What is Market Segmentation : The Ultimate Guide

Have you ever experienced that uncanny feeling when certain businesses seem to understand you perfectly? It feels like they’ve crafted their stuff just for you, like they’re mind readers, giving you exactly what you want. Well, it’s not magic. These brands excel at one fundamental aspect: market segmentation.

This blog will delve into this time-tested strategy’s what, why, and how!

Let’s start with the basics.

What is Market Segmentation? 

Market Segmentation is a concept of marketing where you divide your brand’s larger target audience into smaller subsets/segments based on certain characteristics like age, gender, region, etc. Each subgroup will contain customers with common interests.

By segmenting your customers, you understand them better, and this helps you formulate sales and marketing strategies that are more efficient. Market segmentation tells you how to develop your product further to resonate strongly with your customers’ needs.

Almost all risks of an unproductive marketing campaign are mitigated through this methodology! You can come up with strategies and promotional schemes as per the preferences of each segment of customers.

You’re not just selling products, you’re guiding your customers toward the perfect match for their needs and budget.

Imagine someone searching for a new smartphone. They’re unlikely to consider a high-end device with advanced features if they’re on a tight budget. Instead, they will move towards a more affordable option that still meets their basic requirements.

Similarly, a parent shopping for toys for their toddler wouldn’t browse items designed for older children or adults.

Understanding your audience’s behavior and preferences is crucial.

Market segmentation helps you customize your marketing to fit different groups of customers. This means you can create ads on platforms like social media that speak to specific groups of people, making them more likely to be interested and buy from you.

How to Conduct Market Segmentation

The first step is to…

1. Define the Variables

• Start with stating your objectives. You must have a clear idea of who your target audience is. For this, you need to identify the relevant criteria for segmentation. This can include demographics, psychographics, behavioral patterns, geographic location, and socio-economic factors.

But why is this so important?

• Well, understanding your objectives helps set the direction for your segmentation efforts. Whether expanding into new markets, improving customer engagement, or optimizing product offerings, having clear objectives guides the entire segmentation process and ensures alignment with your business goals.

Now is the time to collect data. For that, you need to…

2. Create a Market Segmentation Questionnaire

• You must develop a structured questionnaire to gather relevant information from your target audience. Include questions that address key segmentation variables such as those mentioned above.
• Also include closed-ended and open-ended questions to capture quantitative data and qualitative insights.
• It is a valuable tool for collecting primary data directly from your target market.

3. Conduct Market Research

• Collect data from your audience and understand their preferences, interests, and needs.
• A critical aspect of market research is conducting a market segmentation survey. This survey helps divide your audience into smaller groups based on shared characteristics like demographics, buying habits, and interests.

Now, this is where you need the help of a market research tool. You can use SurveySparrow for this. The platform lets you create engaging conversational forms, share them via multiple platforms, and collect data from your target audience.

That’s not it! SurveySparrow will be handy for the entire process of conducting market segmentation. With the help of the executive dashboard, you can visualize it, analyze it, and make informed decisions based on the market insights you gained.

Here is a sample template for you to try. Feel free to customize it and make it your own.

4. Analyze the Data

• Organize the data and conduct a segmentation analysis. Analysts use the collected data to segment the target audience into distinct groups based on shared characteristics or preferences.
• This segmentation analysis helps businesses better understand their customers’ diverse needs and tailor their marketing strategies accordingly.
• Next, it is the time for statistical analysis to uncover correlations, associations, or statistical significance between different variables in the dataset. This quantitative analysis provides deeper insights into the relationships among various factors and helps validate the findings.
• Don’t just stop there. You have to visualize the data to conclude. For this, consider using techniques such as graphs and infographics.

5. Develop Segmentation Strategy and Implement

Segmentation strategy is a fundamental aspect of market analysis and customer relationship management.

• Based on the conclusions drawn from the analyzed data, understand your customers’ demographics, psychographics, and purchasing behavior. This will help you identify common characteristics and group them accordingly.
• These groups form distinct customer segments, each representing a subset with similar needs and preferences.
• By dividing your audience into distinct segments, you can tailor your marketing efforts better to meet the specific needs and interests of each group.
• Create targeted campaigns and offerings that resonate more effectively with different customer segments.

6. Monitor and Evaluate Continuously

Keep a keen eye on how the strategies are working.

By looking at essential numbers and getting feedback from your target audience, you can see what’s going right and what needs fixing. This helps you keep your strategy on track and improve over time. It’s all about staying competitive and ensuring your business remains competitive.

The Bases of Market Segmentation

Now, since you know the importance of market segmentation, you would want to implement it. Here are the bases that will help you to filter and engage with your target audience for producing robust marketing plans:

Age and Patterns of Purchase

Your buyer population might have expanded. New buyers will have joined your existing group. When that’s the case, you must diligently segment your older buyers from recently joined ones. Such a step ensures a healthy relationship, and you will know how to engage with each segment.

