A Quick Primer on Market Segmentation for SMEs

If you have been doing business for a while, you know that there’s no such thing as the ‘average customer’. Brands have more chances to sell to a very specific type of a person. While companies that market to a general audience rarely have much success. Even the so-called “household brands” that are leaders in a certain category still do not market to everyone the same way. They rely on market segmentation to determine which kinds of customers are most likely to “bite” their offering.

What’s more important though is that market segmentation isn’t rocket science. Even small business owners with limited marketing budgets can borrow some tricks from the larger peers’ books. Below you’ll find a quick primer explaining how you can determine different audience segments and market to them better.

What is Market Segmentation?

Here’s a quick definition for you first:

Market segmentation is the process of taking a target audience, and splitting them into different groups. These divisions are based on different characteristics that members of each group has.

The purpose is to create different groups that will each be responsive to the same approaches when it comes to marketing and sales. These are generally people who have similar demographic characteristics, interests, and needs.

Examples of Market Segmentation in Action

Now that we’ve covered the market segmentation definition, let’s take a look at some quick, real world market segmentation examples.

Spotify is one such example. This music streaming gained more worldwide subscribers than Apple within a relatively short period of time. Partially, their success can be attributed to good segmentation. Spotify, heavily targets Millennials while Apple tends to focus on a more general audience.

Then, there’s Jetblue airlines. They’ve consistently targeted budget minded consumers. Now, they’ve announced a new Millennial Class. Not only is that a cabin class, the company is taking a decidedly Millennial-friendly approach to marketing and customer service.

Finally, McDonald’s has a very detailed and exacting approach to segmentation. They tend to segment according to global markets, age groups, price points, and even target the health conscious.

Why is Market Segmentation Important?

Without segmentation, marketing campaigns are monolithic and ineffective. Marketers try to meet everybody’s needs, and don’t really hit the mark with anyone in particular. These large campaigns are also difficult to measure, and tend to be inefficient and costly. Here are some important reasons to segment your audience before you market to them.

You Communicate Better With a Segmented Audience

Effective communication is key to any successful marketing campaign. When you divvy your audience into segments, you can take the best approach to each segment. This includes choosing the right content formats, messaging, and tone.

You can also carefully select the social media platforms that you use to reach out to each segment. For example, some of your target audiences may be heavy Instagram users while another prefers to hang on Facebook.

You Can Position Yourself For Growth

There’s one benefit to segmentation that is rarely mentioned. You’ll be able to identify the people who will simply not be interested in your products. This allows you to focus in on your true base, and develop a unique market of people who truly need your products or services.

You’ll Get to Know Your Customers Better

Segmentation can lead to better customer retention. Once you have your segments created, you are better able to track changes in user preferences. Then, you can adjust both your offerings as well as your campaigns to meet their changing needs. Of course, this means that segmentation must be ongoing. You may identify new segments over time in addition to recognizing the changes in your existing ones.

Exploring The Types of Target Market Segmentation

There are many different market segments criteria that you can use to divide and conquer. You can even come up with some of your own, uniquely defined according to what your business has to offer. To start, let’s go over the most common market segments you’ll see.

Geographic Segmentation

Like you might expect, geographic segmentation involves using location to target different markets. How you define those locations depends on the size and scope of your business. You could narrow things down to a neighborhood or zip code. You could reach as wide as an entire state, region, or country.

Generally, you would establish geographic attributes that you want to target. Including:

  • Population Size and Density: You can target audiences who live in towns within specific population ranges. You can also use overall density. This includes suburban, rural, urban areas, business districts, uptown, and downtown.
  • Region: In the United States, this could refer to the Midwest, West Coast, New England or other geographic region. In other countries, it could refer to regions within that country, or even a cluster of smaller countries.
  • Country: Just like you might imagine, refers to different countries that you may wish to target in your marketing.
  • Climate: Some businesses may have some success in targeting people who live and work in specific climates. You can target these in a very exacting way such as tropical and temperate climates. You can also target according to customers who live in areas with four seasons, and those who do not.

Geo-clustering or geodemographic segmentation uses both demographic information along with geographic data to create detailed customer personas. For example, you could target people who live in upscale areas in your town by using zip code data. Then, you could take other, lifestyle criteria to create the exact market segment you need.

Demographic Segmentation

Demographic segmentation is based on one or a combination of demographic criteria. These include:

  • Gender
  • Religion
  • Income
  • Family Size
  • Occupation
  • Marital Status
  • Socio-economic Status
  • Life Stage: Empty Nesters, First Time Parents, Etc.
  • Home Ownership Status
  • Ethnicity

Most demographic segments are going to be based on at least two different criteria. However, the complexity comes in collecting this data for marketing purposes. It requires collecting and storing data, analyzing it, or purchasing information from other sources.

Some of the more popular terms referencing groups of people are based on established market segments. Here are some examples of these: Yuppy, Tweens, Preps, WASPs, GLAM, or DINK.

Psychographic Segmentation

This refers to lifestyle segments or psychometric segments. In this case, marketers try to target people with specific interests, hobbies, opinions, and values. For example, a company may be interested in people who are into sustainable farming, or those who get their news and information from specific sources.

The key value of psychographic segmentation is that it can help you create detailed customer personas that help you focus your marketing efforts.

Behavioural Segmentation

This segment is based on things that members of a target audience have done. Many people believe that this is a strong predictor of future behavior such as purchasing decisions. The criteria of this segment might include:

  • Purchasing Status: First Time Buyer, Regular Customer.
  • Desired Benefit: Convenience, Money Saving.
  • Purchasing Frequency.
  • Purchasing Motivation: Personal Need, Gift Giving.
  • Sales Funnel Position: Ready to Purchase, Interested, Unaware.
  • Loyalty: Brand Loyal, Switcher, Ex Customer.
  • Adopter Status: Late Adopter, Early Adopter.
  • Product Attitude: Enthusiast, Skeptic.

Behavioural segments are widely considered to be the most customizable. You can define behavioural segments based on any factor that could impact a target customers’ reactions to and interactions with your brand.

Generational Segmentation

In some cases, a business finds that members of a specific generation meets many of the criteria for segmentation. For example, a Millennial is likely to be employed, to have spare cash, and other personality traits and behaviors that are perfect for a specific business. Generational segments can make up the entirety of a company’s marketing focus, or act as a starting place.

Source: Four Hooks

Criteria For Custom Target Market Segmentation

So, how do you apply this to your own marketing campaigns? You start by determining the criteria for your own market segments. Then, build your campaigns around those.

The first thing to think about here is who will want or need your product? Start by identifying the problems it solves, or the needs it meets. Next you can refine things by determining the various characteristics that may be shared by the people who have those needs.

You can find this information by collecting and mining data on current customers, accessing public data stores. One example of this is Open Data on Amazon Web Services. You can also use market research instruments such as polls and surveys. Take a look at your competitors as well. Who are they attracting? What do their social media feeds look like in terms of their audience members?

What you’re looking for is common demographic information, interests, and behaviors. Basically, you want to consider all of the different segmentation information listed above. You may find that your target market can be condensed into a single segment. You may be able to identify several distinct segments. Just remember that a good marketing segment isn’t too narrow or too broad. For example, men over 18 is likely too broad for most products. But something like “single girls wearing contact lenses, aged 21-23, and living in a 1,000 people town” is definitely too narrow.

Once you have your segments defined, you can create some customer personas. These are fictional characters, in a sense. You create them to have a tangible subject who will be the target of your content marketing.

Test different criteria and approaches to segmentation. It may take a while before you find your “ideal” formula for segmenting customers and work it into your marketing setup.

Photo by: Salvatore Ventura

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