What is Market Segmentation and How does it help reach your Potential Customers?

November 16, 2023

What is Market Segmentation and How does it help reach your Potential Customers?

Do you ever find yourself marvelling at how companies effortlessly align their offerings with your needs or desires? For instance, your streaming platform knows exactly what shows to recommend, or your favourite coffee shop magically always seems to have the perfect deal when you need that caffeine fix.

It’s like they’ve cracked the code to your preferences, right?

Welcome to the fascinating world of market segmentation. It’s a strategic approach that allows businesses to break down their target market into distinct groups and connect with their potential customers on a deeper level.

According to Notify Visitors, “Segmenting customers based on personas provides 90% of firms with better knowledge about their audience.”

As the statistics suggest, segmentation plays a pivotal role in helping businesses gain a deeper understanding of their customers’ distinct needs and preferences. Additionally, it helps businesses anticipate their customers’ desires with uncanny precision.

Market Segmentation

Join us as we elucidate the importance of market segmentation and how it can be used to strengthen customer relationships and achieve marketing goals.

But before we get into the details, let’s first understand;

2. What is Market Segmentation?

Market segmentation is a powerful strategy within the realm of STP marketing that involves dividing a broad and heterogeneous market into smaller, distinct groups. These groups are divided based on common demographical, psychographic, geographical, and behavioural attributes. Fundamentally based on customer-centric methodology, market segmentation aims to resonate with each customer groups, making them feel seen, understood, and more likely to choose your product or service.

For example, a makeup brand catering to high-end glamour enthusiasts aged 22-35, falling into the higher income category, would craft marketing campaigns that emphasise luxury, quality, and sophistication. These campaigns might involve featuring exclusive, limited-edition products tailored for special occasions, collaborating with high-profile influencers, and showcasing the products’ premium ingredients and packaging.

Now, let’s uncover the different types of market segmentation.

3. Types of Market Segmentation

Market segmentation can be divided into two major domains.

  1. Market Segmentation for B2B
  2. Market Segmentation for B2C

STP Marketing

3.1 Market Segmentation for B2B

Business-to-business (B2B) market segmentation involves dividing customers into distinct groups based on shared characteristics like company size, business type, purchasing power, geographical location, or other relevant criteria.

Here’s a closer look at the different types of B2B market segments:

  • Firmographic Segmentation

Firmographic segmentation is a marketing strategy that involves categorising and targeting organisations based on characteristics related to their company profile. These attributes can help businesses tailor their marketing efforts to specific groups.

Companies segment businesses based on:

Company size: Small, medium, or large enterprises.
Industry: Technology, healthcare, finance, manufacturing, etc.
Geographic location: Local, national, or international marketplace.
Customer type: Manufacturers, distributors, retailers, or service providers.
Purchasing behaviour: Frequency of purchases, order size, or preferred payment methods.

  • Behavioural Segmentation

In this type of segmentation, the business audience is divided into groups based on their actions, behaviours, and interactions with the company. Behavioural segmentation helps companies understand how their potential clients behave, make decisions, and engage with similar products and services.

In this type of segmentation, businesses are classified on the basis of:

Purchase frequency: Weekly, monthly, quarterly, yearly.
Loyalty level: Repeat customers, occasional buyers, one-time buyers.
Client’s buying stage: Research, evaluation, or purchase.
Purchase Pattern Analysis: Cross-selling or upselling.

  • Technographic Segmentation

Here, companies categorise businesses based on technology-related attributes. This includes the technology they use, their tech preferences, and their level of technological sophistication. This is a comparatively more complex type of segmentation.

In this case, the categorisation is based on:

Hardware that businesses use: Security hardware, networking equipment, storage devices, etc.
Software that companies use: Enterprise resource planning, customer relationship management software, etc.
Technology adoption: Innovators, early adopters, early majority, late majority, laggards.
Budget for technology: This depends on the annual turnover of the companies.

  • Geographic Segmentation

As the name suggests, geographic segmentation recognises that clients’ behaviours, preferences, and needs often vary based on their physical location. This enables companies to tailor their offerings based on the geographic areas.

In this type of segmentation, companies segment businesses based on:

Location: Local, regional, national, international.
Climate and seasonal variation: Summer, winter, spring, monsoon.
Regulations and laws: Import, export, marketing, IP rights.
Regional Differences: Social, cultural, economic.