You can also segregate your customers based on the products they prefer or their buying cycle so that the future purchases of the customers hinge on the inference you have drawn from segmenting them. You should be able to put out products according to their buying behavior. Trust me, this works like magic. The buyers will have bought your product before they even know.

Identifying the Dominant Social Channels

We live in an era powered by digital platforms, which is why this is one of the integral steps. You need to identify the social channel that boosts your brand effectively. The social channel should be able to leverage your content to find a sizeable, unique audience for you.

This way, you can realize what products they prefer, when, their purchase behavior, the circle of individuals they interact with, and why. You can even discover the preferences of your customer’s connections. Segmentation is as close to a cakewalk as social media.

Targeting Customers

You should target your audience after segmenting them. Once you are done with segmenting your customers, you should focus on tips and tricks to entice them towards your product or revamp it to suit their needs. Marketing Campaigns and schemes should be curated to address your customers’ needs and match them with your product in the best possible ways.

Your product should be the solution to fill the ‘void’ of their requirements. Build your programs by keeping the buyer persona and demographics as the foundation to deduce the features and requirements valued by the audience.

Once the part of marketing communication is taken care of, you need to dive deeper into the results. You will want to know why a certain section of customers didn’t show up for the purchase. You will also want to find ways to interact with, engage, and retain customers who responded to your marketing programs and made a purchase.

Retarget

Why didn’t your customer open your mail? Why did he/she not stay on your website for long enough? Now, this calls for retargeting. The retargeting techniques use cookies to trace the activities of your audience once they leave your website. The cookies aid in reaching your targeted ads to this particular section of people who have left your site after a visit or two.

The main aim of retargeting is to engage your audience in real time to lure them to your site and purchase your products. If you aim for conversions across numerous platforms, you can incorporate it with both inbound and outbound content marketing.

Retargeting never fails you. Yes, it may or may not fail in retaining the customer, but it sure gives you adequate information to restructure and strategize your product marketing.

The Types of Market Segmentation

You can segment your audience depending on the customer information collected, the industry, and the brand. Ideally, there are four types of segmentation:

1. Demographic Segmentation

The customers are separated into different groups based on demographic characteristics like age, gender, marital status, income, occupation, etc. Demographic segmentation is quite popular among marketers and is used widely.

2. Geographic Segmentation

People from different regions would have different requirements. Geographic segmentation addresses this matter by dividing the audience based on their location. Geographic Segmentation is of great help when it comes to International Marketing.

3. Psychographic Segmentation

This segmentation helps you categorize audiences based on their lifestyles, their likes, dislikes, opinions, and activities. Psychographic segmentation helps you connect with your customers and engage with them on a topic of their interests that matches your product, thereby helping you develop or modify it accordingly.

4. Behavioral Segmentation

In this segmentation, your audience is divided into subsets based on the knowledge or relation the customer has with your product. The factors include customer loyalty, product usage, consumption rate, etc.

Benefits of Market Segmentation

Here’s a look at the benefits of market segmentation:

#1 Convey Specific, more Powerful Marketing Messages

You will be able to create to-the-point marketing messages, addressing the needs and requirements of the customers.

#2 Recognize and Implement constructive marketing strategies

When you segment your market, you understand the customers better. Therefore, you can find the most effective methods to woo them.

#3 Be Ahead of the Curve

Market Segmentation helps you be more specific with your prepositions and focus on the unique needs of your customers. This eventually differentiates you from your competitors to grow into a ‘customer’s brand.’

#4 Understand Niche Markets

Identifying the larger audience of particular industry segments and finding new ways to serve them is often referred to as niche marketing. By employing market segmentation, you can develop new products or services by identifying the underserved section of the niche market.

#6 Cost-Efficient Marketing

You can save money on marketing by targeting specific groups rather than reaching everyone. This means you spend your marketing budget more wisely.

#7 Improved Customer Satisfaction

When you understand your customers better, you can provide them with what they need, making them happier and more likely to stay loyal to your brand.

#8 Adapt to Changing Trends

Market segmentation helps you stay flexible. You can quickly adjust your strategies to match new trends or shifts in customer preferences, staying relevant in the market.

Strategies for Effective Market Segmentation

Now that we have a clear idea of the what and why, it is time for the how!

How do we make marketing segmentation effective? Well, it requires thoughtful strategies. Here are some simple ways to enhance the effectiveness of your market segmentation efforts:

1. Collect Data

• Insights rule! Use customer surveys, website analytics, social media insights, and purchase history to gather relevant customer data.
• Implement data tracking tools to capture customer interactions and behaviors.

2. Define Clear Segments

• Ensure that your segments are distinct and easily distinguishable from one another.
• Avoid overlapping characteristics between segments to maintain clarity.

3. Prioritize Segments

• Analyze the potential profitability of each segment and focus your resources on the most promising ones.
• Consider the alignment of segments with your business goals.

4. Personalized Marketing

• Craft marketing messages that directly speak to each segment’s unique needs and preferences.
• Develop products or services tailored to specific segment requirements.

