What is Market Segmentation?
Ready to make the most of what you’ve got? Using market segmentation means dividing the market into sections so that your view of customers has focus and meaning given your orientations and available resources. The creation of “segments” is the same as setting your eyes on manageable targets made up of customers who conform to the segment parameters and can demonstrate enough buying power to make it worthwhile.
Market segmentation defines a market piece (slice) you believe can turn into a target market; one you tackle more compellingly than any competitor. It rests on meeting with selling prospects that you can reach easily, communicate with effectively, and, given the intensity of competition, derive acceptable profit from business activities.
Market Segmentation and the Customer Experience (CX)
Every ROI-centric company, large-enterprise or SMB, strives to deliver the perfect CX. The latter is the elixir for achieving customer retention built around brand loyalty. It ensures maximum revenue for the lowest CX investment.
Conversely, if it goes wrong and all one gets is customer churn, profitability is likely to tank.
Market segmentation is the methodology that promises a high probability of customer loyalty and not falling into the traps that let it slip away.
The critical thing to understand about CX is that it’s not one experience at a single point of time, but the overall emotional, mental, and physical gratification after passing through several touch points before buying (and not claiming a refund) for a service or product. It’s commonly referred to as the customer journey.
Here’s the thing. In modern business environments pressured by intense competition, it’s virtually impossible to deliver a competitively acceptable CX to every group of prospects that meets your fancy. Market segmentation, if applied professionally and with creativity, spotlights:
- The viable groups best suited to your business
- The branding and marketing approach that will give you the edge with viable groups
- The groups you shouldn’t touch with a hundred-foot pole
Identifying viable market segments and marketing segmentation benefits
An Analogy
Think of it this way. You’re a photographer working for conversationalists that relocate endangered wild animals in Africa. One of the rarest is an endangered zebra that’s hard to distinguish from regular zebras.
With your sight on your target, you take your camera climbing up into the trees. There you click away from a high vantage point. After that, you take shots on the ground from the front, back, and sides. For good measure, you lie waiting in a depression to capture an image from underneath. You get pics of the rarity merging with a regular herd and moving away to graze separately. You pick up on its peculiar habits and behavior over days and nights using infra-red lenses. You can see when it’s jumpy and more relaxed in its journey through bush life.
After getting all the pictures and videos together, as a combination, they should confirm that you’re looking at the rare zebra and not something else. You’re positioned to advise your employers on the best way to identify these unique animals, and more importantly, the right time and approach to capturing them for a successful relocation.
Market Segmentation Benefits
Market segmentation is an exact parallel to the example above. It’s the study of the viable customer and prospect groups:
- With unique characteristics
- That possibly congregate in the same area
- Look the same across a range of demographic characteristics (e.g., age, language, dress, business type, etc.)
- Behave and react in a similar way to all kinds of marketing stimuli
Market segmentation takes shots from every possible angle, uses probes to penetrate customer thoughts and emotions, and overviews everything to dissect customer behavior. It gives you a view of touchpoints in the customer journey from end-to-end, providing insight into what’s needed to impress the customer group with a compelling product or service offer. It weeds out the rarities (segments) from the herd (broad marketplace) and shows you how to connect to them in a meaningful way.
As long as you follow the guidelines of a comprehensive market segmentation program, your team should be able to:
A. Stay focused on customer groups that count and provide a route with the least resistance
B. Create marketing messages that:
- Resonate with the audience – align with customer feelings and thoughts.
- Transmit content that customers understand by inference or direct statement. It’s often not what you say but the way you say it that makes a difference.
- Message through media that customers tune into.
- Recognize social media as a fundamental consideration after constructing hyper-targeted ads for pinpoint accuracy.
C. Develop an integrated marketing program by:
- Designing your product or service to meet customer needs head-on
- Selling your brand at the right price
- Adjusting your offer to align with different customer situations.
- Distributing in a way that creates the most convenient customer accessibility
- Closing all gaps to erase touchpoint obstacles
- Ensuring a smooth customer journey toward a buy action and beyond
- Minimizing customer churn and maximizing customer retention.
- Differentiating your brand in meaningful ways
- Buffering attacks from competitors by staying ahead of the game
- Turning new prospects into new customers
- Identifying unique entries into traditional and innovative markets
How to utilize market segmentation
Every type of market segmentation gives you a different insight into target markets. It lets you define them in a way that works for your marketing approach, giving you clues on how to beat competitors to the punch.
The tighter the market segmentation, the better. One alert is this – if it gets too tight, it may lose its profit potential. After all, a single individual is the ultimate segmentation but is unlikely to represent enough buying power to warrant exclusive focus. On the other hand, a single company like John Deere, with enormous financial resources and buying discretion, may constitute a segment in its own right (i.e., for a B2B opportunity).
