What is the Importance of Marketing Segmentation? [2024]
Are you losing the grip of your target audience in today’s cutthroat competition?
Market segmentation can be a way to unlock comprehensive business potential.
Segmenting your target market into homogeneous groups and specifics will help you easily use product, marketing, and sales efforts to maximize impact.
Let’s explore this further down the line.
What is market segmentation?
Market segmentation is a process where businesses can divide a larger market into smaller segments of consumers, with similar characteristics, preferences, and behavior.
The purpose of segmentation is to enable more focused marketing and service efforts to groups that are likely to respond favorably to such strategies.
Think of it as peeling back the layers of a market to get to its core and, in the process, discovering the individual kernels.
Why is market segmentation important?
Market segmentation is significant for businesses to build the right customer persona to effectively reach their desired target audience and tailor their marketing efforts.
By marketing segmentation strategy businesses can create more personalized messaging, optimize customer satisfaction levels, and thereby increase sales and revenue.
The intersection of advanced website personalization and market segmentation greatly can intensify customer loyalty and revenue and aid businesses deliver an exceptional customer experience.
What is Target Positioning ?
Target positioning involves the identification of specific groups of consumers that a business hopes to reach with its products or services. This involves an understanding of the needs and preferences of the target market so as to make effective marketing campaigns to attract and retain truly loyal customers.
Target marketing can be about which regions your consumers are based in, too. You will be able to modify your marketing and sales accordingly by having that sort of information in hand.
What is Market Positioning?
Market positioning is a strategic exercise in which the USP of a product is outlined to indicate what differentiates it from other competitors in the market.
It is a basic tenet of every marketing story, which, when operating, works at three different levels:
- Identify the right target market.Understand their needs and desires.
- Formulate a marketing mix that describes how your offering fits them best.
- The stronger a product’s positioning, the greater its chance for business success.
Market segmentation, target marketing, and positioning: how are they interrelated?
Market segmentation, target marketing, and positioning build up a complete marketing strategy. All three depend on each other in order to execute a perfect marketing stroke.
Market segmentation categorizes the customers based on their interest. These categorizations help marketers in targeting potential customers for their relevant products. This optimizes their marketing strategy.
Marketers can position their product in a way to ensure that customers get exactly what they need, once they have appropriate data about customers and their requirements. The combination of all three marketing tactics helps businesses drive conversion rates and growth.
Benefits of market segmentation
Market segmentation gives businesses a chance to know their customers in depth; this, in turn, enhances strategy effectiveness and increases customer satisfaction.
From personalized marketing messages that resonate with specific groups to tailoring products to meet the exact needs of a segment, the benefits are obvious:
- Improved Customer Retention: Understanding and catering to the unique needs of segments foster customer loyalty.
- Effective Marketing: The practice of proper segmentation yields very high ROI for the marketing budget by ensuring that the message is reaching the right customers.
- Agile Product Development: Companies can develop products or services that target specific demands or solve specific problems by focusing on segments.
- Increased Profits: All the above factors, when looked at in the aggregate, lead to higher sales, better customer relationships, and, in the long run, increased profit.
- Clarity: Well, developing clarity is the first yet one of the most important benefits of market segmentation. After cleansing and mining your market data, you will be able to get the most accurate and relevant information about the market. Market segmentation’s major objective is to clear clutter from information. This will automatically enhance clarity.
- Develops consumer insight: Knowing your potential customers has always been a challenge for every business. This has become more loaded in the present digital era when your customers are just a click away. However, with contact profile and customer segmentation, you can know better about your customers.
- Improves brand loyalty and customer engagement: The most important advantages of market segmentation are customer engagement; this is critical to the influencing of needs and interest of customers.
You can draw data of customer’s behavior from social platforms, mass media or any other source and can use that in order to develop customer and market psychographic segmentation for addressing their needs more effectively.
It has indeed refined the way of involving customers through motivational initiatives and communications. In the process, brand loyalty also has been influenced positively. - Simplifies mass customization: This is another of the most significant advantages of market segmentation. Market segmentation facilitated the task of offering businesses personalized services or products to customers according to the needs of customers in that particular segment.
- Optimizes for cost efficiency and resource management: Well, market segmentation also has become an essential tool in maintaining competitive advantage and developing business intelligence. It gives the reason to businesses that will provide deeper insight into the market and help in knowing the customer’s segment with greater profit potential .
- Business data application: Every business in the present scenario generates data and can also access cross-industry data. Companies have the advantage of applying post and prior hoc methods in segmentation. Even more data visualization can also be applied to improve segmentation.
- Improves trustworthy estimates: Market segmentation can also make marketing efforts more feasible as well. Measuring success of segment-specific policies, and strategies and practices has also become easier. And growing access to data may enable enterprises to analyze and test marketing performance and re-segment those more powerfully.
