As a marketer, do you ever feel like you’re throwing spaghetti at a wall, hoping it sticks?
(yet it never does?)
It’s not a pleasant feeling. It erodes your confidence, feeds on the Impostor Syndrome, and doesn’t help you make an impact on your company’s revenue.
If we’ve just described your situation, it’s time to get strategic with market segmentation: the crucial component of any successful marketing strategy.
Dividing your target audience into smaller, more specific groups allows you to curate and adjust your messaging & strategies to resonate with your audience and deliver better results (measurable in CAC, Retention, CLV).
However, it’s not all sunshine and rainbows, as market segmentation comes with certain traps that will leave you back at square one.
This article explores the types of market segmentation, their benefits, the pitfalls to avoid, and strategies to help you segment your target audience.
Read on and discover how to take your market segmentation game to the next level!
What Is Market Segmentation?
Market segmentation refers to identifying distinct groups within your customer base, then developing unique lists for each group.
With market segmentation, you’re creating customer segments that share similarities (either demographical or psychological), then targeting them with specific and curated marketing and content to persuade them into becoming your customers (or sticking with you longer).
When done right, market segmentation can serve as a way to differentiate yourself from similar competitors. You can become a better marketer and serve your customers better by creating tailored messaging and products for specific target audiences.
How Market Segmentation Works
To understand market segmentation better, imagine you’re throwing a dinner party for your family, friends, and work colleagues.
Obviously, you want everyone to have a great time and enjoy themselves, yet you know your friends have different tastes, preferences, and ideas for a “good time.”
Some like pizza, others are vegans, some love dancing, others are metalheads, and introverts and extroverts alike will be under the same roof. Some guests might want to party hard; others might enjoy fascinating conversations.
So, to ensure everyone enjoys themselves and you won’t lose your friends to an awkward dinner party, you split all guests into different groups and think about what each group might want.
You order pizza but provide vegan options, set up a designated dancing area, and prepare a cozy spot on the balcony for midnight conversations.
Now everyone can be happy and enjoy themselves, even if your guests are diverse. People can eat, talk, and dance, no matter their tastes and preferences, and you’ll get an award for the host of the year.
(maybe your friends will even help with the cleanup)
In the same way, market segmentation helps you adapt and adjust your products and marketing messages to different groups in your target market based on their specific preferences, challenges, and desires.
By understanding the different segments of your customer base, you move away from “one-size-fits-all” marketing campaigns and think about attracting potential customers with customized marketing campaigns that resonate with each group and ultimately drive more sales.
The Importance of Market Segmentation
Market segmentation enables you to make sense of your pool of data and prospective customers.
Instead of casting a nest hoping to catch as many customers as possible (usually failing), you’re going after specific groups of consumers who share similar needs, desires, or characteristics. This allows you to tailor your marketing and products to meet your needs and wants and better serve your customers.
The result is increased sales, improved marketing effectiveness, and higher customer loyalty.
At the same time, when you segment your market, you can identify niche opportunities you may have overlooked in the past. As a result, you can upgrade your product assortment or service bundles and meet your new potential customers’ unique needs. This way, you earn more market share and serve more diverse customers.
Last but not least, with market segmentation, you can build products or services designed specifically for customers’ needs, thus increasing customer loyalty.
You’re earning customers’ hearts by proving you understand and care about their preferences, giving them no rational reason to churn.
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Market Segmentation Types
There can be up to seven types of market segmentation, depending on how granular you want to go, how many variables to use, and how you will apply your segmentation strategies.
These are the most common types of segmentation used by most businesses out there:
- Demographic segmentation
Creating segments based on your demographic data is the most straightforward of all market segmentation strategies. For demographic segmentation, you only need high-level customer data, such as age, gender, income, education, occupation, and family size.
Demographic segmentation works best when your products are specifically designed for an age group or specific gender.
Another situation warrants demographic segmentation when your products surpass a set financial threshold and aren’t affordable for all income brackets.
- Psychographic segmentation
These segments go more in-depth with customer research, grouping consumers according to their values, lifestyle, opinions, hobbies, etc.
To obtain this data about your customers, you need to trigger surveys, interviews, and even focus groups to better get to know your target customers.
Use psychographic segmentation when your product assortment is appealing to people with a particular lifestyle or personality (for example, you would only sell snowboard equipment to people who love winter sports).
Psychographic segmentation is also instrumental in creating messages based on your audience’s interests.
- Behavioral segmentation
Finally, the third type of segmentation is based on behaviors such as purchasing habits, brand loyalty, product usage, etc.
Behavioral segmentation helps you understand why customers purchase your products, how they’re using them, and even if the products work for them.
A specific type of behavioral segmentation is seasonal segmentation: when you group consumers according to how they behave at specific times of the year.
