Market segmentation: The magic of relevanceNordic Morning logo

Market segmentation: The magic of relevance

Author: Porcia Maley

11/11/21

Market segmentation can seem complicated, but it’s a critical foundation in any successful and informed marketing and business strategy. Join us as we explore what market segmentation is, the different types of segmentation, and the benefits it can bring to your business.

In recent years we’ve seen marketing transform with technology, turning our lives into a multimedia wonderland. A wonderland that also exposes us to around 6,500 to 11,000 ads every day. But this new, content-saturated ecosystem has also brought with it a unique shift in the power dynamic. Consumers now choose what content they want, and when and where they will consume it. They won’t hesitate to block or skip your ad if it isn’t relevant – or at least entertaining.

Despite this, consumers are still engaging with brands – or rather, choosing to engage. According to Hootsuite, the average Facebook user still clicks on 12 ads every month. So how do you make those precious clicks, and hopefully the repeat purchases that follow, yours?

The secret to successful marketing has remained unchanged in decades: reaching the right people, at the right time, through the right medium. So how do you find – and reach – these right people?

That’s where market segmentation comes in.

Understandably, segmentation can seem mysterious and complex if you don’t know how it’s done. So without further ado, let’s unravel the mysteries of segmentation and learn how it can benefit your marketing and inform your business decision-making.

What is market segmentation?

Market segmentation is the process of breaking down a large population (all your potential and existing customers, for example) into subgroups according to certain shared characteristics.

Fortunately, as technology has evolved to give consumers more choice and control, it has also provided marketers with some powerful weapons of their own – in the form of data. Many digital marketing platforms and tools now offer smart data collection, automated optimization, and targeting. But to unlock their full potential you need to understand your customers better than ever before – and this can be a daunting prospect.

As McKinsey’s John Forsyth told Harvard Business Review: “We see many, many companies saying, ‘I want to get more consumer-driven and customer-facing’. But sometimes the organizations don’t know how to start. I’d say you really start with a basic understanding of your consumers or customers, right? And that’s segmentation.”

The types of market segmentation

The factors you can use to segment your market generally belong to one of five types:

  • Geographic segmentation

Often the first kind of segmentation adopted in companies. It defines groups based on location – at any level from continents down to streets.

  • Demographic segmentation

Where groupings are made based on information such as gender, age, career, or socioeconomic factors like household income.

  • Psychographic segmentation

Looks more at lifestyle. What do they do with their time? What are their tastes and interests? This might be romantics, top athletes, or avid travelers, for example.

  • Behavioral segmentation

A large and complex but important category, this focuses on how customers interact with your brand and product – what are their purchasing behaviors? How do they use your product? What benefit will they gain from it? What stage of the customer journey are they in? What is their level of satisfaction?

  • Firmographic segmentation

A more recent addition, unique to B2B marketing. Similar to geographic and demographic segmentation, it looks at the characteristics of companies rather than customers – industry, size, location, structure, product types, etc.

nordic-morning-five-types-of-marketing-segmentation

By looking at patterns within your potential or existing customers, you can create valuable groups from which to make your decisions – even form personas representing who your ideal customers are.

What are the benefits of market segmentation?

To survive and thrive in this dynamic, competitive ecosystem, you must understand your customers more deeply than ever before. You can’t be wasting your precious marketing efforts and budget on irrelevant audiences who aren’t interested in your product. Segmenting your market will give you access to many benefits and strategic advantages including personalization, targeting, and positioning.

Personalization

Personalization is about tailoring your content to your audience. By understanding who your (potential or existing) customers are, you can talk to them directly – in a voice they will relate to (building personal connection and loyalty), and with offerings that are relevant for them.

And it works. According to research by Salesforce last year, a staggering [97% of marketers (https://www.salesforce.com/content/dam/web/en_us/www/documents/reports/researchscape-evergage-2020-trends-in-personalization-report.pdf "2020 Trends in Personalization ") reported that their business results had improved due to personalization. This isn’t just a customer service nicety - 61% of customers now expect brands to take their preferences into account and offer personalized experiences. So if you want to stay relevant, it’s time to get personal.

Targeting

This is where the ‘right person, right time, right medium’ comes back into play. By understanding your market segments, you can take your advertising to the next level, ensuring you’re making the most of the tools and technology available to target your campaigns to the most relevant people or groups, at the best times, and on the right platforms. In this way, you’ll not only get a better ‘bang for your buck’ in terms of ROI and sales, but you’ll also end up with more qualified leads as a result – for a greater chance at conversion down the track, and a healthier sales funnel in general.

Ascend CEO Jonathan Jadali told Entrepreneur:

"It is far better to appear in fewer places than to appear in the wrong places"

“[B]usinesses should spend more time researching than they do simply trying to get featured. When you do show up, you must market efficiently, but beyond that, you must find all possible ways to identify with your customer base and to build the chemistry they share with your brand… offering non-marketing value to your customer base and identifying with their sentiments.”

