What is Market Segmentation: Best Practices and Benefits (2023)

What is market segmentation?

In essence, market segmentation (sometimes called marketing segmentation) is the practice ofDivide your target market into accessible groups🇧🇷 Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, andother psychographic or behavioral criteriaIt is used to better understand the target audience.

By understanding your market segments, you can take advantage of this segmentationProduct strategies, sales and marketing.🇧🇷 Market segments can take advantage of its advantagesproduct development cyclesto tell you how to create product offerings for different segments, e.g. For example, men vs. women or high income vs. low income.

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The benefits of market segmentation.

Companies that properly segment their market obtain significant benefits. According to a study ofBain & Company, 81% of executives said that segmentation is critical to increasing profits. Bain also found that companies with excellent market segmentation strategies made 10% more profits over a 5-year period than companies whose targeting was not as effective.

Other advantages are:

1. Stronger marketing messages: You no longer have to be generic and vague: you can speak directly to a specific group of people in a way that they can relate to because you understand their characteristics, wants and needs.need.
2. targeted digital advertising– Market segmentation helps you understand and define the characteristics of your audience, allowing you to target your marketing efforts by age, location, buying habits, interests, and more.
3. Development of effective marketing strategies.: If you know your target audience, you'll immediately know which methods, tactics, and solutions they respond to best.
4. Better response rates and lower acquisition costs: This is the result of turning your marketing communications into promotional messages and advanced targeting on digital platforms like Facebook and Google using your targeting.
5. Get the right customers: Market segmentation helps you create targeted, clear, and direct messages that attract the people who want to buy from you.
6. Increase brand loyalty: When customers feel understood, exceptionally well cared for, and safe, they are more likely to do so.Stick to your brand.
7. Differentiating your brand from the competition: More specific personal messages make your brand stand out.
8. Identification of market niches.: Segmentation can reveal not only underserved markets, but also new ways to serve existing markets—opportunities you can use to grow your brand.
9. stay on message: Because targeting is so linear, it's easy to stay on top of your marketing strategies and not get distracted by less effective areas.
10. drive growth: You can encourage customers to buy from you again or switch to a cheaper product or service.
11. enhanced benefits: Different customers have different disposable income; Prices can be fixed depending on willingness to pay. Knowing this can help you make sure you're not overbidding (or underbidding).
12. product development: You will be able to take into account the needs of your customers and develop different products tailored to your different areas of customer base.

companies likeAmerican Express,mercedes benz, zbest BuyAll segmentation strategies used to increase sales, create better products, and better engage with your current and potential customers.

The fundamentals of segmentation in marketing.

Understanding segmentation starts with learning about the many ways you can segment your market. There are four main segmentation categories, shown below.

Types of market segmentation.

With segmentation and targeting, you want to understand how your market reacts in a given situation, e.g. B. when buying your products. In many cases, a predictive model can be incorporated into the study, allowing you to group people based on specific responses to identified segments.Research questions.

demographic breakdown

demographic breakdownclassifies a market based on things like age, education, income, family size, race, gender, occupation, and nationality. Demographics is one of the easiest and most widely used forms of segmentation, since the products and services we buy, how we use those products, and how much we are willing to spend on them are often based on demographic factors.

geographic targeting

geographic targetingit can be a subset of demographic targeting, although it can also be a different type of targeting. Create different target customer groups based on geographic boundaries. Because potential customers have different needs, preferences, and interests based on their geographic region, understanding the climate and geographic regions of customer groups can help you determine where to sell, advertise, and grow your business.

firmographic segmentation

Firmographic segmentation is similar to demographic segmentation, except that demographics looks at individuals, while firmographics looks at organizations. Firmographic segmentation would take into account things like company size and number of employees, and illustrate how approaching a small business differs from approaching a corporation.

behavioral targeting

behavioral targetingbreaks down markets according to behavior and decision-making patterns such as purchase, consumption, lifestyle, and use. For example, younger shoppers are more likely to buy bottled liquid soaps, while older consumer groups prefer bar soaps. Segmenting markets based on buying behavior allows marketers to take a more targeted approach because you can focus on what you know and are therefore more likely to buy.

psychographic segmentation

psychographic segmentationconsiders the psychological aspects of consumer behavior and divides markets based on consumer lifestyle, personality traits, values, opinions, and interests. Large markets, such as fitness, use psychographic segmentation when they segment their customers into categories of people who care about healthy living and exercise.

