it easier for marketing teams to develop highly targeted and effective marketing campaigns and plans.
Below we’ve outlined several benefits which exist with understanding and defining market segments.
Greater company focus
When a company has identified specific market segments, it helps them to focus on what segments they want to target specific products/ services/ content/ blogs and campaigns. When a company has a focus on specific segments, they ensure they are targeting the right segment with the right product which will see the greatest ROI.
Better serve a customer’s needs and wants
Having defined segments enables companies to satisfy a variety of customer needs by offering different bundles and incentives. Different forms and promotional activities will be used for different segments based on that segments needs/ wants and characteristics.
When a company is focusing on a specific segment, its market competitiveness increases. Which in turn will lead to a higher ROI, The company is focused on specific segments and learns everything they need to know about that segment, to market their products to them.
With geographic segmentation as discussed earlier, the market expansion is possible immediately. When a company understands its segments and how to market to a segment in a particular location, it can expand immediately into another nearby location. If segmentation is based on demographics, then once the company knows their demographic segment they can expand in that segment with similar products.
Even when product features and benefits are the same, it is important for companies to target segments with specific communication. For example, if your segment was senior engineers, they may respond better to technical information about a product in the form of white papers or infographics, but a project manager might respond better to information regarding cost savings, efficiencies etc in the form of a blog, case study or video. Messaging will be different for different segments. Platforms which are used to target different segments will be different also. The key is to understand your segments and target communication relevant to them on the relevant platforms.
Why market segmentation is important?
When marketers use market segmentation it makes planning campaigns easier, as it helps to focus the company on certain customer groups instead of targeting the mass market. Segmentation helps marketers to be more efficient in terms of time, money and other resources. Market segmentation allows companies to learn about their customers. They gain a better understanding of customer’s needs and wants and therefore can tailor campaigns to customer segments most likely to purchase products.