- Keeps data fresh and new: While customers, on the other hand, are bombarded with information presently, this may make them change their likings day in and day out. However, it is the practice of market segmentation that may let you reassess your audience based on whatever new data comes to your help and assists your business to strategize accordingly.
- Stay Focused on Goals: The ultimate goal of this practice is to know your customers better. Once accurate data and insights are available, you can be focused and goal-oriented rather easily.
- Informs Other Business Decisions: Market segmentation allows you to indulge in useful insights about customers and the market. It essentially helps in your understanding of the needs and potential of the market much better, and it certainly might lead to informed business decisions.
Types of Market Segmentation
Market segmentation is a well-described strategic approach through which a given market can be effectively divided into smaller groups based on certain specified criteria.
This way, products can be tailored to meet the needs of, or sell with better appeal to, a segment of a population.
Here are some of the common methods through which a business can segregate markets:
1. Demographic segmentation
This describes where segmentation is based on the personal characteristics of customers, such as age, gender, income, education levels, and location.
- Age: Targeting specific age groups (e.g., millennials, baby boomers) with products or services tailored to their needs and preferences.
- Gender: Creating marketing campaigns that resonate with male or female audiences.
- Income: Targeting high-income, middle-income, or low-income segments with products or services at different price points.
- Education Level: Tailoring messaging to individuals with varying educational backgrounds (e.g., college graduates, high school graduates).
- Location: Targeting specific geographic regions (e.g., urban, rural, suburban) based on local demographics and preferences.
For example, A clothing retailer may target the youngster; family, and old persons through product lines.
2. Geographic segmentation
Market segmentation is based on geographic mix; for example, country, state, or city.
- Country: Focusing on specific countries or regions with unique cultural, economic, or political factors.
- State or Province: Targeting specific states or provinces within a country based on regional differences in demographics, preferences, or regulations.
- City: Targeting specific cities or urban areas with unique characteristics (e.g., population density, cultural diversity).
For Example: A regional bank may offer different services in the rural areas as opposed to the metropolis areas.
3. Behavioural segmentation
Differentiates customers based on their behavior and actions, such as their purchasing behavior, usage pattern of the product, or brand loyalty.
- Purchasing Behavior: Analyzing customer purchase history, frequency, and amount to identify patterns and preferences.
- Usage Pattern: Understanding how customers use products or services to tailor marketing messages and offerings.
- Brand Loyalty: Identifying loyal customers and targeting them with retention programs and exclusive offers.
For Example: Loyalty cardholders get extra points for every rupee they spend towards purchase.
4. Psychographic experience
Distinguishes customers into segments based on their lifestyle, interests, values
and opinions.
- Lifestyle: Understanding customers’ lifestyles, activities, interests, and opinions to create targeted marketing campaigns.
- Values: Identifying customers’ core values and beliefs to align marketing messages and products.
- Personality: Analyzing customers’ personality traits to create personalized marketing experiences.
For Example: A fitness brand can target those customers who are highly health and wellness-minded.
5. Firmographic segmentation
Divides a business by factors such as company size, industry, or revenue.
- Company Size: Targeting businesses of different sizes (e.g., small, medium, large) with products or services that meet their specific needs.
- Industry: Focusing on businesses in specific industries (e.g., technology, healthcare, retail) with industry-specific knowledge and solutions.
- Revenue: Targeting businesses based on their revenue levels to offer products or services at appropriate price points.
For Example: A company designing software can target its business to sell its enterprise solutions to big corporations.
6. Needs-based segmentation
It determines the issues the customers are trying to resolve and the benefits they desire.
- Pain Points: Identifying the specific problems or challenges customers are trying to solve.
- Benefits: Understanding the desired outcomes or benefits customers seek from products or services.
- Value Proposition: Creating a compelling value proposition that addresses customers’ needs and provides the desired benefits.
For Example: The assortment of different models by the smartphone company to meet the needs and affordability of all customers.
7. Intention segmentation
It facilitates identifying the intention of the consumer who is looking to buy a product and is giving strong buying signals.
- Purchase Intent: Identifying customers who are actively considering purchasing a product or service.
- Buying Signals: Recognizing specific behaviors or actions that indicate a high likelihood of purchase.
- Targeted Messaging: Delivering personalized messages to customers who are ready to buy, emphasizing the benefits and value proposition.
For Example: A company can run a different marketing email campaign from the target of customers who have recently been to the website and have viewed some product.
These types of segmentations will help businesses design the most targeted and specific marketing campaigns.
8 Step Process Of Market Segmentation Analysis
Market segmentation is a strategic approach that makes it possible to break down broad markets into small, manageable groups with similar characteristics.
In this way, a business can offer satisfaction to some specific segment with its product, marketing message, and sales.
Here are the eight steps of market segmentation specialized for effective practice:
1. Define your market landscape
- Determine your industry and product/service category: Start by pinpointing the broad industry your offering falls within (for example, health and wellness, productivity apps, vegan food).