When you recognize customers’ behavior varies according to season or specific events and holidays (such as Halloween), you can maximize your sales during peak periods of the year.
You can go even more in-depth and create more accurate segments by combining these segmentation types, then develop granular marketing strategies for each segment.
The Benefits of Market Segmentation
Just as a chef can’t properly cook a meal when trying to cater to everyone’s tastes, an eCommerce professional can’t differentiate and find a place in the market when trying to attract everyone.
Market segmentation is the same. By segmenting and even eliminating certain customer groups from your audiences, you will benefit from the following:
- More appealing products and services
During the process of segmentation research, you will find consumer clusters within your existing and potential customers with the highest profitability potential.
Finding people who will benefit from your products the most enables you to tailor your product assortment to better serve these people.
Consequently, you will allow the customer insight to guide your product processes, resulting in improved products that deliver the promised value.
Ultimately, you will end up with high-quality products that help consumers achieve their purposes and are easier to promote.
Bonus: if you follow up orders with a customer satisfaction survey, you can get continuous insights into what needs to be tweaked to deliver an even better experience and higher product quality, thus ensuring your evolution as a retailer.
- Better marketing results
Dividing your new & recurring customers into well-defined sub-groups is only possible with thorough market research.
As tiresome as research might seem to some, there’s no denying that the process yields crucial insights that can further inform all your marketing strategies.
Online marketing is so noisy that our brains learn to tune out ads. Consequently, only the words, images, and promises that truly move something inside of us will catch our eyes and persuade us to place an order.
Research and segmentation allow you to create unique ads that stir something in your target audience’s minds (and hearts) and persuade them to buy your products.
The same can be said about retention campaigns; serving curated product recommendations or designing unique email campaigns for individual customer segments increases the likelihood of your customer buying again.
With market segmentation, you deliver relevant ads to the people that matter, thus increasing the results of your marketing campaigns.
- More profitable businesses
There’s no secret that profits in Retail and eComm come from customer retention. The acquisition is expensive, and most of the time, it isn’t even sustainable anymore. At the same time, retention happens when customer satisfaction levels are high, and people don’t see any reason to leave you.
Market segmentation impacts your retention in two distinct ways:
- It helps you find the most attractive and profitable segments.
- It allows you to find the right customer journey for each unique segment.
It’s the same idea as when we discussed marketing benefits. One-size-fits-all only works if they’re general. Instead, curated approaches allow you to understand and meet the needs of your unique customers.
This translates into better, more relevant customer experiences that keep consumers engaged and willing to return for repeat purchases.
Market Segmentation Errors
While marketing segmentation and targeting can influence all things marketing, this process has limitations and errors.
It’s crucial you’re mindful of market segmentation errors because these can lead to ineffective marketing efforts, misaligned product development, and even lost revenue.
Let’s look at some of the mistakes that marketers make when embarking on a market segmentation journey:
This happens when businesses go overboard and look at too many segmentation variables, creating too many sub-groups.
This results in insignificant, fragmented markets, challenging businesses to reach and communicate with each segment effectively.
In the long term, this challenge translates into inefficiencies in marketing and loss of revenue.
On the other end of the spectrum, you will find the counter error to over-segmentation: under-segmentation or clustering all customers into a single, large customer segment.
The segment definition tells us that customer sub-groups must be divided into separate sections. Under-segmentation happens when these sections are too general and contain too diverse customers.
An example of under-segmentation is dividing your target markets by gender, resulting in two large groups: male and female. However, you need to look at other segmentation variables (such as age, income, location, values, lifestyle, etc.) to get specific enough in your processes.
The consequence is ineffective targeting and marketing because your approach becomes too general (trying to kill multiple rabbits with the same arrow) and doesn’t resonate with any particular group of customers.
- Incomplete research
Market research is crucial to businesses; professionals must challenge their assumptions or stereotypes about the customer base, and obtaining qualitative and quantitative data is the only way to do so.
When the research process is incomplete, marketers lack the necessary insights to create curated campaigns that trigger prospective customers and entice them to purchase.
- Lack of clarity about customer segments
Even if you went through with segmentation, it’s a mistake to assume all customers in a particular segment are the same.
Actually, customers within a segment can have diverse needs and preferences. Fortunately, you can avoid this mistake by looking at your customer data and understanding the particularities of your group.
- Varying segmentation criteria
This happens when you use inconsistent criteria to segment the same customers for different campaigns.
For example, you could launch a campaign for sporting attire and use psychographic segmentation on your customer base. It’s all fine and dandy until the next campaign when you use geographic segmentation on the same people.
The next campaign will have a significantly different approach, which can confuse customers and lead to marketing inefficiencies.
- Being oblivious to market trends.
Ignoring new trends is generally a mistake, not exclusively related to market segmentation.