  • Benefits Segmentation

In this type of segmentation, companies divide business customers based on the specific benefits or value they seek from a product or service. This strategy recognises that businesses have unique requirements and preferences when making purchasing decisions.

In this segmentation, the categorisation is based on:

Identifying clients’ benefits: Operational efficiency, technological innovation, regulatory compliance.
Customised solutions: Tailored solutions, strategic partnerships, product bundles, or service packages.

Segmentation, Targeting, and Positioning

3.2 Market Segmentation for B2C

Business-to-consumer (B2C) market segmentation refers to the process of dividing a broad consumer base into smaller, distinct, and easily identifiable groups. This categorisation is based on shared characteristics, preferences, behaviours, or other relevant factors.

Here are the various categories of B2C market segments:

  • Demographic Segmentation

In this type of segmentation, target customers are grouped together based on certain factors such as age, gender, education, family status, etc. Instead of reaching an entire market or broad consumer base, demographic segmentation helps address a defined subset of the market.

Companies segment potential customers based on:

Gender: Male, female, others.
Marital status: Married, single, divorced.
Age: 18-25, 25-40, 60 and above.
Income: $200-$350 per month, $10000-$20000 per year.

  • Behavioural Segmentation

Through this type of segmentation, companies get a closer understanding of customers behavioural patterns. These patterns provide insights into how consumers engage with a brand, make purchasing decisions, and respond to marketing stimuli.

In this type, companies segment customers based on:

Purchase triggers: Specific occasion, need, external.
Purchases through Marketing Channels: Social media, email campaigns.
Product usage: Heavy, mediocre, sparingly.
Brand loyalty: Repeat customers, occasional buyers, one-time buyers.

  • Geographic Segmentation

This segmentation involves categorising the audience based on their location, such as country, region, city, or even neighbourhood. It is a vital strategy for businesses that have location-specific offerings or wish to tailor their marketing efforts to different regions.

In this type, companies segment potential customers based on:

Location: Local, regional, national, international.
Regulations and laws: Import, export, marketing, IP rights.
Regional Differences: Social, cultural, economic.

  • Psychographic Segmentation

In this type of segmentation, companies delve into consumers’ psychological and emotional dimensions, shedding light on their attitudes, values, interests, and lifestyle choices. This approach goes beyond demographics and focuses on understanding consumers on a deeper level.

Companies segment customers based on:

Lifestyle: Hobbies, passions, interests.
Personality traits: Extrovert, introvert, ambivert.
Attitudes and opinions: Status, quality, affordability.
Values and beliefs: Social responsibility, environmental consciousness, family values.

  • Channel Segmentation

This segmentation categorises consumers based on their preferred communication channels. This approach recognises that different consumers have varying preferences for interacting with brands and making purchases.

In this type, customers are segmented based on:

Communication Channels: Social media, email, SMS, in-person.
Purchase Channels: Stores, e-commerce websites, mobile apps.
Content Formats: Videos, articles, infographics, podcasts.
Engagement Touchpoints: Feedback surveys, community forums, product demos.

  • Seasonal Segmentation

Seasonal segmentation is a dynamic approach where consumers are segmented based on their behaviours, preferences, and purchasing patterns during specific seasons or time periods.

The segmentation of potential customers is based on:

Seasonal trends: Holidays, cultural events, special occasions.
Weather-related preferences: Monsoon, summer, spring, winter.
Cyclical patterns: Recurring purchases based on specific times of the year.

Brands can select any of these classifications of market segmentation to achieve their business goals, connect with their customers, and stay adaptable in an ever-changing market environment.

Now that we understand the types, let’s see how segmentation benefits businesses.

Digital Marketing Strategy

4. Benefits of Market Segmentation

Let’s explore the incredible benefits this strategy offers for businesses looking to connect with their target audiences in a more personalised and effective way.

4.1 Provides Customer Insights for Decision-Making

Segmenting audiences provides businesses with a strategic perspective that allows them to gain valuable insights into customer behaviour, interests, and demographic characteristics. This information, derived from segmentation, helps in shaping organisational-level decisions related to marketing tools, approaches, including communication channel selection, as well as pricing strategies such as offering discounts and promotions.