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Getting started with segmentation

There are five main steps to segmentation:

1. define your market: Is there a need for your products and services? Is the market big or small?where is your brandin today's market?
2. segment your market: Decide which of the five criteria (demographic/firmographic, psychographic, geographic, or behavioral) you want to use to segment your market. You don't have to limit yourself to just one; in fact, most brands use a combination, so give each one a try and see which one works best.
3. understand your market: You do this by conducting preliminary research, focus groups,Poll, etc. Ask questions about the segments you choose and use a combination of quantitative (check/tick boxes) andqualitative(open to open text responses).
4. Create your customer segments:Analyze the answersYour research to highlight which customer segments are most relevant to your brand.
5. Test your marketing strategy: After interpreting your responses, test your results on your target market using conversion tracking to see how effective it is. And keep trying. If adoption is disappointing, review your segments or your research methods.

Market segmentation strategy

Why should market segmentation be considered a strategy? A strategy is a well thought out plan that will get you from point A to point B in an effective and useful way. Market segmentation is similar in that there will be times when you need to rethink your market segments, such as:

• In times of rapid change:A great example is howabout the covid-19 pandemicit forced many companies to rethink how they sell to customers. Businesses with physical stores considered online ordering, while restaurateurs considered curbside pickup.

As your customers change, your market segmentation must also change so that you have a clear understanding of what your new customers need and want from you.

• Yearly:Market segments can change from year to year as customers are influenced by external factors that can change their behavior and reactions.

For example, natural disasters caused by global warming can affect whether a family chooses to stay in an area that is more likely to be affected by these events. If your target customer segment is moving significantly away from one of your sales regions, you should consider concentrating your sales efforts on more populated areas.

• At certain times of the year:If you researched your market and created market segments in the spring, the same market segments may have different characteristics at different times of the year.

For example, winter has several holidays, and Christmas has a great impact on families. This holiday affects the buying habits of your market segments, how they behave (they spend more than usual around this time) and also where they will travel (home for the holidays). Knowing this information can help you predict and prepare for this period.

When updating your market segmentation strategy, consider these three areas:

1. Confirm what has changed:Find out what happened between one time period and another and what were the driving forces behind this change. By understanding the reasons why your market is different, you can make important decisions about whether to change your focus or stay the course.
2. Don't wait to plan:Companies are constantly adapting to long-term trends, so current market segmentation research puts you in a proactive position to meet these changes head-on. Once you have your market segments, it's a good idea to consider the long-term complications or risks associated with each segment and set aside some time in advance to discuss resolving issues should they arise.
3. Go from what to why: Why did these driving forces arise? Why are there risks with your target market? At Qualtrics, we work with companies to understand the various aspects of target markets that drive or hinder success. You have the internal data to understand what is going on; we helpinformation releaseWhy with advanced modeling techniques? This helps you achieve intelligent market segmentation that is predictive and actionable, facilitating future research and long-term segment reporting.

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Market Segmentation Use Case Examples

Where can you use market segmentation in your company? We have collected some application scenarios to show you how market segmentation can be integrated into different departments and activities:

Market and opportunity assessment

If your business is looking to enter a new market or look for growth opportunities, market segmentation can help you understand sales potential. It can help you break down your research and tailor your results to your audiences.

For example, if you are identifying threats and opportunities in a new market, you can apply your knowledge of customer segments to the data to understand how target customers might respond to a new idea, product, or service.

segmentation and targeting

If you have divided your entire market into different customer segments, you have defined them according to defined criteria such as demographics, needs, priorities, common interests, orbehavioral preferences.

