Market segmentation is like that first drop of water among the many other drops that accumulate to make the mighty ocean of consistent customers for a brand.
It all starts here. If you’re aiming to design a customer-driven marketing strategy, market segmentation is your first step. It’s like building your empire, one loyal customer at a time.
Feeling lost already? Chill. We’re diving into what market segmentation means, why you need it, the variables to consider, and how to work this magic.
What the Heck is Market Segmentation Anyway?
Market segmentation is the process of dividing a market into distinct groups of customers. These folks have different characteristics, needs, and behaviors. Because of this, they require unique products or marketing programs.
Imagine a giant pizza. 🍕 Instead of trying to eat it all at once (good luck with that!), you slice it up. Market segmentation is kinda like that. You divide your potential customers into smaller groups – or slices – based on things they have in common such as:
Demographics: Age, gender, location, income, education. You know, the usual suspects.
Psychographics: Values, interests, lifestyles, attitudes. The “why” behind their buying decisions.
Behavioral: How they interact with your product, website, or brand. Are they loyal customers or just window shoppers?
Geographic: Where they live, work, and play (because a beach bum in Lagos probably won’t need your snow tires).
Why bother with all this slicing and dicing? Your company has one shot to nab the most delicious slice. So, cut the pie wisely to get the juiciest returns on your investment.
Why Bother with Market Segmentation?
You might think, “I’ve got a solid product. Why can’t I just pitch it to everyone?” Well, spoiler alert: Most companies don’t have the resources to cater to everyone. Plus, even those that have the resources and can afford a huge marketing budget, know that they cannot serve all consumers in the total market – at least not profitably and in the same way. The market is simply too diverse.
So, instead of wasting useful dollars on marketing that will most likely bring zero returns, customers are divided into… yes, you got that right, segments. Imagine chasing every fish in the ocean versus focusing just on the juicy tuna. 🍣
Segments are groups of customers that will respond similarly to your marketing strategies due to their shared interests and needs. Feels doable, right?
Most companies can serve some segments better than others because there is a greater fit between the company’s strengths and the segments’ needs. So, ditch the one-size-fits-all approach. Focus your energy and resources on segments you can serve effectively.
Segmentation helps you to:
Talk their language: By understanding each segment’s needs and wants, you can tailor your marketing messages to resonate with them. No more generic BS that makes people’s eyes glaze over.
Boost your ROI: When you target specific groups, you waste less money on marketing that misses the mark. More bang for your buck, baby!
Find your crowd: Attract customers who are actually interested in what you’re selling. That means higher conversion rates and less time chasing after dead-end leads.
Become a mind reader: Okay, not really. But segmentation helps you anticipate your customers’ needs and stay ahead of the curve.
Market Segmentation Variables
Consumers have to be grouped based on various variables to divide the market into smaller consumer segments. These variables can be based on geographic, demographic, psychographic, and behavioral factors.
However, not every market segmentation variable is equally useful for each company. For instance, a car manufacturer would gain little by distinguishing between vegetarians and non-vegetarians. However, for a meat company, this may be the most important variable in its marketing strategy.
Let’s look at an overview of the major variables that can be used in market segmentation.
| Type | Variable | Example |
|---|---|---|
| Geographic | World region or country | Africa, Asia, Europe, North America, China, India… |
| Country region | England: East Midlands, Greater London… | |
| City or metro size (population) | Under 5,000; 5,000-20000; 20,000-50,000… | |
| Density | Urban, suburban, exurban, rural | |
| Climatic zones | Northern, Southern, Polar, Temperate, Tropical… | |
| Demographic | Age (years) | Under 6, 6-11, 12-19, 20-34… |
| Gender | Male, female | |
| Family size | 1-2, 3-4, more than 5 | |
| Family life cycle | Young, single; married, no children; single parents… | |
| Income | Under 20,000€; 20,000-30,000€… | |
| Occupation | A – Professionals and managers; B – …; C – unemployed… | |
| Education | Terminal education age 16/18, university graduates… | |
| Religion | Catholic, Protestant, Jewish, Muslim, Hindu… | |
| Race | White, Asian, Hispanic, Black, Chinese… | |
| Generation | Baby-boomer, Generation X, Millennial… | |
| Nationality | North American, South American, British… | |
| Psychographic | Social class | Underclass, Working Class, Middle Class… |
| Lifestyle | Innovators, Thinkers, Believers, Experiencers… | |
| Personality | Compulsive, outgoing, authoritarian, ambitious… | |
| Behavioural | Occasions | Regular occasion, special occasion, holiday… |
| Benefits sought | Quality, service, economy, convenience, speed… | |
| User status | Non-user, ex-user, potential user, first-time user… | |
| User rates | Light user, medium user, heavy user… | |
| Loyalty status | None, medium, strong, absolute… | |
| Readiness stage | Unaware, aware, informed, interested, intending to buy… | |
| Attitude toward product | Enthusiastic, positive, indifferent, negative… |
Types of Market Segmentation
- Geographic segmentation
- Demographic segmentation
- Psychographic segmentation
- Behavioral segmentation
- Multiple Variable Market Segmentation
Geographic Market Segmentation
The first variable that can be used for market segmentation is the consumer’s location. Geographic market segmentation divides the market into geographical units, which can be nations, states, regions, cities, or even neighborhoods.
