Market segmentation

Market segmentation is organizing your customers into groups based on common demographic, behavioral, psychographic, or geographic characteristics. It helps create a relevant product and branding to drive consumers’ interest, engagement, sales, and ROI.

In this article, we’ll uncover the benefits and types of market segmentation. We’ll also review how to get started with market segmentation.

Why is market segmentation important?

According to statistics, market segmentation helps marketers improve the open rates of email campaigns by 14.31%. Market segmentation allows you to identify the needs and preferences of your target audience and address them. After segmenting consumers into groups, you’ll be able to provide them with tailored offers. You’ll deliver relevant advertising campaigns, content, enticing discounts, promos, and free items. For instance, if you sell ice cream, you can target different groups of people. You can provide dairy ice cream for lactose-tolerant and non-dairy ice cream for lactose-intolerant customers. Besides, creating different ice cream flavors enables you to target even more audience segments.

Since a generic product and message no longer bring the awaited results, you should create a personalized offer. You can do it only after analyzing your customers’ data, needs, desires, and interests and dividing them into groups based on common criteria. You can segment your audience based on age, income, occupation, shopping habits, loyalty, location, emotions, etc. As a result, you’ll boost interest and engagement, increase customer loyalty, and make informed business decisions.

Now that you know the importance of market segmentation, it’s time to unveil its benefits. They will help you decide whether your company needs segmentation.

Benefits of Market Segmentation

Market segmentation carries many advantages for business owners. You need to discover them all to make sure that it will help your business use resources efficiently, reach customers with personalized offers, and target them with relevant ads. Let’s review them in detail.

• Customer-centric approach. Market segmentation encourages your company’s team to explore customers’ needs and understand their desires. A brand focuses on creating the best experience for different market segments. A company’s team identifies the needs, desires, preferences, shopping behavior, reactions to marketing efforts, location, age, etc. After the research, team members divide consumers into groups based on common characteristics. Afterward, they search for ways to approach them and drive interest effectively. During this time, employees pay attention to every piece of information that can come in handy. They interact with consumers, conduct research, do interviews, and create surveys to collect as much data as possible. As a result, the offer is customized, and customers are satisfied. Customer loyalty increases.
• Excellent customer service. A brand’s team considers every detail about their clients and puts them into the database. They record buying habits, behavior, interactions, preferred communication channels, preferences, location, etc. Once customers get in touch with customer support or other departments, they instantly have all the information in front of their eyes. It helps customer support agents figure out how to communicate with these individuals and understand their needs. When customer support reps know how to solve problems and help clients, they can provide excellent customer service.
• Superior customer experience. Tailored marketing messages, preferred communication channels, targeted ads on social media, relevant email campaigns, and content drive customers’ interest. Excellent customer service and product innovation based on customer needs encourage engagement. Clients get what they want without effort and receive a superior customer experience.
• Space for innovation. Segmenting your target audience helps not only consumers but your product as well. After discovering customers’ preferences and thoughts, you can consider product development. Unveil opportunities to improve your product and increase your customer base. Innovation brings a competitive advantage and one more differentiator to your product.
• Efficient usage of resources. If a company has a focus and a direction, it uses resources efficiently. A business with key goals and a marketing plan implements the strategies and makes steps without excessive expenses. Entrepreneurs invest specific sums of money in reaching different segments.
• Improvement of marketing strategies. Knowing who you target allows you to find appropriate words, create the right message, and provide relevant content. You don’t need to launch advertising campaigns across all channels because you already know where to market your customers. For instance, if you know that one of your market segments prefers to search for items on Instagram, then consider Instagram promotion. You can send email campaigns to consumers that prefer this channel to receive news from brands. With LIKE.TG, there’s no need to segment your mailing list and email campaigns manually. The service provides ready-to-use segments formed based on subscribers’ activity.

Now that you know the benefits, it’s time to uncover the different approaches to segment customers.

Types of Market Segmentation

Market segments can be divided into four key types. In this section, we’ll review each of them with examples.

