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, I’m going to walk you through what market segmentation is, why it’s important, 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…
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.
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:
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.
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.
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 automation.
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:
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:
Good sources of public data include:
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.
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:
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.
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:
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.
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.
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.
When it comes to market segmentation, there are two principles to live by:
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.
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:
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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