Market Segmentation: Don’t Advertise Without It

March 1, 2020
Posted in: Uncategorized

Table of Contents

 

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.

 

   

What is Market Segmentation?

 

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: 

  • Focused message – One major benefit of market segmentation is that it allows a company to present a more focused message to each customer segment. In many cases, a product is used in multiple ways or offers multiple benefits that will appeal to different customers in different ways. For example, a car dealership would benefit from segmenting its market and delivering a specific marketing message to young parents interested in safety, reliability, and value.  It could deliver a totally different message to customers seeking a high-performance, stylish vehicle.   
  • Reduced waste – By marketing to a customer segment that’s most likely to purchase the advertised product or service, companies can greatly reduce wasted ad dollars. There is also a much higher chance of having a successful advertising campaign.
  • Competitive advantage Segmentation gives businesses a competitive advantage as its campaigns stand out from competitors’ with ads that are designed to resonate with targeted users.
  • Research and development – After running a marketing campaign, businesses can analyze the results and use the data to gain a better understanding of its audience. This information can then be used to create better products and services.
  • Customer retention – One of the keys to successful market segmentation is speaking the language of your audience. For example, each of your customer segments has its own unique set of challenges and jargon. The messages you craft should speak to each segment in its own language and be aligned with the common problems faced by others like them. This shows customers that you’re in touch with their needs and encourages them to continue doing business with you.

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. 

 

Why is Market Segmentation Important?

 

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.

 

When to Segment Your Market

 

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:

  • Market size – In order to segment a market, you must have a large market. If you have a market that’s already small, you likely won’t benefit from segmenting it into even smaller groups. For example, a daycare center with 50 customers likely wouldn’t benefit from segmentation.
  • Varied customer base – A market needs to have different types of customers within it to be effectively segmented. If all of your customers fit a similar profile, there’s no need to segment it as one marketing campaign will be enough to speak to that entire audience.
  • Availability of customer dataEven if you have a large market consisting of a varied customer base, you still need to be able to collect data on that market’s demographics, interests, behaviors, and other relevant information. If your budget doesn’t allow or you don’t have the available staff to collect data, segmentation may not be a good option for your business. 

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. 

 

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Types of 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:

  • DemographicAge, gender, income, and other consumer characteristics
  • Geographic   Customer location
  • Behavioral – Buying behavior: usage frequency, brand loyalty, benefits needed 
  • Psychographic – Personality traits, values, attitudes, interests, lifestyles, and motivations

 

Demographic Market Segmentation

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:

  • Age – Businesses will segment their audiences by age when different age groups have different interests and motivations.
  • Gender Businesses may benefit from segmenting by gender. This is a common practice when a business offers products or services that cater to both men and women such as in the case of a hair salon. 
  • Ethnicity and religion – There are times when businesses segment by ethnicity and religion when applicable. For example, a travel agency may promote its travel packages to Ireland to customers of Irish descent. 
  • Income, education, and occupation – Businesses may find it beneficial to segment by income, education, and occupation. For example, an auto dealer might segment its audience by income, as well as occupation. This allows them to promote more expensive vehicles to those in higher income brackets and more modestly-priced vehicles to those in middle-income brackets. 
  • Family situation – Assuming that family situation and relationship status influence the products or services a customer needs and how much disposable income they have, some businesses will segment markets by family situation.  For example, a wedding photography business may target recently engaged couples in an effort to promote its wedding packages.

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 Market Segmentation

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:

  • People living in a certain location – Although businesses can generally segment customers by country, state, or city, service-based businesses with physical locations should typically segment by geographic area such as within a certain radius of a zip code. This type of business wants to ensure they’re reaching nearby customers who are likely to respond favorably to the marketing message. 
  • People who recently visited a location – Markets can be segmented by places customers have recently visited. For example, a travel agency may segment customers who have recently visited warm climates and in another segment, those who have recently visited cold-weather climates. They can then promote vacation spots that would most likely appeal to each segment.   
  • People who will be traveling to a location – Markets can also be segmented based on where customers will be traveling. If it can obtain this information, a medical office would be likely to segment its market by patients who will be traveling to certain areas. It could then use this information to promote vaccinations that are relevant to those areas. 

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

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:

  • Purchase behavior – Segmenting markets by purchase behavior looks at the frequency of customer purchases.  Segmenting this way helps businesses know how much they need to coddle a target audience before they will make a purchase.  
  • Travel preferences – The information used includes the frequency of travel, the purpose of travel (pleasure or business), destinations (domestic or international), and the mode of transportation. 
  • Devices & online activities – This segmentation-type looks at the devices customers use (desktop, tablet, or mobile) as well as the browsers they use. It also considers digital activities such as the frequency of online gaming. 
  • Transportation – Markets can be segmented based on the type of transportation customers have, including whether or not they own a vehicle or if they use public transportation.
  • Event attendance – Market segmentation by event attendance may focus on events a business hosts or those that its audience attends. It also considers the types of events they attend and the frequency.

