You have a great product with a lot of customers, but you know you can do better. You have a massive email list and a catchy marketing campaign, but your emails too often go to spam, resulting in a low overall conversion rate. Exploring the benefits of market segmentation can help you!
In its simplest terms, market segmentation divides your customers into groups based on a set of characteristics. These could be generic or specific, based on demographics, customer attitudes toward a product or service, behavior traits, social status, and much more.
For example, if you sell men’s and women’s garments, you likely would divide your customers by gender. There, you’ve just segmented your market, but you can go much deeper.
Market Segmentation Characteristics
Market segments have several aspects you need to keep in mind:
- Measurable results – the number of people in your demographic and the amount of money those people have to spend on your product.
- Stable demographics – women as a group aren’t going away, but marketing to snowboarders in the summer might be less lucrative.
- A segment large enough to earn a profit – if your market is too small, the earnings won’t be worth the effort, even if everyone bought your product.
- A relevant marketing strategy – don’t advertise during sporting events if your customers don’t watch sports.
Segments vary depending on your product or service. If you sell software, for example, you want to target your advertising to customers who’ll benefit from its use and have decision-making influence over its purchase.
Market segmentation helps you plan advertising and targeted marketing campaigns. Discovering who your customers are and what they’re interested in can benefit your bottom line and save time, money and resources.
Common Market Segments
There are many ways to segment your customers, and the methods you choose will depend on a variety of factors.
Demographics is the core form of segmentation that can include age, gender, race, income, education, family situation, and religion. For example, you could target women in their 40s who work in a corporate office.
Segments based on psychological beliefs address values and social class, among other things. You could narrow it to LGBTQ people who annually make $100,000 or more.
Behavior-based segments are all about actions, such as customers subscribing to your mailing list or adding to a shopping cart.
Geographic segments rely on where customers live. This could include climate, population type, and cultural preferences. You could target skiers who live in the Rocky Mountains.
The type of segment is limited only by your imagination. Consider price, preferences, seasons or holidays. You could target married men around Valentine’s Day, for instance.
Benefits of Market Segmentation
By now, you’re probably getting some good ideas about how market segmentation might work for your business. Here are some primary benefits to consider:
Customers are the key, of course, and reaching them is a science. They have so many options, so you want your product or service to stand out and capture their attention.
Market segmentation helps show your customers that you understand their core problems and demonstrate that you have the solution. Developing a relationship with customers builds brand loyalty, and appealing to their needs makes them feel special and keeps them coming back.
The ultimate goal is customer satisfaction: A happy customer more likely will recommend you to their friends and colleagues.
Higher Chance of Success
Dividing your customers into segments and creating ads or mailings specific to their needs give you a much higher chance of connecting with them or converting a lead.
When you target an audience, you speak directly to your customers and use relatable words and personalities. The more specific your segment, the more likely you’ll reach that audience.
When entering new markets, segmentation puts your efforts in front of the people who are more likely to purchase. This can lead to other benefits, such as expanded marketing, new products, and customer brand loyalty.
Determining New Marketing Opportunities
By researching your customers and their needs, you can find more opportunities for your product. Don’t restrict your mindset. If you’re thinking that your product or service is useful only for a certain age group, you’re limiting your customer base. Approach these new markets smartly.
You can also gear marketing efforts toward specific seasons or holidays. Say you have a women’s product. Consider advertising around Mother’s Day.
Once you take a deep dive into a segment, you might discover new strategies. Subscription boxes are all the rage these days, and innovations like this can open new markets. You might also find that partnering with a complementary product leader can benefit both companies.
By tuning in to your customers, you can find out what they need or want and design new products accordingly. Additionally, you can build upon a product, service, or brand that your customers already love and introduce them to a corresponding item.
You also can design products that expand your market reach. Tweaking your high-end product or service can help you attract customers with a smaller budget.
Once they try your product and realize it’s worth the cost, they’re candidates for upselling. And there’s another segment you can pursue.
When you build brand recognition through market segmentation, you amass loyal customers who keep coming back. Segmentation also increases competition in the market.
Finding a particular group that really likes a certain product gives you the chance to build on it by providing those customers with something even better. This, in turn, increases your market share and thus your profits.
Market segmentation is also cost-effective. Once you determine your audience and where best to reach it, you can save time and money by designing campaigns that take aim at just the right place.
Market segmentation is specific as well. If your customers use a certain platform or watch a specific TV channel, zero in on that.
Opportunities for companies abound, but businesses that try to be the sole answer to all needs or provide too many products can’t make a big impact – or a lot of money. They tend to do many things OK, but they offer nothing amazing.
Focus is a must if a company wants to become the best in its industry. Market segmentation is a means to this end.
It also can lead to other good business decisions. Learning from your research helps you determine the price the market will bear and anticipate trends or changes in style.
You then can build upon your success and design campaigns wisely going forward.
How Do You Start Market Segmentation?
First, find out everything you can about your customers that relates to your product. Collect all of this data in a centralized area and study it carefully.
Sort the customer data into segments by running filters on it. Your CRM (customer relationship management) reports and tracking can definitely help with this.
Review each segment and decide whether you have a significant number of customers, whether your current marketing strategies will reach those segments, and whether the segments will stick around awhile.
Then, look at your marketing tools and channels and create a plan. With your current strategies, decide whether you can reach your segments easily and how much profit each will bring in.
After you pursue the obvious segments, get creative. Some segments might take a little more thought, but this is your chance to differentiate yourself from the competition.
Add Market Segmentation to Your Plan
A complete marketing strategy includes knowing your customers and meeting their needs. Rather than broadcast your message to the entire public, send it to those targeted groups that will respond.
Then measure the response and compare it to your old method. Market segmentation will greatly improve your reach, but you still need to consider the message.
Market segmentation is a big piece of the puzzle, and with careful research, thought, and planning, your strategy will pay off in spades.