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When it comes to marketing, the shotgun approach (targeting a wide audience and hoping sheer volume will result in sales) can be both ineffective and expensive. Carefully targeting your ideal customer is a better use of resources and much more likely to produce your desired results.
If your company serves more than one customer group, segmenting your total audience into clearly defined groups for marketing purposes will allow you to deliver a marketing message that’s just right for each group. Think about it. Wouldn’t you respond to a message that seemed to be created just for you, taking your needs and interests into account? That’s the goal of market segmentation.
Market segmentation isn’t necessarily a difficult process; it just requires an ample amount of time and research. It’s important to conduct your research as part of your overall marketing plan. This is the best way to ensure that you’ve clearly defined your segments and that they will align with your marketing efforts. If you don’t have the time or research skills, consider outsourcing this task to a professional.
Historically, businesses have struggled to create marketing campaigns that result in a healthy return on ad spend. In this article, we’ll define market segmentation and discuss how small businesses can use this approach to cost-effectively increase sales conversions while reducing ad spend. We’ll also discuss how buyer personas aid in the creation of targeted marketing campaigns.
Segmentation is a technique used by companies to narrow down a general consumer base into more narrowly defined target groups (segments). Simply put, it involves breaking the entire audience into groups of like people. Each segment can then be identified by shared traits such as demographics, lifestyle, and usage patterns. Why would a company want to identify and target these distinct customer segments?
The benefits of segmentation are mostly realized in advertising and include:
When properly implemented, there are many benefits to be realized from market segmentation. It not only leads to higher sales and greater return on ad spend but also helps businesses stand out from the competition. During segmentation research, businesses gain better insights into their customers through the data collected.
Considering the importance of market segmentation, it’s surprising how many astute business owners don’t know how to properly segment their customer bases. In fact, a study conducted by Harvard Business found that 85% of 30,000 U.S. new product launches failed due to poor market segmentation. This is something that should be done before developing a marketing plan yet too many business owners assume everyone will be interested in their products or services. They don’t take the time to separate their general consumer base into smaller groups of people that share specific characteristics.
One of the most important reasons for a company to use market segmentation is to gain a competitive advantage. By understanding the needs and interests of a specific customer group, business owners and/or their marketing teams can “speak to” those needs and interests better than competitors can. Many of the marketing techniques used in business don’t speak to these specific needs and assume all customers are the same.
Marketers may get some results through mass marketing but not as many as they could get by using a more efficient process like market segmentation. Correct use of market segmentation allows marketers to better align marketing efforts and messaging strategy.
To determine if market segmentation is right for your business, there are three factors to consider. This includes your market size, the customer base within that market, and your ability to gather information about your market.
Here are the three main factors to consider when determining if your market should be segmented:
If your business has a large market that’s comprised of a varied customer base and you have a good understanding of your audience’s makeup – or have the resources to collect data about your audience – then you’re a good candidate for market segmentation.
There are four main types of market segmentation. Each type will isolate specific customers but to create a highly segmented audience, businesses will benefit from using a combination of these segmentation types:
To segment a market by customer demographics, such factors as age, gender, ethnicity, income, net worth, educational level, occupation, and marital status need to be considered. To avoid eliminating or focusing on the wrong customers, demographic market segmentation should be based on reliable data rather than on assumptions.
Here are five types of data commonly used in demographic market segmentation:
To take the hair salon example further, a salon wanting to promote its new nail service sends emails to its clients asking about their nail technique preferences. The salon finds that clients tend to have different interests based on age. Twenty-something clients are interested in the latest, trendy techniques, while more mature clients prefer classic nail techniques that result in more natural-looking nails. With this information, the salon can send targeted emails to promote different nail techniques to customers based on the age group they fall within.
Geographic segmentation divides customers into groups based on location. A market can be geographically segmented by area, such as cities, counties, regions, countries, and international regions. You can also break a market down into rural, suburban and urban areas. Additionally, geographic segmentation targets not only residents of an area but people who have recently visited a specific location or plan to visit it in the future.
Here are three types of data commonly used in geographic market segmentation:
As a further example of geographic segmentation, consider a company that sells its products nationwide. The company has developed a product that protects outdoor shrubbery from perishing in freezing temperatures. The company creates marketing campaigns for this new product and targets customers who live in cold-weather climates.
Behavioral market segmentation takes into account such behaviors as product use and acquisition behaviors such as frequency of online purchases or attendance at paid events. These behaviors don’t apply to all industries, but each industry will have its own unique behaviors that a business can track.
Here are five types of data commonly used in behavioral market segmentation:
For example, a business uses data from its customer records to see how often customers purchase a particular product type. It then uses this information to segment its customer base into those that purchase the product frequently versus those that purchase infrequently or not at all. The business sends marketing messages to customers based on this information.
Psychographic market segmentation involves dividing your market into segments based on different personality traits, aspirations, values, attitudes, interests, lifestyles, motivators, and opinions. Segmenting an audience by these factors will allow you to create marketing messages that best match the needs and wants of each segment. You can then promote products and services that align with what’s most important to each segment.
Here are three types of data commonly used in psychographic market segmentation:
For example, an aesthetician in a large urban area wants to promote a new service to her existing customer base. She finds that her customers typically visit her office for one of two things: to improve the condition of their skin or to maintain their skin’s condition. She segments these clients by their goals/aspirations and creates two marketing campaigns tailored to each group. One campaign promotes an intensive skincare service while the other promotes a maintenance service that’s less intensive and requires fewer treatments.
