What Is Market Segmentation? Best Practices & Benefits

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While all the buzz and hype around marketing these days seems to be around content creation, social media, and email marketing (who would’ve predicted this comeback), many digital marketers miss out on answering a fundamental question – Who should I be targeting with my marketing efforts?

Now, before the panic sets in, we want to tell you that you don’t have to pack your ring light away, nor do you have to delete that email sequence template that you downloaded from your favorite budding marketing guru’s website in the hopes of 100x-ing your conversions (spoiler alert, it’s unlikely to work).

No, there is a concrete and well-trodden method to optimize your time and resources so that your efforts lead to more conversions without landing up on countless mailing lists and being spammed by tens of wannabe Gary Vees.

Market segmentation is at the heart of the marketing process, aiding marketers in identifying accessible, distinct, and valuable groups of individuals or entities that they can earmark as potential users of their products and services. Gone are the days of wasting your promotional social media dances on Patrick, 61, who is looking for brisket-smoking tips online.

By determining the trends in the characteristics of your consumers and understanding the similarities and differences in their wants and needs regarding your offering, you can craft a laser-focused marketing strategy that is free from wastage and earns you customers for life.

Join us below as we dissect market segmentation, its value, its nuances, and how you can use its concepts to transform your marketing campaigns and your entire business. Effective marketing strategies have never been easier to craft.

What Is Market Segmentation?

In a technical sense, market segmentation is the first step in a marketing process known as the STP process (ah, yes, the never-ending love affair between marketing and acronyms), which stands for segmentation, targeting, and positioning.

The STP process enables marketers to create different market segments comprised of consumers with shared characteristics, beliefs, needs and wants. Using these segments, marketers can tailor their approach when developing, promoting, and selling product and service offerings. Grouping these individuals into market segments based on similarities is necessary because of the immense variation in tastes and preferences that can be found within an individual customer.

Below is an explanation and expansion of each step of the STP process, including market segmentation.

Segmentation

Market segmentation, or marketing segmentation, refers to the process of breaking down the entirety of the market for your product or service into groups based on commonalities, often referred to as customer segments. These segments can be characterized by a variety of factors that will be explained later on. If there is insufficient data for customer segmentation, then the market segmentation process will entail considerable market research, whereby focus groups and other means must be used to obtain objective data. Performing this process in-house can be resource-intensive, and as such, market segmentation companies are often used for this purpose.

Targeting

Targeting is the process whereby marketers decide on which customer segments they should focus on. It is prudent to assess each customer segment in terms of its commercial feasibility and desirability to aid in this decision. A commonly used set of criteria is listed below:

 

  • Accessibility – A valuable segment is reachable in terms of promotional efforts and other marketing endeavors. Additionally, a segment is only helpful if it is accessible through existing or prospective distribution channels. Even if customer groups want a particular product or service, if they cannot purchase it, they do not form part of a segment.
  • Benefits – The benefits sought by a given segment can increase or decrease its value in a marketer’s eyes. If a group of target customers is inclined to purchase a product due to a fundamental belief, then they are likely to be worth pursuing. For example, individuals opposed to the use of animal products do not purchase vegan leather exclusively for its aesthetic appeal. Instead, it offers them the look of leather within the framework of their underlying moral and value system. Conversely, some potential customers of vegan leather may only purchase items comprised of it due to its quality and appearance, and if a better product became available, in terms of quality and appearance, they would likely switch.
  • Discernibility – Ideally, customer segments should be easily distinguishable from others. The more unique a segment is, the easier it is for a marketer to target it with customized marketing campaigns. Overlaps between segments can lead to wasted resources.
  • Profitability – A segment is only valuable if it can afford the product or service in question at the price point, frequency level, and purchase volume necessary for profitability.
  • Size – A segment’s size is a crucial factor in terms of its desirability. If an ideal customer group exists, but it is composed of too few individuals or entities to justify financially targeting it, then it is not a desirable segment.

Positioning

Once segments have been selected according to their viability, a customized marketing message can now be crafted for each segment. Due to the similarities and trends found within the market segments, stronger marketing messages can be formed that appeal to more fundamental characteristics of the targeted consumers.

Depending on the goals of their business and the resources at their disposal, marketers will select a few segments around which they build a concentrated strategy. These segments are known as the company’s target audience.

Target Audience vs. Target Market

Target markets refer to the overarching group of potential customers that may benefit from or purchase companies’ products and services. For example, many individuals within a given population would buy pizza or find pizza useful when they are hungry. These people constitute the target market. In other words, these customers comprise the entire market for a given commercial offering.

A target audience refers to the chosen segments of customers within the target market that can form a solid customer base and generate sustainable revenue for a business.

A target audience within the target market described above could be defined as individuals of both sexes aged between 18 35 who purchase pizza at restaurants on a weekly and who have high levels of disposable income.

Organizations usually streamline their promotional strategy by narrowing down their various target audiences to a primary and secondary target market.

The Importance and Benefits of Market Segmentation

An effective segmentation strategy is an uncompromisable component of a successful marketing strategy. By grouping customers based on shared characteristics, marketers can more efficiently deliver a marketing campaign. Additionally, since the customers within these segments share similarities, it is easier to convey a cohesive and lucrative value proposition to them in a way that is not possible when targeting broad markets.