Positioning

According to Corporate Finance Institute, the “objective of market positioning is to establish the image or identity of a brand or product so that consumers perceive it in a certain way.” Many companies establish their positioning based on either what they think (or want) their brand to be known for or based on where they think the biggest potential in their market lies financially – based on revenue, profitability, or market share.

While buying power is an important factor that shouldn’t be ignored, when it comes to your brand or a product, the positioning will be more effective if it’s based on what your customers need or respond well to. By knowing your audience well, you can make informed decisions about your brand, and your services or products, differentiating yourself based on what the customer wants, rather than what you want. Just make sure to show it through concrete actions, not just beliefs. As strategist and author Andrea Olsen states: “How you translate your words to action is where positioning becomes truly impactful.”

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Examples of successful market segmentation

When you’re looking at brand success, you can’t look much further than Coca-Cola. From its birth in 1886, advertising has been the key driver for success to make this brand the iconic household name it is today. To keep on top in a highly competitive market, Coca-Cola has conducted extensive ongoing research into their customers and markets, using segmentation as a foundation of their marketing strategy.

Age has been one of their most important segments, mainly focusing on a customer base aged between 10-35. They often use party culture and well-known pop stars to promote their product, and frequently target universities, schools, and colleges. However, they also address an elderly segment with their products, providing an option for diabetics who are often over the age of 40.

Income is also important. In order to appeal to a range of income levels, Coca-Cola has diversified its product packaging to cover many different sizes and types. They offer larger volume plastic bottles (with deposits for recycling, where possible) ideal for large families or students, right through to small, retro-style glass bottles at the top of the pricing scale, mostly for restaurants and bars.

With their products being sold in more than 200 countries, they also differentiate their strategies depending on the region, as the needs of their potential customers vary across climate, income, culture, or custom. For example, in Asia, consumer needs and habits will be very different from those in America. People prefer tea over soft drinks, so the marketing channels, advertisements, as well as the look and even the taste of the drink may end up being totally different, tailored to the preferences of the region.

Even gender comes into play. While Coca-Cola targets all genders, there are some differences in taste preferences between men and women. Coca-Cola Light, for example, is popular among women, whereas Coke Zero and Thums up (a separately branded Coca-Cola cola product available in India) offer a stronger taste that is generally preferred by men.

Smaller-scale segmentation still delivers strong results

You don’t need to be a multinational brand to benefit from market segmentation. A smaller-scale success story comes from Crowdy.ai, now called Trust. The testimonial and rating platform segmented their customers based on which feature they used the most in their app.

“We have several different offers when it comes to social proof tools and usually, customers don’t end up using all of them,” commented Founder and CEO Carsten Schaefer. “For example, some rely heavily on reviews, while others use conversion notifications.”

By tailoring their email newsletters to target segments with content based on the feature that the customer uses predominantly, they were able to halve their churn and increase their click-through rates by about 40%, experiencing an overall improvement in their marketing metrics.

Now you know how it’s done, are you ready to dive in and reap the rewards of segmentation? Before you head off, here are some final tips to get you started on the path to success.

Five tips to make the magic happen with market segmentation

  1. Be data-driven.

Guesswork might be easy, but it doesn’t get results. Do your research, through whatever means you can – focus groups, surveys, market research data. Get to know both existing and prospective customers. Once you think you have your segments worked out – go back to the audience and test them out to see if they hold up. The better your foundation, the stronger the results.

  1. Don’t assume, or weigh demographic factors too heavily.

Factors such as buyer purchasing behaviors, values, usage patterns, or aesthetic preferences often deliver more value than demographics. After all, a man who buys the cheapest clothes may also buy the most expensive tools or car. As Daniel Yankelovich, Chairman of Viewpoint Learning wrote in Harvard Business Review, “[Purchasing behaviors] may have no demographic correlatives. Above all, we must never assume in advance that we know the best way of looking at a market. This is the cardinal rule of segmentation analysis.”

  1. Don’t get bogged down in detail.

When you’re looking at data, it’s easy to get caught up in how specific you can be. But having many small, highly specialized segments may not be quantifiable or accurate, and can be time-consuming and distracting rather than insightful and practical. Aim for 3-5 segments that are the most relevant.

  1. Iterate, iterate, iterate!

Segmentation, like so many other elements of marketing, is not a one-and-done thing. Markets and groupings are changing regularly, so you should always be optimizing. Keep informed about your customers and markets, update your segments if needed, and always be testing for improvements when it comes to targeting, personalization, and positioning. If your engagement or results are no longer performing as they were, it’s time to review and try something different.

  1. Don’t be afraid to ask for help.

This can be a complicated process, and it can seem overwhelming at first. But fear not, help is always here if you need it.

Ready to discover new marketing segments and boost marketing performance through personalized content? Contact us - Nordic Morning’s experts are here to make it happen.