- Refine your subcategory: Define a more specific subcategory within the industry that pinpoints your unique value add (for example, Fitness Tracker (Wearable Tech Sub-Category within Health & Wellness).
- Target Market Sweet Spot: Now that you have decided on your subcategory, identify who the ideal target market is—the subgroup that would gain the most pleasure from the features of your product (for example, targeting athletes vs. casual fitness enthusiasts with your fitness tracker).
- Develop Your Value Proposition: Clearly and concisely describe how your product will solve the problem for your target customer. (for example, trendy workout apparel for intense and comfortable training).
- Research Market Landscape: Find out the overall market size and how it is growing to what extent and in which direction.
Based on various reports, industry publications, or free online tools of analysis, such as Google Trends, there is evidence of a shift in one direction or another.
2. Customer data collection
Identify data sources you already have: Learn about the data sources on customers such as CRM software.
- Choose market research methods, close the method of research chosen with the target audience and the budget of the survey, from quite a few options. (for example, Online surveys, phone interviewing, in-person focus groups, or social media listening tools).
- Construct a data collection method: Construct a survey questionnaire or an interview guide that is clear and brief, with questions guided by the goals of your segmentation criteria in mind.
This should focus primarily on demographic, psychographic, behavioral, and attitudinal factors. - Check your instrument: Refine your data collection instrument by carrying out a pilot test with a small sample group of 5-10 customers representing your target customer base.
This ensures that there is clarity in the instrument and gives you a chance to notice any probable challenges before data can be collected on a larger scale. - Conduct pilot test: Explain to participants briefly why you are conducting the pilot test and what precisely you want them to narrate to you.
Get them to fill out the survey and explain to them how to say out loud what they are thinking.
Observe, and take note of what they do if there are problems or failures to complete the task. - Collect feedback: After they are done, you should conduct individual interviews, which will act as their feedback.
Questions to ask include:
“Did you find the survey questions clear and easy to understand?”
“Did the flow of questions make sense?”
“Any technical difficulties or confusing moments?”
“Roughly how long did it take you to get through the survey?”
Request honest answers and a small token to thank them for their time and interest. - Data analysis: Go through the detailed observations of the recorded sessions, your session notes, and the time survey data.
Find patterns regarding question ambiguities, issues with survey design, or questions, and any technical issues. - Refine the Instrument: Based on feedback from your pilot test, revise survey questions and/or the design and layout of your questions to correct them.
3. Clean and organize your data:
- Verify and Cleanse Your Data: Ensure that information is correct, removing inconsistencies, duplicate values, or incomplete records, by doing data cleaning using Excel and Google Sheets data cleansing features and other more advanced applications for data management.
- Segment into Relevant Categories: From demographic variables (age, income, location) to psychographic ones (values, interests, lifestyle), behavioral data to include purchase history, website usage could be firmographic to include company size or industry, depending on your goal of segmentation.
Make use of the features of Excel-like ‘highlight cells’ to efficiently organize the data.
Consider using data analysis software such as Excel with pivot tables or Google Sheets for large data sets, or specialized market research software such as Tableau or Power BI to gain control over data management and analysis.
4. Explore and analyze your data
- Identify Patterns and Trends: Look for commonalities in demographics, behavior, or attitudes in your data. Analyze responses to identify groups with similar characteristics.
- Trends Visualization: Develop scatter plots, line or bar graphs, box and whisker charts, and heat maps that visualize different trends using MS Excel charting tools, Google Sheets charting tools, or data visualization software packages like Tableau or Power BI.
- Segmentation Techniques: You may like to consider using clustering techniques for the segmentation of the data points based on similarity or RFM analysis for customer segmentation based on buying behavior (tools: R statistical software and Python with libraries such as sci-kit-learn).
Example: RFM Analysis for a Fitness Tracker Company
Customer Segment: Active Young Professionals (22-35 years old, health-conscious, busy schedules)
RFM Scores: Categorized on:
- Recency: How recently a customer has made a purchase, for example, R1: Most Recent, R5: Least Recent
- Frequency: How frequently a customer makes purchases, for example, F1: Most Frequent, F4: Infrequent
- Monetary: The total amount a customer spends, for example, M1: Highest Spender, M3: Low Spender
Analysis: Concentration we could see in the following RFM groups:
R2F2M2: Buys somewhat frequently, average spending (meaning consistently interested in the fitness goals)
R1F3M1: Bought within the last month (high spending which means high interest)
R4F1M3: Infrequent small spenders (upgrade tracker occasionally)
Marketing Strategies:
With these segments in RFM, the fitness tracker company may design particular marketing campaigns for each of them as follows:
R2F2M2: educational content on better usage or new characteristics of trackers. Subscription services for workout plans or personalized coaching.