4.2. Helps Identify Relevant Channels for Marketing Campaigns

Market segmentation enables businesses to tailor their marketing campaigns by categorising their audience according to their preferred communication platforms or channels. This facilitates businesses in pinpointing the specific media platforms where their target audience mostly engages and responds. Ultimately, this aids in steering marketing initiatives towards achieving increased levels of engagement and conversion rates.

4.3 Enables Tailored Marketing Content for Each Segment

Segmenting potential customers provides businesses with detailed insights into their needs or pain points. It enables them to create personalised messages that resonate with the specific preferences, aspirations, and emotions of the customers in each segment. This eventually helps businesses boost engagement, increase conversion rates, and improve the overall success of their marketing efforts.

4.4 Optimises Marketing Efforts and Budget on Profitable Segments

Segmentation allows businesses to determine the most valuable customer segments by analysing factors such as purchasing behaviour and psychographics. This insight helps in focusing marketing efforts on those that are more likely to generate higher returns. Moreover, by understanding which communication channels each segment prefers, businesses can allocate their marketing budget to effective channels. This further prevents wasting resources on ineffective channels.

4.5 Improves Customer Satisfaction and Retention Rates

Segmenting the customer base enables businesses to create personalised marketing messages that resonate with the specific interests and behaviours of each segment. This tailored approach makes customers feel understood and valued, leading to higher satisfaction. Furthermore, understanding distinct preferences enables companies to offer products and solutions that align with the preferences of each segment, thereby boosting retention rates.

4.6 Facilitates Product Line Expansion Based on Customer Preference

Market segmentation helps businesses understand customer preferences. For instance, a tech company realises that a specific segment of its customers, let’s say gamers, prefer compact gaming devices. Now, the company decides to expand its product line by developing a new line of lightweight gaming laptops. This targeted expansion not only meets the specific needs of the customer segment but also increases the chances of the product being successful.

In a nutshell, market segmentation is an invaluable tool that empowers businesses to make informed decisions regarding their marketing strategies. Let’s look at the steps that can help you in this process.

Growth Marketing

5. Key Steps to Perform Effective Market Segmentation

Below-mentioned are 4 crucial steps to successfully segment your target market:

5.1 Determine the Purpose of Market Segmentation

The initial and crucial step in effective market segmentation is determining its purpose which should align with the overarching business goals. In order to achieve that, businesses need to outline why they are segmenting their target market and what outcomes they intend to achieve. Gaining this clarity on these aspects will help organisations ensure that their efforts are directed towards achieving the desired results.

5.2 Conduct Market Research and Analyse Your Competitors

Once the goals have been identified and aligned, businesses need to gather comprehensive data through market research. This data should include information about the latest trends in the industry, customer preferences, and the competitive landscape. Additionally, analysing competitors provides valuable insights into their strategies, strengths, and weaknesses. This information guides businesses in positioning their products or services uniquely.

5.3 Understand Your Target Audience and Create Buyers Persona

After analysing the data, businesses can proceed with breaking down the market into groups. The categorisation can be based on the target market’s demographics, psychographics, and behaviours. This classification serves as the building block for crafting detailed user personas. These personas go beyond surface-level details and include intricate aspects such as buying patterns, motivations, and lifestyles.

5.4 Define Customer Segments and Identify Relevant Profiles

Now that the user personas are ready, the next step is to define distinct customer segments. They are outlined based on factors such as characteristics, preferences, and behaviours identified through the personas. After grouping the segments, the focus shifts to profiling. This involves delving into details like the unique needs, traits, pain points, and aspirations that define each group. This insight enables businesses to tailor their strategies to the expectations of each segment.

Now that you understand how to perform market segmentation, let’s see how a digital marketing agency can help in the process.

Personalised Marketing

6. How can a Digital Marketing Agency Help?

A digital marketing agency has the expertise and tools to gather data and segment audiences into groups. Furthermore, they can develop buyer personas and craft personalised content, ads, and campaigns for each persona.

Growth Ganik is a full-stack digital agency that will help businesses segment the target market into different groups by analysing data. Our team of expert marketers and strategists create personalised marketing campaigns using customer insights to bring you desired results and help you achieve business goals.

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