When you aren’t aware of industry changes, you fail to adapt your market segmentation strategies to reflect the diversity in customer needs and preferences.
For example, if you ignore the self-pickup boxes trend, you might lose customers who don’t have the time to wait around for delivery and prefer the convenience of picking up their orders.
This results in customer churn, even if you did everything else right.
Market Segmentation Strategy
While there’s no general truth to finding the best market segmentation strategy, there are a couple of sure-fore steps to take you through the process.
It starts with asking the right questions, then performing qualitative and quantitative research to determine the answers.
Step 1 – Setting Objectives
In the first step, you must determine what you hope to achieve with your market segmentation.
What’s your goal? What are you looking for in your segments? Do you already have an idea about which market segments to target?
Step 2 – Find possible segments.
If you’ve never done segmentation before, start by identifying all possible segments that might be interested in your product. This is also the step for resource allocation.
Look at the segment targeted by your competition and all public information relevant to your market.
At the same time, identify your data sources: look at the data you have, the data you need, and your options for collecting it.
Step 3 – Analyse Available segments.
Now that you have a vague idea, and a ballpark view of all your possible segments, it’s time to perform a segmentation analysis and eliminate segments that won’t serve you.
It’s time to ask questions ahead:
Why should you pick one segment over another? How are the segments against our Ideal Customer profile? Are there any long-term consequences if we ignore a specific segment?
Step 4 – Orchestrate your Strategy.
In stage three, you eliminated useless segments and now know your target audience segments. It’s time to decide on the metrics you will use to measure your segmentation’s effectiveness.
Step 5 – Use your segments.
The final step after creating the segments and deciding on the KPIs that evaluate them is using these segments.
Prepare your marketing strategy, adapt it to each specific segment, then launch it.
Remember to constantly monitor your processes and adjust when necessary.
Market Segmentation Example
Let’s now look at a fictional situation where market segmentation is warranted and see how you would apply market segmentation in this situation.
Suppose you’re a retailer selling beauty products. You want to orchestrate a marketing strategy to entice and attract your target audience more effectively. To do this, you decide to use market segmentation.
Demographic Segmentation: You use age, gender, and location to segment your audience. You realize your primary audience is made up of women between the ages of 18 and 35 who live in urban areas and have a middle to high income.
Psychographic Segmentation: In the next step, you survey your primary audience to uncover customers’ lifestyles and interests. You realize that these consumers are interested in travel and cultural activities and value quality and durability.
Behavioral Segmentation: Last but not least, you use consumer behavior to segment your audience. You realize these women place orders bi-monthly, are loyal to ethical brands that don’t use animal testing, and are willing to pay a higher price for vegan products.
Based on this segmentation, you can make progress in developing a marketing strategy that targets this primary audience:
Demographic: You create ads using visuals with young women, who are beautiful and elegant, photographed in glamorous tourist spots, and you promote your products as a way to enhance their performance and style.
Psychographic: You highlight the quality of your beauty products in copywriting and show influencers wearing products in various landmarks.
Behavioral: As a last step, you can create product bundles for vegan products in your selection, create loyalty programs for repeat customers, and you emphasize the cruel-free nature of your products to justify the price.
It’s a fictional example (and maybe simplistic), but it’s an exciting way to showcase how market segmentation works in creating campaigns that resonate with your primary audience.
And it’s a wrap!
By understanding your target audience’s unique needs and preferences, you can craft messaging and tactics that genuinely resonate with them and bring in better results for your company.
Remember to pay attention to the traps we’ve discussed to keep your segmentation efforts on track.
Good luck and happy segmenting!
Frequently Asked Questions about Market Segmentation
The four types of market segmentation are demographic (based on factors such as age, gender, income, etc.), geographic (country, city, region, etc.), psychographic (traits, lifestyle, values, etc.), and behavioural (looking at product usage, loyalty, or buying patterns.)
Geographic, psychographic, behavioural, occasion-based, benefit-based, and customer status (if you want to go even more granular with market segmentation.)
Occasion-based segmentation is based on specific events or occasions, such as holidays or special occasions.
Benefit-based segmentation is based on the benefits that a product or service offers to customers.
Customer status segmentation is based on customer loyalty, such as frequent buyers or first-time buyers.
The three main types of segmentation are demographic, psychographic, and behavioral.
Demographic segmentation is based on basic information about customers, such as age, gender, income, and education.
Psychographic segmentation is based on customer attitudes, values, and lifestyle.
Behavioral segmentation is based on customer behavior, such as product usage, buying patterns, and loyalty.
Market segmentation refers to identifying distinct groups within your customer base, then developing unique lists for each group.
For example, a company might use demographic segmentation to target a specific age group or geographic segmentation to target customers in a particular region.
Other examples of market segmentation include psychographic segmentation based on personality traits or behavioral segmentation based on product usage.