If you’ve ever noticed billboards near universities advertising pizza and beer, while those in residential areas flaunt fresh food and baby products, you’re already seeing geographic segmentation in action.
Knowing where a customer resides helps a company to have a better understanding of the needs of that customer. It also helps to target them with the appropriate ads.
The language used also changes depending on the region a company is targeting. For example, an ad in Paris will be in French while the same ad in Germany and the United States will be in Dutch and English respectively.
Demographic Market Segmentation
Demographic market segmentation is all about people. It divides the market into segments based on variables that tell us something about the population: age, gender, family size, etc.
Worthy of note is the fact that demographic market segmentation variables are the most popular bases for consumer market segmentation. The reason is that consumer needs and wants are often interrelated with demographic variables.
Example: A company selling high-end skincare products targets middle-aged women concerned with maintaining youthful skin. Sounds simple, right? Because it is!
Another reason why most companies use demographic segmentation is because the variables are rather easy to measure in contrast to many others.
Psychographic Market Segmentation
Psychographic segmentation takes it a step further into the realm of dreams and desires. Personality traits, values, interests, attitudes, and lifestyles are in focus here. Although psychographics are not easily observable, they allow marketers to have valuable insights into the motives, preferences, and needs of customers.
For instance, a holiday cruise line targets the adventure seekers among us. It’s less about who they are and more about what drives them.
Psychographic information tells a company why people purchase or do not purchase a product or service; making it easier for marketers to develop content that is more relatable to their target audience.
Behavioral Market Segmentation
This is all about actions. Whether it’s consumer knowledge, attitudes, or occasions, behavioral segmentation digs deep into how and why customers act.
For example, if we want to find out what occasion causes a consumer to have an idea to buy a product or use it, our focus will be on occasion segmentation, which entails dividing the market according to occasions that move a consumer to buy or use something. In this case, an orange juice manufacturer can segment their market into regular breakfast users and post-workout guzzlers. Different strokes for different folks.
The benefits that can be derived from the use of a product can also be a useful variable when segmenting the market. Let’s use clothing for instance, the primary reason why we wear clothes is because we can’t walk around naked but, aside this, there are several other benefits people hope to derive from the clothes they wear such as warmth, style, function, or durability. Thus, each segment seeks a different mix of benefits. It is left to the clothing company to choose the segment it can serve and satisfy best.
Multiple Variable Market Segmentation
Why stop at one variable when you can mix a cocktail of several? This allows for precise targeting and that becomes clear when we look at an example:
Let’s say you own a construction company focused on building residential properties, you could first segment the market on geographic variables by developing different housing designs for different continents. But, stopping at that point only would be like shooting yourself in the foot; to be effective, you would have to consider many other factors, such as income level, family size, as well as psychographic and behavioral characteristics of the client.
Therefore, for nearly every product or service, multiple variable market segmentation should be applied for optimal results.
Effective Market Segmentation: Finding Your Perfect Slice
Before you jump into market segmentation, know that not all ways of dividing the market are equally effective. For example, while segmentation based on hair texture is important for a hair product manufacturer, it is inconsequential for a wristwatch manufacturer.
Therefore, for market segmentation to be effective, market segments must be:
- Measurable: Population size, purchasing power, and nationality can be measured. Some segments may be difficult to measure, due to lack of data. Then, there is always a risk involved in targeting these segments.
- Accessible: The market segments should be effectively reachable.
- Substantial: The market segments should be large and profitable enough to serve.
- Differentiable: The market segments should be distinguishable and respond differently to elements of the marketing mix and program.
- Actionable: Is it even possible to serve that segment? This requirement is only fulfilled if effective marketing programs can be designed for the market segment.
Challenges of Market Segmentation
Like every meaningful venture in life, market segmentation comes with a fair share of challenges, such as:
- Insufficient data or data overload
- Lack of market segmentation integration with the brand’s overall marketing strategy
- Difficulty in measuring return on investment (ROI) for the segmentation
- Inaccuracy in identifying and creating consumer segments
- Keeping up with evolving consumer behaviors.