• Demographic segmentation. The demographic criteria are age, gender, occupation, marital status, income, nationality, religion, education, and family size. These characteristics enable you to narrow down your audience and target only people who might be interested in the product. Some brands rely only on demographics when targeting customers. For instance, a producer of shower gel needs to split up people into two groups, “men” and “women,” to offer them products “for men” and “for women.”
• Psychographic segmentation. The mental and emotional characteristics, traits, beliefs, values, attitudes, and lifestyles belong to psychographic segmentation. These factors are similar to demographics, but they are harder to identify. Psychographic segments provide valuable information about your consumers’ needs, motives, and preferences. Knowing these aspects enables you to ensure relevant content and customized offer. Psychographic segmentation helps you find out why people choose or ignore your brand. For instance, you have a cosmetics brand. Some of your prospects convert and bring revenue, while others don’t. After conducting research, you find that these clients are against animal testing, and some are vegan. If your company is against animal testing and has vegan products, you should inform your audience about it.
• Geographic segmentation. The target audience’s location is the basis of this segmentation strategy. With information about customers’ locations, you can create location-based ads and address consumers’ needs. Location is a vast concept for segmentation. You can identify a country, state, zip code, climate, population density, and type of area (urban, suburban or rural). This segmentation is critical for your marketers since they can prepare relevant advertising campaigns and run location-specific ads. For example, if you have a restaurant in Europe and Asia, you need two different menus. Asian menu should consist of spicy food while European — from classic.
• Behavioral segmentation. Shopping habits, activity on a brand’s website, usage rate, and loyalty are examples of behavioral segmentation. When you group customers based on their behavior, you can develop messaging that caters to those behavior patterns. Your strategy and tactics depend on users’ interactions with your brand, website, and app. You can effectively market your product after tracking consumers’ behavior patterns.

Now that you know the types, it’s time to uncover how to implement different approaches to encourage purchases and increase ROI.

How to get started with market segmentation?

You need to be precise when dividing customers into groups based on common characteristics because it influences the effectiveness of your marketing efforts. These detailed instructions will help you with handling this process.

1. Develop customer profiles. After choosing the type of segmentation, gather customer data from available sources. For example, you can find demographic, behavioral, and geographic information about consumers in Google Analytics, CRM, or eCommerce service. Once you have all the necessary data, you can create customer profiles. For example, Anne — female — 27 years old — lives in Florida — uses Instagram often — single — has high income — likes cats — goes boxing. Create one profile for each market segment you have.
2. Analyze customers’ expectations. Once you finish with your customer profiles, proceed to the needs and expectations of these individuals. Your product should be able to address their problems and solve them. To find this out, your team of marketers should interact with customers and ask them about their preferences, desires, and needs. For instance, many cosmetics brands, after hearing women's demands and wishes about the harm of UV to their skin, many cosmetics brands decided to launch special series of beauty products with sun protection features. Now you can find lipsticks, concealers, and primers with SPF.
3. Determine your market segments. Once you finish with the research on your target audience and their needs, you should determine the audience segments. Divide your customers into groups based on common characteristics. You can segment them by gender, location, interactions with your brand, occupation, income, age, etc. For example, if you have women, men, and kids, create 3 separate groups. After, create subgroups based on their common characteristics. For instance, you can divide the women group into subgroups based on their age: women aged 18-35 and women aged 36-55. This will help you provide a relevant product for each group. For example, facial cream for women aged 18-35 will have a moisturizing effect, while for women aged 36-55 will have an anti-aging effect.
4. Prepare relevant marketing approaches for each segment. After ensuring that you have accurate information about each market segment, it’s time to develop an offer that resonates with customers’ pain points and a marketing strategy that helps approach them. Develop relevant strategies for each segment to promote your product and encourage customers to buy it. Remember, a strategy for each group should be different to address their needs, desires, and problems.
5. See reaction to your product and marketing strategy. After running ads, sending email campaigns, and setting up chatbots for different audience segments, consider reviewing their reactions, behavior, and emotions. This will help you identify gaps in your strategies and make some improvements to increase customer satisfaction. Tailor your emails and chatbots to consumer segments. With LIKE.TG, you can segment your chatbot audience by assigning variables or tags.

Congrats, now you know what market segmentation is and why it’s essential. Use our guide to do proper segmentation and cater to the needs of different groups of customers.