Approach Market Segmentation Systematically
B2B versus B2C
We should point out that market segmentation has an immediate inflection point. There are considerable overlaps, but marketers should understand that B2B and B2C situations require somewhat different market segmentation strategies. The influencers, groupings, and dimensions of customer segments follow different patterns generally. That said, a systematic approach pays dividends in both cases.
Data Sources
Begin by analyzing your existing customer base from digital and paper records in your business. Once that kicks off, it generates new leads that take you to qualitative and quantitative sources readily accessible. The linked article – a Sogolytics exclusive – covers this subject extensively, When you don’t know where to find things, operations slow down to a snail’s pace, and the exercise sometimes aborts.
Suffice to say that Google and social media like YouTube, LinkedIn, Instagram, and Facebook (to name but a few) have developed massive databases and can give you pinpointed market intelligence down to areas as narrow as zip codes. Aside from that, there’s a range of census reports and private market research that possibly relates to your business without you lifting a finger to uncover the same.
Market Segmentation Types and Developing a Market Segmentation Strategy
It makes no difference whether you start with existing customer sources or move into new data channels; there’s a logical path to follow. At the end of this path, you want to have a customer profile that looks at and describes the customer from every perspective. You should be able to naturally identify opportunities for your business that offer ways to protect against competitor intrusion or that overwhelm competitors already there. You’ll want to test all ideas and initiatives for reliability and predictability.
Step 1: Geographic Segmentation
- A Sogolytics article on geographic segmentation gives you all the ins and outs. Every business has the whole world as its oyster, but some regions are impossible to reach or impractical to even try.
- However, the digital era and online commerce has opened up myriad opportunities that embrace countries and different continents. We’ve come a long way. In days-of-old, only the village you lived in counted as a market.
- One’s resources are a limiting factor. You can’t spread yourself so thin that you fail to make an impression on anyone. The concept of market segmentation rests on identifying slivers of the whole and developing a package that people in the slivers love and grab onto, even if the majority outside of them hate it or are indifferent.
- Geographies such as states, cities, towns, rural areas, and even neighborhoods represent straightforward ways to cut the market up. It’s a verifiable fact that groups connecting to the same regions frequently behave in the same way.
Step 2: Demographic Segmentation
- Geographic segmentation is not tight enough to give a detailed marketing direction. Marketers should know about language, income group, aspirational references, gender, age, and much more on the demographic spectrum. Again, an exercise like this converges on defining customer groups most suited to your business. It’s a narrowing down process, described in detail in another Sogolytics article on demographic segmentation.
Steps 3 & 4: Psychographic Segmentation & Behavioral Segmentation
- Sogolytics covers these vital aspects in separate focus articles. They will give you insight into unique customer descriptions that indicate personality connections for your brand.
- Psychographic segmentation, in particular, relies on customer probes like Likert Scale analysis and quizzes to get inside the minds of customers and prospects. They also rely on focus groups and one-on-one interviews conducted by expert interviewers under controlled conditions. It answers the questions surrounding why people behave the way they do in the marketplace, at different touchpoints in the CX journey.
- Behavioral segmentation is the art (or science) of profiling your customer by mannerisms, habits, reactions, quirks, and behavior descriptions. The idea is to link your brand as a natural part of customers’ lives and personalities when they behave in predictable ways. The article on this aspect is in-depth and answers all the frequently asked questions.
Step 5: Infographic Segmentation
- Infographic segmentation pertains specifically to B2B marketing situations, merging the extra needs of companies aiming at other businesses and the other traditional techniques mentioned above. Companies have more rational yardsticks (like ROI, EBITDA, and Sales Revenue) to consider while also relying on human resources to make decisions. Therefore, it’s often more convoluted. They still have to consider esoteric qualities like ego, recognition, and friendship in the B2B equation. The Sogolytics article balances all these considerations to give a better market segmentation insight.
Conclusion
Market segmentation is a vast strategic management activity covering numerous facets of achieving competitive stature in selected markets. Sogolytics is a company closely associated with cutting edge technologies in the market segmentation arena. These include surveys, tests, quizzes – indeed, every moving part that go-ahead marketers need in their armory. The exciting thing is that designed templates and software packages as available resources are affordable and the answer to almost every experienced pain. Contact Sogolytics and save yourself an incredible amount of hassle and aggravation when structuring market segmentation strategies in your business. The company knows how to prioritize and channel your efforts for a rewarding experience that is also profitable.
