At its core, market segmentation (sometimes referred to as marketing segmentation) is the practice of dividing your target market into approachable groups. Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioral criteria used to better understand the target audience. Show
By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies. Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income. Free eBook: How to drive profits with customer segmentation The benefits of market segmentationCompanies who properly segment their market enjoy significant advantages. According to a study by Bain & Company, 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period. Other benefits include:
Companies like American Express, Mercedes Benz, and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers. The basics of segmentation in marketingUnderstanding segmentation starts with learning about the various ways you can segment your market. There are four primary categories of segmentation, illustrated below.
Types of market segmentationWith segmentation and targeting, you want to understand how your market will respond in a given situation, like purchasing your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions. Demographic segmentationDemographic segmentation sorts a market by elements such as age, education, income, family size, race, gender, occupation, and nationality. Demographic is one of the simplest and most commonly used forms of segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. Geographic segmentationGeographic segmentation can be a subset of demographic segmentation, although it can also be a type of segmentation in its own right. It creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business. Firmographic segmentationFirmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation. Behavioral segmentationBehavioral segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach because you can focus on what you know they, and are therefore more likely to buy. Psychographic segmentationPsychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise. On-demand webinar: How to drive product design and profits with customer segmentation How to get started with segmentationThere are five primary steps to segmentation:
Market segmentation strategyWhy should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. Market segmentation is similar, as there will be times you need to revisit your market segments, such as:
If your customers change, then your market segmentation should as well, so you can understand clearly what your new customers need and want from you.
For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.
For example, Winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel too (back home for the holidays). Knowing this information can help you predict and prepare for this period. When considering updating your market segmentation strategy, consider these three areas:
Free eBook: How to drive profits with customer segmentation Market segmentation use case examplesWhere can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built in across several departments and activities: Market and opportunity assessmentsWhen your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups. For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services. Segmentation and targetingIf you have your entire market separated into different customer segments, then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavior preferences. With this information, you can target your products and services towards these market segments, making marketing messages and collateral that will resonate with the segment’s criteria. Customer needs researchWhen you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements. Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up. Product developmentIf the product or service you’ve developed doesn’t solve the problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about and how they live their lives, it’s easier to know what products will enrich or enhance their day to day. Use market segmentation to understand your customers clearly, so that you can save time and money developing products and services that your customers will want to purchase. Campaign optimizationMarketing and content teams will value having detailed information on each segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect with audiences better, making their campaign results more effective. If the campaigns are combined with strong calls to action, the marketing campaigns will be a powerful tool that drives your target market segments towards your sales channels. Ensuring effective segmentsAfter you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:
Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavior does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations. Common segmentation errorsWe’ve outlined the do’s, so here are some of the dont’s:
Qualtrics solutions for market segmentationMarket segmentation doesn’t need to be complicated to be effective. We would advise, though, to get automated from the beginning. Forget spreadsheets – choose market segmentation software to measure and streamline your marketing strategy; as you grow, the technology will scale with you. Innovative features such as XM Directory allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups. If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service. You get the same level of expertise and guidance that comes from helping hundreds of brands go through the market segmentation process, plus our advice and best practice tips at the end to keep you moving forward. In the meantime, help yourself to our free best practice eBook: How to drive profits with customer segmentation. In it, we reveal more on:
Which of the following is one of the characteristics of a wellWhich of the following is one of the characteristics of a well-chosen target market? It is the blend of marketing strategies for product, price, distribution, and promotion.
Which of the following is a characteristic of a wellA well-chosen target market embodies the following characteristics: size, profitability, accessibility, and limited competition.
Which of the following is a difference between demographic segmentation and geographic segmentation quizlet?Which of the following is a difference between demographic segmentation and geographic segmentation? Demographic segmentation refers to dividing the market based on measurable characteristics about people, whereas geographic segmentation refers to dividing the market based on where consumers live.
Which of the following is a difference between demographic segmentation?The main difference between demographic and geographic segmentation is that demographic segmentation categorizes customers based on factors like age, education, income level, and ethnicity, while geographic segmentation categorizes customers based on their geographical location.
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