The target market for Coca-Cola is vast and encompasses everyone from the health-conscious Diet Coke consumer to the average Coke consumer who prefers a strong tasting soft drink. Most Coke products appeal to all age groups and genders. However, to make the most of its advertising dollars, Coca-Cola still breaks this large target market down into distinct market segments: geographic, demographic, psychographic, and behavioral.
According to Wikipedia, a buyer persona is “a fictional character created to represent a user type that might use a site, brand or product in a similar way”. Together with market segmentation, companies may use personas to attach a personal human face to each segment. Personas help companies to understand exactly what might matter to the buyer and, therefore, convey marketing messages in a humanized way that resonates with the buyer. The message should then take on an empathetic tone instead of being “salesy”. It’s about crafting messages in a way that will be most persuasive given the buyer’s personal situation. By considering the needs of the fictional persona, companies are better able to infer the needs and behavior of a real person (prospective customer).
In B2B sales, a buyer persona could be defined by such variables as industry, company size, location, and target market. The underlying assumption is that if you can sell to Company X, you can sell to its competitors (companies with a similar persona).
Lifecycle stage refers to where in the buying process a lead or contact currently is. It’s a great way to segment an audience because the way you communicate with a new lead that you have limited knowledge of should differ from the way you communicate with an established lead that is ready to purchase in the near future.
A highly effective method for defining market segments is to combine the buyer persona and lifecycle stage approaches. In this method, both who the individual or contact is (buyer persona) and how they expect to interact with your organization (lifecycle stage) are considered.
The first step in persona development is determining how many general target customers your company has. A buyer persona is often confused with a target customer but there is a definite distinction. A company can have multiple target customer groups each with its own buyer persona. For example, a company that offers website design services to accountants could have the following target customers: (1) older accountants who have owned their own practices for years and (2) on-the-rise CPAs with an interest in the latest technology.
These two target customers are likely to respond to different sales approaches. The older accountants may not be comfortable with the internet and aren’t as concerned about how up-to-date their websites are but they are concerned about profits and bringing in new clients. Emphasizing how a modern-looking website will help them to accomplish this will resonate with this group.
The younger accountants aren’t as motivated by the bottom line since they’re generally not owners of their firms, but having a website that boasts the latest in technology would appeal to this group.
So, the website design service has these two distinct target customers for whom it would be wise to develop buyer personas. These personas will be detailed descriptions that take into account the needs of each target customer. Since this will be a B2B relationship, the buyer personas could take into account the following:
The website design service can obtain answers to the above questions by asking clarifying questions when first making contact with prospects. Other ways to obtain the above information:
Once you’ve obtained answers to the questions above, the following buyer personas can be created:
Now that you’ve created your personas, it’s time to put them to use. The newly created personas can be used to tailor everything from sales pitches to marketing materials because now you have an idea of what will resonate with each persona.
When marketing to prospects with characteristics most similar to those of “Established Edward”, the website design service can emphasize the benefits of having a modern, responsive website and how it will attract new clients (since prospects will tend to bounce from a website that looks unprofessional or outdated).
When marketing to prospects with characteristics most similar to those of “Technology Tina”, the website design service can emphasize the benefits of having a website with all of the latest “bells and whistles” because this is what will resonate with them.
Keep in mind that not all prospects will fall neatly into one of your buyer personas. When this happens, categorize the prospect using the persona with the most similar characteristics.
With your buyer personas created, you can now segment the contacts within your customer relationship management system (CRM) into meaningful groups that you can market to with precision.
The fields available within your CRM can be used to identify meaningful segments. Persona-related data can be combined with additional insights. Fields to consider:
Although your database of existing customers is a great place to start, don’t limit yourself to this source. Your created personas can be used in highly targeted marketing campaigns on LinkedIn and other social networks.
Now that you’ve classified each contact in your database by the appropriate buyer persona, you can move to the step that you did all of the segmenting and persona creation for. You will now direct each of your contacts to a specific marketing message based on the contact’s buyer persona. Your aim is to deliver the marketing message that will best persuade each contact to take the desired action.
During the mapping process, it’s important to consider that there will be factors that will have “override” status. For example, a contact may need to be excluded from a campaign if they’re already involved in an active opportunity or were recently disqualified during the lead qualification process.
Repeat the above process until all contacts in your database have been mapped.
As your contacts’ information changes (job title, deal history, marketing interactions, etc.), it’s important that they are remapped.
Research shows that it can take an average of eight points of contact before a prospect will engage with an unfamiliar company. If you run only one campaign per quarter and switch up contact methods, your prospects may only receive one pertinent message per year, which is far below the “minimum effective dose” required to persuade them to effectively engage with your company.
Identifying targeted market segments will allow you to run campaigns simultaneously, addressing the precise needs of different groups in parallel. This is a major step for marketers.
Market segmentation and the creation of buyer personas are effective methods for delivering targeted marketing messages and ideally increasing conversion rates while reducing ad spend. Market segmentation divides a broad consumer base into smaller groups based on customer characteristics. This allows businesses to create custom campaigns that more strategically speak to each group. Businesses will not only see an increased return on ad spend, but they’ll also gain a competitive advantage.
Buyer personas add a human element to the groups created through market segmentation. Personas help businesses understand exactly what might matter to buyers and, therefore, convey marketing messages in a humanized way that resonates with each buyer.
Every business with a large market that represents varied interests and motivations should use market segmentation along with buyer personas as part of its overall marketing strategy.
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