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.

 

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Psychographic Market Segmentation

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:

  • Interests – The purpose of segmenting by interest is to group customers by common interests like hobbies or sports.
  • Aspirations and motivators – Segmenting a market by aspirations and motivators considers what customers are looking to achieve and what motivates them. For example, a local bar may find that its customer base has two main motivators: to wind down after work and to find a good place to socialize. 
  • Opinions, attitudes, and values – Segmenting customers based on their opinions, attitudes, and values allows businesses to group customers based on a shared attitude or value system. For example, an assisted living facility may find that its customer base consists of two types of families: one that values quality care and the safety of their loved ones and the other that values an aesthetically-pleasing facility. In its marketing materials, the facility will focus on aligning these values with what the facility has to offer. 

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.

 

Market Segmentation the Coca-Cola Way

 

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. 

  • Geographic – The total target market is divided into different geographical units such as countries, cities, regions or neighborhoods. (Example:  Because of extremely hot summers in Hong Kong, Coca-Cola offers a product called “freezing coke”).
  • Demographic – The target market is divided into groups on the basis of age, family life cycle, gender, income, occupation, education, race, religion, generation, nationality, and social class. Coca-Cola most often segments its market based on demographic variables since consumer preferences and usage rates are often associated with demographic variables. It’s also easier for Coca-Cola to measure these variables because they can evaluate or conduct surveys for the demographic segment. (Example:  Flavored Coke products are aimed at younger children; returnable bottles are aimed at lower-income consumers.)
  • Psychographic – Coca-Cola divides its market into segments based on lifestyle, personality or values. (Example:  Coke is offered in more portable containers for the modern, busy consumer; Diet Coke is offered to consumers seeking a healthier lifestyle.)
  • Behavioral – Coca-Cola buyers are divided into segments based on their knowledge of, attitude toward, use of or response to a product. (Example:  Some consumers drink Coke to quench thirst while others drink it to get a caffeine boost.)

 

 

How Should You Segment Your Audience?

 

There are many ways to segment an audience as shown above; however, there are two ways by which audiences are also commonly segmented:  buyer persona  and lifecycle stage.  

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. 

 

How to Develop Buyer Personas 

 

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:  

  • What is the buyer’s role in the company?
  • What type of company does the buyer work for?
  • What social networks does the buyer prefer?
  • How does the buyer prefer to communicate?
  • What are the buyer’s biggest challenges at work?
  • What are the buyer’s work goals?
  • What’s a priority for the buyer (what’s most important for them to accomplish in their role)

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:

  • Traditional market research – If budget allows, conduct focus groups or one-on-one interviews with target customers.
  • Send questionnaires to existing customers – You may get a better response if you incentivize customers who complete the questionnaire (i.e. discount, free product)
  • Ask employees – Ask customer-facing employees about the people they work with.

Once you’ve obtained answers to the questions above, the following buyer personas can be created:

 

Older Accountant Persona (“Established Edward”):

  • Role:  Managing Partner
  • Type of Company:  Accounting Firm
  • Social Networks:  Doesn’t use 
  • Communication Preference:  Phone, Email
  • Biggest Challenges at Work:  Embracing new technology
  • Work Goals:  Keep qualified and happy employees 
  • Priorities:   Keep existing customers from switching to cloud-based accounting services
  • Notes: Not comfortable with technology. Up-to-date website not a major concern. Focused on profits & getting new clients

 

Younger Accountant Persona (“Technology Tina”):

  • Role:  CPA
  • Type of Company:  Accounting Firm
  • Social Networks:  LinkedIn, Facebook
  • Communication Preference:  Email, Text 
  • Biggest Challenges at Work:  Getting partners to embrace new technology
  • Work Goals:  Promotion to Senior Accountant within 4 years
  • Priorities:   Using technology to maximize productivity
  • Notes:  Profits are not a major concern. Motivated by new technology.

 

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How to Use Your Buyer Personas

 

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.

 

Turn Your CRM System Into a Market Segmentation Tool 

 

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:

  • Job Title
  • Job Function
  • Account
  • Industry
  • Customer vs. Prospect
  • Product Ownership
  • Deal History (ex. currently active lead or opportunity, past lead disqualifications)
  • Marketing Interactions (ex. recently attended a webinar, downloaded whitepaper, etc.) 

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. 

 

Map Contacts to Marketing Campaigns

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.

 

 

For Optimal Results, Execute Simultaneous Campaigns

 

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.

 

Final Thoughts – Market Segmentation: Don’t Advertise Without It

 

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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