Using this information, you can target your products and services to these market segments and create marketing messages and promotional materials that meet the segment criteria.

investigation of customer needs

Knowing a lot about your customers can help you understand where your business is connecting well with them, and where there is room for improvement.

Market segmentation can be useful in customer needs research (also known as habit and practice research) to provide information about customers' needs, preferences, and use of products or services. This helps you identify and understand gaps in your offerings that can be planned for development or follow-up.

product development

If the product or service you develop does not solve the problem of your target audience or is not useful, it will be difficult to sell that product. When you know what each of your market segments is interested in and how they live their lives, it's easier to know which products will enrich or enhance their everyday lives.

Use market segmentation toClearly understand your customers, so you can save time and money developing products and services that your customers want to buy.

Campaign optimization

Marketing and content teams value having the most detailed information possible about each segmentCustomize your campaignsand strategies at scale. This can lead to variations on messages that you know will resonate best with your audience and make your campaign results more effective.

When combined with strong calls to action, marketing campaigns are a powerful tool that guides your target market segments to your sales channels.

Ensure effective segments

Once you've identified your segments, you'll want to make sure they're useful. A good segmentation analysis must pass the following tests:

• Measurable: Measurable means that your targeting variables are directly related to the purchase of a product. You need to be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments could be the one most likely to be purchased during a sale or sale.
• Accessible: Understanding your customers and being able to reach them are two different things. The characteristics and behavior of your segments should help you identify the best way to serve them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio advertising for in-store promotions, while another segment is best reached through your mobile app. One of your segments might be a retired man who is less likely to use a mobile app or read email, but responds well to print ads.
• important: The market segment must have purchasing power. For example, if you are a high-end retailer, your store visitors may want to buy your products but cannot afford them. Make sure that a targeted segment is not only interested in you, but can expect to buy from you. Estate and successful businessmen who want to flaunt their wealth.
• procesable: The market segment must generate the different response when exposed to the market offer. This means that each of your segments must be different and unique. Suppose your segmentation shows that people who love their pets and people who care about the environment have the same shopping habits. Instead of having two separate segments, consider bundling both into a single segment.

Market segmentation is not an exact science. As you progress through the process, you may find that behavior-based targeting doesn't offer actionable segments, but behavior does. You want to iterate on your findings to make sure you've found the best solution for the needs of your marketing, sales, and product organizations.

Common targeting mistakes

We outline themdoSo here are some of theIt is not:

• Avoid making your segments too small or specialized: Small segments may not be quantifiable or precise and may be more distracting than enlightening
• Do not focus only on the segment and not on the money: Your strategy may have identified a great segment, but if you don't have buying power and want or need your product, you won't generate a return on investment.
• no seas inflexible: Customers and circumstances change, so don't let your segments get too entrenched: be prepared to let them evolve.

Qualtrics Solutions for Market Segmentation

Market segmentation does not have to be complicated to be effective. However, we advisebe automated from the start🇧🇷 Forget spreadsheets: chooseMarket segmentation softwareto measure and optimize your marketing strategy; As you grow, technology grows with you.

Innovative features likeXM directoryallows you to create your own customer segments and start customizing experiences at scale, based on deep insights into your critical customer groups.

If you want to get an initial idea of ​​your market segmentation before taking a step towards a simplified, integrated system, trust us to guide you through the research with ours.Market Segmentation Research Service.

You'll get the same level of expertise and guidance to help hundreds of brands navigate the market segmentation process, plus our tips and best practice tips at the end to keep you moving forward.

In the meantime, take advantage of our free best practicesEbook: How to Profit with Customer Segmentation.

In it we reveal more about:

• Manage your market segmentation to gain valuable insights
• Using segmentation to support business growth
• Creating an Effective Segmentation Strategy

1. demographic breakdown
2. geographic targeting
3. firmographic segmentation
4. behavioral targeting
5. psychographic segmentation

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