Market Segmentation: How to Use it for Maximum ROI

Insights | 15/03/2021 | Written by Anoushka Rabin

Market segmentation is the process of dividing a target market into distinct groups based on certain characteristics.

By segmenting audiences into distinct groups, you will be able to establish a target audience, or multiple target audiences, and can better customise your products and services to meet each target’s preferences. This will lead you to create marketing campaigns that are relevant and appealing to your target audiences, which are more likely to resonate, therefore increasing the probability that they will click and purchase your goods or services, thus improving the return on investment (ROI) for your business. 

Market Segmentation In Practice

Let’s assume your business sells a variety of sports and gym equipment. Someone who is keen to buy a boxing bag and gloves may also have an interest in cycling or HIIT workouts, but they also may not. Creating campaigns that target users who are interested in each type of exercise is likely to receive better results than simply hoping that something appeals to a consumer because another product did. A cycling fanatic may be turned away from your brand if they believe that your business purely sells boxing equipment, or is targeting them with irrelevant products. Therefore, it is important to segment your market to ensure that you are targeting the right products to the right audience. 

Market segmentation gives your brand confidence in the knowledge that the consumers you are targeting are the most appropriate audience for you, and will find your product, service or content relevant and valuable. Research indicates that 34% of consumers are motivated to promote a brand online if they feel that the content shared is meaningful to them and their interests.  

The 4 Methods of Market Segmentation

  1. Demographic Segmentation – WHO?

Demographic segmentation is the simplest way of defining customer groups and looks at identifiable non-character traits, for example:

  • age
  • gender
  • ethnicity
  • income
  • level of education
  • religion
  • occupation

If you’re selling swimwear and bikinis, for example, segmenting by gender could be the most useful variable to use. If you’re a recruiter, segmenting by occupation will be the most useful variable. We used demographic segmentation when working with Chesneys, targeting high net worth individuals with content that would appeal to their demographic.

2. Psychographic Segmentation: WHY?

Psychographic segmentation is less tangible than demographic segmentation and focuses on consumers’ personalities and interests, defining them based on their:

  • Personality
  • Social status
  • Hobbies
  • Life goals
  • Values (opinions, attitudes, interests) 
  • Beliefs
  • Lifestyles 

The evaluation of psychographic segmentation is important because two individuals can possess the same demographic information but make different purchasing decisions and thus require different marketing strategies. Let’s say you have an airline company and you want to segment your customer by their values as you are aware that they may feel cautious and anxious about travelling during the pandemic. One way to segment your customers would be to allow for ‘flexible cancellations,’ meaning that the customers would be able to cancel their trip if they needed to. This would likely reassure them that they have flexibility, and so, would encourage them to book a holiday. Find out how we used psychographic segmentation with Anytime Fitness and how it resulted in a 36% increase in new gym members. 

3. Geographic Segmentation: WHERE?

Geographic segmentation might be the simplest form of market segmentation and works by targeting consumers based on geographic factors, which can be defined by their:

  • Location (country, state, city, post code)
  • Time zone
  • Climate and season
  • Cultural preferences
  • Language
  • Population type and density (urban, suburban, ex-urban, and rural) 

If you are a clothing retailer, geographic segmentation is important as it is essential that you are targeting consumers with suitable clothing for the climate or region that they reside in. You would want to make sure that a customer in London is targeted with different clothing in winter than a customer living in Los Angeles in summer. Geographic segmentation was another key factor in our work with Anytime Fitness.

4. Behavioural segmentation: HOW?

Behavioural segmentation groups consumers based on their actions, usually within your marketing funnel. This can be defined by their:

  • Spending, purchasing, and browsing habits, e.g. buying on special occasions like birthdays or holidays
  • Brand interactions 
  • Brand loyalty 
  • Product ratings 
  • Attitude towards your product, brand, or service
  • Use of your product, brand, or service

This is particularly useful for online businesses and most of this data can be analysed through website analytics. A common example of behavioural segmentation is the use of a mailing list that tracks prospective clients that have signed up to receive emails from the company. One of the most important behavioural segmentation components is loyalty and so a popular way we can reciprocate loyalty among customers is through establishing a rewards programme. This can be as simple as Starbucks offering a ‘buy 4, get the 5th coffee free’ mobile stamp loyalty card, or a mobile app where you can receive points per purchase. 

Another common example of behavioural segmentation is sending emails to website visitors who have ‘abandoned carts’. Find out how we used behavioural segmentation for The Formations Company and targeted higher value customers leading to an 8% increase in revenue. 

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The Benefits of Market Segmentation

1. Improves campaign performance

When you are aware of who you are targeting, you are able to develop stronger marketing messages. You can avoid using generic, vague language that speaks to a wider audience and instead use more direct messaging that meets the needs, wants, and individual characteristics of your target audience. 

2. Design hyper-targeted ads

You can target audiences specifically by their age, geography, location, purchasing habits, interests, and so on. After segmenting your market, you will be able to determine these specific details and so will be able to utilise them to create more effective, targeted campaigns. 

3. Customer retention

When you know your customers’ wants and needs, you will be able to deliver and communicate products or services that best resonate with them. This will lead to a stronger relationship between your brand and customers, leading to lasting brand affinity and lifetime value.

4. Informs product development

Market segmentation can help companies develop products that better meet the needs, wants, and requirements of their customers. They might decide to create products that appeal to the needs of their main market segment and develop different products tailored to different segments in their customer base.

5. Market expansion

If you are targeting your customers based on certain characteristics, it gives you an opportunity to expand in the market as you will have a better understanding of your customers and their needs. Take geographic segmentation; once you have an increased understanding of your customers in a certain area, you can more easily expand to cater to similar customers in a nearby area.

In the same way, let’s say you have an activewear brand and you are targeting customers based on a certain psychographic, e.g. fitness enthusiasts, then it would be easy to expand into related products, e.g. fitness accessories and equipment. 

What can we conclude?

As discussed, there are various ways to segment your market in order to find and define your target audience, leading to effective promotion of your product or service. Customer decisions are generally based on whether the result meets their wants or needs. Market segmentation allows you to recognise these needs and target the customers directly, avoiding wasted messaging. Whether it’s telling new drivers about the best car insurance or sharing promotions on barbecues to those living in a heatwave, market segmentation offers many different ways to ensure your customers see your product or service as exactly what they want and need in that particular moment. 

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Once you have completed your market segmentation process and have a clear idea of your various marketable audience groups, you can start to create impactful marketing strategies. If you need help with your market insight and segmentation process, or fancy a chat about marketing strategy, we’re your guys. Get in touch today

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