Getting clear on who your audience is can be one of the most helpful steps in the business growth process.
And as your revenue grows, you’ll want to consider who your most profitable customers are.
This is best done through a process known as market segmentation.
In this article, we will walk you through what market segmentation is, why it’s important for SEO, what types of segmentation exist, how you can segment, and a few simple things you should and should not do in order to get the best possible results.
Sound good? Let’s roll…
Table of Contents
What is Market Segmentation?
The concept of market segmentation is pretty simple and straightforward. It’s essentially the process of dividing your company’s target market into specific and approachable groups.
If you think of your customer base as a collection of colorful balls in a playground ball pit, market segmentation is the process of organizing these balls into color-specific piles. They’re all your customers, but each set has unique attributes.
Typically, market segmentation involves creating subsets of your market based on factors like needs, demographics, interests, priorities, and other criteria. The goal is to be as detailed as you possibly can without mislabeling. In other words, be specific but don’t make illogical assumptions just for the sake of segmenting.
The Top Benefits of Market Segmentation
I’ll dig into more of the “how” regarding market segmentation momentarily, but first I want to make sure you’re clear on why it’s important and how it can benefit your business moving forward. Here are a few top perks:
- Better understanding. Who doesn’t want to know their customers better? When you get serious about market segmentation, your entire approach changes. You’re no longer taking shots in the dark and hoping something sticks. You know who your customers are and you’re able to reach each group in a very specific way that resonates with them.
- Stronger marketing. The key to successful marketing is to reach the right person with the right message at the right time. Market segmentation enhances your ability to accomplish each of these goals.
- Better targeting. Because you’re able to target each customer with a very specific approach, you’ll see your response rates increase, acquisition costs decrease, and conversion rates go through the roof. You’ll waste a lot less money barking up the wrong trees.
- Greater control. Market segmentation takes you from a reactionary approach and transforms your business to adopt a more proactive stance. In other words, you control the direction of your business – not the marketplace.
- Superior niching. As the saying goes, there are riches in niches. With careful market segmentation, you’re able to niche down and reach very specific demographics. In some cases, this may unlock totally new revenue streams that didn’t previously exist.
- Greater innovation. Through market segmentation, you become intimately acquainted with what your customers want and need. This can lead to better product innovation in the future.
At the end of the day, market segmentation makes mathematical sense. Research from Bain & Company shows 81 percent of executives believe market segmentation is a crucial aspect of growing their bottom line. Furthermore, those organizations that have thorough and documented market segmentation strategies see a 10 percent bump in their profit margins when compared to those that don’t.
5 Basic Types of Market Segmentation
Most marketers agree that there are four or five basic types of market segmentation. If you focus your efforts on the following “buckets,” you’ll see positive results throughout your business:
Demographic segmentation is the most basic. (And thanks to the rich data trails that people leave behind online, it’s also one of the easiest to work with.) It typically includes information like age, gender, income, location, education, ethnicity, family situation, annual income, and other key details.
While demographic segmentation can be very generic for some businesses, it can be quite helpful for others who naturally need the ability to filter based on factors like age, gender, location, etc.
Take a dance academy for example. They might have dance programs for women and dance programs for men. These programs may even be separated based on age and zip code. Knowing which demographic segment customers fall into makes it so much easier to target the right people with the proper offers.
Geographic market segmentation is pretty self-explanatory. It’s typically based on factors like country, region, state, city, zip code, climate, urban vs. rural, and/or proximity to a certain location.
Geographic market segmentation is obviously important for brick and mortar companies and local businesses. However, it’s also vitally important for online businesses that sell physical products or services that may be impacted by something like climate. Geographic segmentation is what local SEO is all about.
Amazon.com is a really good example. They’re very aware of where their customers live and have the ability to promote products that coincide with weather patterns. If a snowstorm is coming through the northeast, they’re able to recommend cold-weather products. However, a customer down in balmy Fort Lauderdale will see something totally different (bathing suits or sunscreen).
Firmographic market segmentation is very similar to geographic segmentation, except that it’s designed primarily for B2B organizations.
Firmographics look at things like company location, company size, number of employees, gross revenue, and other factors specific to the makeup of the business.
In essence, firmographics help you properly target businesses in sales and marketing situations. It gives you the information needed to approach a small business with 20 employees with one message, while coming at a national corporation with 2,000 employees in a totally different manner.
This is where it starts to get interesting. Behavioral market segmentation involves separating customers based on their decision-making patterns. This includes consumption habits, purchase patterns, lifestyle, and usage.
In order to get clear on behavioral segmentation, you have to collect rich purchase data and track their actions. You’ll also have to make some educated assumptions in order to crystalize your approach.
An example of using behavioral segmentation would be a car dealership targeting people who purchased a brand new car three to five years ago. By this point, most people are ready to trade-in. This creates an excellent opportunity to reach out and get customers back in the showroom.
Finally, you have psychographic market segmentation. This is probably the most difficult of the five categories, but it can be the most useful. It includes factors like values, attitudes, interests, personality traits, lifestyle preferences, psychological influences, motivations, priorities, and subconscious and conscious beliefs
To get psychographic segmentation right, you’ll usually have to rely on a blend of objective and subjective insights. You can find some of this information by mining your website and social media analytics. However, you’ll have to dig in deeper and get to know your market on a more personal basis. This can be done through a combination of combing through social media profiles, interviewing clients, conducting focus groups, and other hands-on methods.
Good psychographic segmentation gives companies an idea of how to present offers. For example, if a marketing company knows that its clients are looking to save time (versus simply increasing revenue), they can structure offers so that the emphasis is on marketing automation.