5. Test and Refine

• Regularly evaluate the performance of your segmentation efforts.
• Adjust segments and strategies based on the feedback and data analysis.

6. Use Technology

• Implement customer relationship management (CRM) software to streamline data management and customer interactions.
• Use data analytics tools to gain deeper insights into customer behavior.

7. Customer Feedback

• Encourage customers to provide feedback through surveys, reviews, or social media.
• Act on feedback to improve products, services, and the customer experience.

8. Cross-Selling and Upselling

• Identify opportunities to offer complementary products or upgrades to existing customers within their specific segments.
• Create targeted cross-selling and upselling campaigns.

9. Consistent Messaging

• Ensure your messaging and branding remain consistent across all marketing channels (website, social media, email, advertisements).
• Maintain a coherent brand identity to build trust.

10. Competitive Analysis

• Study your competitors’ segmentation strategies to identify gaps or potential areas of improvement.
• Learn from their successes and failures in addressing specific customer segments.

11. Segmentation Evolution

• Stay flexible and adapt your segments as customer behaviors and preferences change.
• Regularly update your segmentation criteria to remain relevant in the market.

12. Education and Training

• Train your marketing and sales teams on the importance of market segmentation.
• Ensure that your team members are proficient in implementing segmentation strategies effectively.

13. Regular Review

• Periodically review and assess the accuracy and relevance of your segmentation criteria.
• Make adjustments to accommodate shifts in market dynamics.

14. Ethical Considerations

• Adhere to ethical practices in data collection and use to maintain customer trust.
• Comply with data privacy regulations and obtain customer consent when collecting and using their data.

15. Feedback Loop

• Foster communication between marketing and sales teams to exchange insights and experiences related to customer interactions.
• Use this feedback loop to fine-tune segmentation strategies and improve customer engagement.

Market Segmentation: Use Cases

Here are some use cases to highlight its significance:

1. Automotive Industry

Car manufacturers use market segmentation to tailor their vehicle models to consumer segments. For example, they create luxury models for high-income customers, compact cars for urban dwellers, and family-friendly SUVs for households.

2. Healthcare

Pharmaceutical companies segment the market to understand the unique needs of various patient groups. They develop medications and treatment plans for different medical conditions or age groups.

4. Media and Entertainment

Streaming platforms like Netflix and Spotify use market segmentation to curate content playlists and recommend movies, TV shows, or music based on user viewing/listening history and genre preferences.

5. Fast Food Chains

Fast food restaurants customize their menus and promotional offers based on regional preferences. For instance, they might offer different types of spicy food in regions where spicy cuisine is popular.

6. Financial Services

Banks and credit card companies segment their customers to offer tailored financial products. For example, they might provide different credit card options for students, travelers, or business professionals, each with specific benefits and features.

7. Travel and Hospitality

Airlines and hotels segment customers based on frequent flyer status, travel preferences (business or leisure), and loyalty program participation. This helps them offer personalized perks and rewards.

Market Segmentation Example

Need more motivation? Here is a use case to understand things better. And what better example to begin with than the e-commerce giant Amazon!

Stats say that a whopping 76% of shoppers do their holiday shopping from the ever-growing e-commerce platform Amazon. That is huge!
So, what sets Amazon apart? What makes them the talk of this ‘highly competitive business’ town? Look no further, for there’s just a single answer. Market Segmentation at its best!

Let’s break it down:

• Market Segmentation is Key: To sell your product effectively and maximize revenue, it’s crucial to group your target audience based on their specific characteristics.
• Amazon’s Expertise: Amazon excels in market segmentation by analyzing the purchase patterns of its global audience on an individual level.
• Deep Dive into Customer Insights: Amazon segments its audience at a micro-level to understand their unique buying behaviors and preferences.
• Research Your Market: Take the time to thoroughly research your target market to understand their preferences, buying habits, age demographics, and more.
• Effective Segmentation: Segment your market effectively based on the insights gathered from your research to tailor your products or services to specific customer groups.
• Listen and Innovate: Continuously listen to your customers’ feedback and preferences to innovate and refine your products accordingly, ensuring they meet the evolving needs of your target market.

Winding up!

Know more, boost sales! Filter and reap more!

According to studies conducted by Bain and Company, firms that followed well-defined segmentation strategies savored a 10% higher profit. And yes, indeed! Market Segmentation is one of the best things that could happen to your business. The process helps you to make the most out of your marketing schemes.

I agree. It’s no science, but at the end of the day, it helps you level up your game. And that’s what you need ultimately.

The interesting thing is that market segmentation has been here since time immemorial. Evidently, it wasn’t as advanced as it is now, nor was it termed so. Come to think of it, why do ice cream vans pull over near schools and not offices?

Another simple example of market segmentation! Segmenting and focusing on particular sections of customers has been a part and parcel of marketing. Well, it doesn’t matter when and where it all began. But yes, certainly, market segmentation is here to stay.

Before you go, why not give SurveySparrow a try? Easily streamline your market research process and make informed decisions.

And hey, it’s free!