Data is very important in market segmentation, too little data or too much data can both be chaotic. Too little data can leave you with too many holes as you will lack the needed information to accurately identify and create your consumer segments. Conversely, too much data can cripple you as you may fail to accurately shift out what really matters.
When you accurately use the data available to you, you can easily identify segments in the market that your brand can serve best. From your data, you can get answers to questions that can help you segment your customers accurately such as; what are the demographics of the individuals that patronize your business? When do they usually shop? What’s the average amount a customer spends?
Market segmentation is a piece of the pie in your marketing strategy so, for it to work, you have to integrate it into your company’s overall strategy, this may include allocating a budget for targeted marketing campaigns and ensuring that your team fully understands how to target these consumers.
Companies that do not accurately segment their market may find it difficult to ascertain the benefits that accrue from it. For instance, if you run a parcel delivery service and recently segmented your market into business owners who routinely use your service and individuals who are occasional users, you may find it hard to ascertain the exact increase in patronage from either the routine or occasional users if you do not have a robust and functional tracking system that distinguishes between the two segments. Thus, measuring the ROI of your market segmentation may become difficult.
In all of these, there is nothing more challenging than keeping up with evolving consumer behavior. Consumer behaviors evolve faster than you can say, “What’s trending now?” It’s like the irregular shape of an amoeba; you can’t completely figure it out. Hence, you have to keep on studying and tracking changes in consumer behavior while tweaking your approaches and consumer segments to ensure that you always serve consumers how they want to be served while ensuring adequate profitability for your business.
Real-World Wins and Fails
Coca-Cola’s Successful Market Segmentation and Campaign
One of the most successful market segmentation campaigns that have graced the world is the Share a Coke campaign which started in Australia but soon became a worldwide phenomenon. This campaign doubled down to the very basic consumer segment–the individual. Customizing names on Coke bottles made it very personal for individuals who felt euphoric knowing that the iconic drink had their name on it.
The success of Share a Coke is a clear indication that beyond looking to collect your customers’ dollars, you should be willing to offer value in a way that appeals to the targeted consumer segment. Personalized Coke bottles made people feel special. Simple yet profoundly effective.
Apart from this campaign, the brand’s variation of its carbonated drink, Coke into classic, diet, and zero caters to different market segments:
- Classic Coke for the larger market.
- Diet Coke for those seeking a healthier version of their favorite drink.
- Coke Zero for those seeking a sugar-free option.
Everyone gets a taste of Coke! The brand not only meets the diversity in consumer taste, it also records higher sales and maintains its dominant position in the market.
Apple’s iPad Pro Blunder
Apple has recorded tremendous success through market segmentation, the brand has positioned itself as a brand that provides high-quality devices for consumers who value sleek designs and advanced technology.
However, Apple flubbed with their iPad Pro ad, making their target segment feel attacked rather than empowered. Oops! Even legends can trip. But they quickly corrected their course by promptly apologizing for missing the mark in presenting how useful the new product would be to their consumers.
This prompt apology presented Apple as a listening brand that cared about the opinions of its target audience, hence solidifying its position in the hearts of its targeted consumer segment as the leader in meeting their tech needs.
How to Get Started on Market Segmentation
- Analyze your existing customers: Who’s already buying from you? What do they have in common?
- Check out the competition: What are your rivals up to? Are they targeting a specific niche that you’re missing out on?
- Survey your audience: Ask them what they want! What are their pain points? What solutions are they looking for?
- Use analytics tools: Google Analytics and social media insights can tell you a lot about your audience demographics and behavior. Understanding their behavior helps you target them with the right offers at the right time.
- Segment your customers: Demographic, think: selling diapers to new parents or luxury cars to high-income earners. Psychographic, think: eco-conscious consumers buying sustainable products or adventure seekers booking that once-in-a-lifetime trip. Geographic, think: selling winter coats in Alaska (probably a good idea) or swimsuits in Siberia (maybe not so much). Behavioral, how do they shop? Are they loyal, deal-hunters, or impulsive buyers?
- Create buyer personas: Give your ideal customers names, faces, and personalities based on your different market segments. The more detailed, the better!
Takeaways
Market segmentation is useful for every business irrespective of its size. It is your ticket to a lucrative, loyal fan base. Done right, as Coca-Cola showed, you can gain an army of dedicated followers.
By slicing and dicing your market, you can:
- Craft laser-focused marketing campaigns that hit the bullseye.
- Attract the right customers and turn them into raving fans.
- Grow your business faster and smarter.
So, ditch trying to eat the whole pizza at once, dice it up and focus on the slice that brings you the highest ROI. Start segmenting like a pro!