R1F3M1: Hit ’em with post-purchase surveys or personalized recommendations for
accessories that go well with the new tracker.
R4F1M3: Sponsored Ads to target an audience emphasizing the latest features of the tracker, perhaps making it a bit urgent by partnering the upgrade with discounts.
Bundle packages by partnering with other fitness apps or services.
Note: This is a hypothetical example; in real life, the distribution of RFM would be different and so would the marketing strategy for your customer segment.
5. Generate buyer personas
- Write a Profile for Each Segment: Title each segment based on the characteristics that define the cluster.
For example, “Tech-Savvy Professionals,” and “Eco-Conscious Millennials.” - Describe What the Segment Looks Like: List the segments based on demographics, psychographics, and behavioral characteristics.
- Create a Story: Write an elaborate story describing the personas. Detail daily life, challenges, goals, and how this product/service will fit into their life.
- Create Empathy Mapping: Leverage a visual tool to understand the thoughts, feelings, and experiences of your target customer persona. (Tools: Online empathy mapping templates, mind mapping software)
6. Gaps and opportunities
- Analyze the Market Landscape: Bench existing competitors and their target audiences, and the existing unmet needs in these markets.
- How Your Segments Compare to the Market as a Whole: Looking for unserved groups or specific needs where your product/service could make a difference.
- Identify Potential New Market Opportunities: Look for adjacent markets’ potentials or new customer segment potentials revealed by your segmentation analysis.
7. Validate and refine your segments
- Test Your Segmentation with External Data: Compare your findings with industry reports or competitor research.
- Refine Your Segmentation Criteria: Make refinements to your segmentation criteria with additional insights.
- Ensure Actionability: Ensure that the segments are actionable so that you can make a marketing mix fine-tuning.
8. Monitor and measure results
- Track Marketing Campaign Performance: Analyze the performance of your marketing campaigns across different segments.
Sharpen through continuous refinement and optimization with data and customer feedback.
If you follow these steps and add to them, say, RFM analysis, you will be able to do market segmentation and drive your marketing effectively toward the success of your business.
Examples of Market Segmentation
Example 1: Re-engaging Inactive Users
A social media monitoring company can use its platform to identify users who have not logged in or interacted with the platform for a long time.
They would then issue personalized email campaigns or push notifications to these dormant users to reactivate them.
Example 2: Free Trials to Paid Plan Conversions
For example, a customer relationship management software provider could segment users who have signed up for a free trial but have not upgraded to a paid plan yet.
They could then launch targeted email campaigns or in-app messaging to show the benefits of using a paid plan and incentivize those free trailers to upgrade.
Example 3: Churn Reduction
It can identify, through its platform, which customers are churning — for instance, by decreased usage or negative sentiment within customer support tickets — and reach out with traditionally personalized offers or support to address their concerns.
Example 4: Cross-Sell and Upsell
An e-commerce company might consider looking through customer data to pinpoint potential cross-sell or upsell opportunities.
The website would propose add-on products or superior options of the product based on the customer purchase history.
Example 5: Website Visitor Retargeting
A content marketing platform could use its tracking to determine the interest level of a visitor based on its performance with certain articles or lead generation resources.
The user failed to sign up for a newsletter or subscription and might now use retargeting ads and email campaigns to remind this user about those options.
These are a few of the examples of how market segmentation could go across different industries and businesses. Specific strategies will depend upon the goals of a company and the data available.
Conduct a real-time market segmentation with Locobuzz
Market Segmentation is one of the best-known aspects of Locobuzz, and this is because it affords you a very powerful ability to segment the market in real time.
Now, identify and understand segments of your target audience through the analysis of social media data.
Now, this is how you do it on Locobuzz:
List down your objectives and criteria: That is, what to achieve and the factors used in segmenting your audience.
Data collection and data analytics: Collect data in and analyze data collected by Locobuzz on details related to your audience: social media mentions, sentiment analysis, and demographics and interests.
Segment creation: Use Locobuzz’s available tools to break down the other custom segments based on your defined criteria.
Analysis of segment data: Scald the data for core trends, patterns, or insights for each segment.Continuous tweaking and optimization of segments. Monitor your segments over time and adjust based on new data.
Social insights from segmentation for marketing strategies-messages, content channels: not so pacify but hone down to the specifics, wrangling from each segment’s specific need.
Using Locobuzz, you can come closer to valuable insights into your target audience and, therefore, develop more targeted, effective marketing strategies.
Wrapping Up
For a company to conduct successful business today, effective market segmentation is crucial.
This therefore fuels competitiveness by knowing your customers and their needs, while offering them goods or services that will meet these needs and satisfy them. The business creates closer ties with its customers.
The steps will then involve data collection, defining the segments, and using insights to inform marketing strategies that ensure connection to meaningful ways of engaging audiences for the sake of building loyalty.