How to Begin Segmenting Your Market
Now that you understand some of the different types of market segmentation, let’s explore a few best practices and processes you can use to begin segmenting your market for better results:
1. Find and Analyze Data Sources
The first step is to find the right data sources. There are numerous places where you can find both private data (which is data that you own) and public data (which is data that anyone can access).
Good sources of private data include:
- Google Analytics
- Social media analytics
- CRM data
- Accounts with advertising vendors
- Customer survey results
Good sources of public data include:
- Chambers of commerce
- The Bureau of Labor and Statistics
- Industry and trade research publications
- Annual reports from competitors
The beauty of using private and public data sources like the ones mentioned above is that they’re all free! Yes, it takes time to collect the right information and filter out the insights that matter to you, but you don’t have to pay someone to collect new and original data.
2. Go Where Your Market Spends Time Online
If you’re looking for more detailed and subjective insights (rather than just raw statistics), you’ll have to go where your market spends time online. Here are three really good options:
- Facebook groups. There was a time when Facebook groups were pretty worthless from a marketing perspective. They were nothing more than glorified fan pages and political echo chambers. Today, there are thousands of rich communities centered around every topic and niche imaginable. Find these groups, join them, and then listen. Don’t become an annoying spammer. You can engage with people, but don’t push anything. You’re not here to sell. You’re here to listen.
- Quora questions. If you’re specifically looking for the questions that your various market segments have, try Quora, the popular community-based Q&A platform. Not only is this a good place to gather information, but you can actually provide answers and then link back to your web pages as a source.
- Subreddits. The anonymity and rawness of Reddit make it a great place for gathering honest feedback. Find subreddits that are related to your niche and spend time regularly browsing new threads and comments.
If you have a marketing assistant, have them compile a list of these types of groups. Then have them comb through each of these resources and pull out insights that would be valuable to you. They should be looking for pain points, desires, frustrations, expectations, needs, wants, etc.
3. Conduct Additional Research
All of the methods highlighted above are considered passive methods of collecting data and insights. If you need even more information – perhaps for psychographic segmentation – you’ll have to be hands-on in your approach. Options include:
- 1-on-1 interviews. Grab one of your best customers and conduct a 15- to 30-minute interview where you ask questions about their experience, preferences, need, wants, and desires. Try to do as many of these as you can, since every customer will be slightly different. Don’t pay attention to the extreme opinions or experiences. Instead, focus on the similarities that you find.
- Focus groups. While they can cost thousands of dollars, focus groups are a good way to research the marketplace and gather insights in relation to a product launch, pain points, and/or gaps that currently exist in a crowded and competitive marketplace.
- Surveys. Thanks to simple email survey software and integrated social media tools, sending out customer surveys is simple and cost-effective. The key is getting people to pay attention. You may have to incentivize people to fill out surveys.
These methods require a considerable amount of time and can be expensive, but they’ll give you rich data to layer on top of the analytics you’ve already collected. These research methods are especially helpful if you’re starting a new business from scratch.
4. Speak With Your Sales and Customer Service Teams
Your sales team is a rich treasure trove of information. They speak with your customers on a daily basis and are very familiar with their objections. They can help you understand what hesitancies different customers have and how expectations change based on demographics, geography, and even behavioral factors.
The same goes for your customer service team members. While sales works on the onboarding side of things, customer service comes in on the back end. They understand what problems customers are having and how it’s affecting them. They also know what these customers want, which can be useful from an innovation and iteration perspective.
5. Create Ideal Customer Personas
Once you have an idea of who is in your different segments, create a documented customer persona for each segment. This will help you be even more specific in your attempt to reach them.
6. Progress and Iteration
When it comes to market segmentation, there are two principles to live by:
- Progress Not Perfection. Don’t wait until you think everything is perfect to begin implementing your segmentation strategy. (Hint: It’ll never be perfect!) Instead, work with what you’ve got and focus on making progress. Small steps in the right direction are the way to go.
- Iterate to Great. As you implement, you’ll inevitably discover areas where you’re totally off the mark. That’s fine! Keep what’s working and then work on iterating your segmentation until it gets better and better.
If you focus on progress and rely on iteration to get better and better, good things will happen. Not only will you improve your marketing and sales, but you’ll do so in a lean manner that keeps your business running as efficiently as possible.
The Do’s and Don’ts of Market Segmentation
As you embark on the process of creating market segments for your brand, here are a few additional do’s and don’ts to consider:
- DO rely on as many facts as possible. While some subjective insights can be useful, they’re only layered on top after you have the objective facts in place. Think of data and statistics as the actual cake and subjective insights as the icing. These subjective insights may make the cake look and taste better, but they’re useless without it.
- DO keep tabs on new trends. Depending on your industry, you may be highly susceptible to new trends in the marketplace. Make sure you constantly have your ear to the ground looking for new insights.
- DO NOT make segments too small. Niching down is helpful – but only to a degree. If you get too granular, you end up ostracizing other customers. The same goes for the other side. If you’re too generic, nobody will hear you.
- DO focus on the money. You might identify a large segment in the marketplace that’s ripe for the picking, but unless there’s enough buying power attached to, it won’t deliver a strong return on investment.
- DO NOT keep it to yourself. Everyone on your team – including sales, marketing, customer service, administrative staff, accounting, etc. – needs to be briefed on your market segments. While they’ll each apply that information in different ways, keeping everyone in the loop ensures your entire company is focused on the same goals.
As you get into the process of segmenting your market, you’ll begin to uncover things that you didn’t know. You’ll also stumble upon supporting proof that backs up assumptions you’ve always had. The key is to use it properly so that it becomes a benefit to your business – not weight around your neck.
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