Since valuable segments contain individuals and entities that are accessible through similar channels, there is less wastage of a company’s marketing budget when a market segmentation strategy exists. Targeted digital advertising aimed at specific market segments also offers organizations maximum value in terms of promotional spending.

Market segmentation strategies allow companies to foster customer loyalty by centering sales efforts on consumers who genuinely value their commercial offering and, as a result, are more likely to engage in repeat purchases. As many business owners know, customer retention is often the lifeblood of a flourishing commercial enterprise.

Overall, market segmentation is an essential tool for marketers and marketing companies because it helps them understand their target audience, target specific segments with high growth potential, and optimize their marketing efforts for maximum effectiveness. Additionally, a sound market segmentation strategy can help identify new markets filled with loyal customers for a company’s offering.

Market Segmentation Bases

As previously mentioned, there are various dimensions across which the target market can be divided and across which market segments can be formed. These dimensions are collectively known as the bases of market segmentation, and they are explored in detail below so that you may use them in your market segmentation strategy.

Geographic Segmentation

Geographic segmentation entails grouping customers according to geographic data, such as where they live, work, and engage in recreational activities. This dimension of segmentation is generally considered the least predictive of future behavior across many industries when compared to the other types of market segmentation. A customer’s location may determine their predilection for purchasing an umbrella or sunscreen, but individuals and entities that are even situated on the same street may have vastly different beliefs, preferences, and views. As such, for purchases that pertain to morals and values, facets that influence whether or not a household prefers to consume ethically sourced coffee, geographic segmentation is not highly accurate. However, in some instances, building an audience based on geographic regions is entirely appropriate, such as companies that offer food delivery services.

Demographic Segmentation

Demographic segmentation involves grouping customers based on characteristics such as age, gender, income, education, family size, and occupation. Generational segmentation is a type of demographic segmentation that divides customers into different generations, such as baby boomers, Gen X, Gen Y, and Gen Z. This can be useful for marketers because different generations often have different values, attitudes, and behaviors, and may respond differently to marketing messages. For example, a customer journey targeting Gen Z may need to be more interactive and use social media platforms, while one targeting baby boomers may need to be more traditional and use print media. While demographic segmentation can be useful in identifying trends and patterns in consumer behavior, it is pertinent to note that there are better predictors of an individual’s preferences or behaviors. Factors such as personal values, experiences, and cultural influences can also have a significant impact on an individual’s purchasing decisions. Demographic data is often paramount when implementing market segmentation strategies.

Psychographic Segmentation

Psychographic segmentation involves dividing the market based on lifestyle, values, attitudes, and personality traits. This type of segmentation can be helpful for marketers because it allows them to target their promotional efforts to specific groups of consumers who share similar characteristics psychologically. For example, social media marketing targeting consumers who value environmental sustainability and social responsibility might focus on the eco-friendliness and ethical sourcing of a product, while a campaign targeting consumers who esteem luxury and status might focus on the exclusivity and prestige of a product.

Previously, it was challenging to find psychographic data for a given market segment, but with the advent of social media, customers are more public and vocal than ever before about their beliefs and values.

While psychographic segmentation can be an effective way to target specific groups of consumers, it is critical to note that it is not a perfect predictor of individual behavior. Personal circumstances, experiences, and other factors can also influence an individual’s purchasing decisions. By appealing to the aspects of self with which individuals identify, organizations can encourage customers to make repeat purchases, fostering a sense of brand loyalty.

Behavioral Segmentation

In many cases, behavioral segmentation is the most accurate predictive of past behavior among all of the other types of market segmentation; however, it is also the most difficult to obtain. Behavioral segmentation can be based on information such as customer data, which would include details of previous purchases and trends in a customer’s buying behavior. This segmentation allows companies to direct their marketing efforts to specific groups of consumers who exhibit certain behaviors. For example, a campaign targeting heavy users of a product might focus on the convenience and reliability of the product, while a campaign targeting brand loyalists might focus on the emotional connection they have with the brand. This type of market segmentation can also be used to identify potential new customers by targeting those who have shown an interest in a product or brand but have not yet made a purchase. Data analysis of behavioral data can be used to predict the reaction of a target customer when they are exposed to a company’s offerings. While behavioral segmentation can be an effective way to target specific groups of consumers, it is important to note that behavior can change over time, and marketers need to be aware of any changes in consumer behavior to adjust their efforts accordingly.

Firmographic Segmentation

The above types of market segmentation are handy for organizations that market and sell products and services to consumers (B2C marketing); however, for organizations that sell to other businesses (B2B marketing), a different approach is often practical.

Firmographic segmentation involves classifying businesses and other entities (such as non-profits) by factors such as:

  • Industry (retail or mining sector)
  • Size (number of employees)
  • Organization type (LLC or S corporation)
  • Age (number of years in operation)
  • Financial performance (revenue, profit margin, etc.)

Even when selling to other organizations, market segmentation helps in compartmentalizing different customers into part of an actionable market segment.

Segmenting Success: The Key to Targeted Marketing

Even the best product or service runs the risk of falling flat when you don’t know to whom you’re selling. If you take away one piece of wisdom from this blog, remember that in any successful marketing strategy, there is a clearly defined target market that has formed through market segmentation.

If the process seems daunting to you or you’re keen to learn more about marketing segmentation, sign up for our newsletter — where you’ll receive industry insights with some humor sprinkled in. You can also schedule a free call with us — we’d love to hear from you.

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