Market Segmentation Explained: Definition, Purpose, and Key Benefits
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7 minutes 45 seconds
What is market segmentation, and why is it so important for your business? How to build a strong strategy based on market segmentation? Does your company need market segmentation at all? Can you perform it yourself? I answer these and other questions in this article!
What is market segmentation?
Market segmentation is a strategy for separating different types of audience groups so that ads and campaigns can reach them more effectively. Dividing customers into audience segments makes it easier to target them with relevant ads.
On the other hand, if the ads created contain a very broad or general message, they may prove less attractive to customers. Narrowing the focus of ads and campaigns helps distinguish between points of interest and brand priorities.
According to the “market segmentation theory” - or hypothesis - by separating different customer segments and adjusting the duration or format of advertising campaigns accordingly, unique benefits can be achieved. An example is audience segmentation, where customers can be shown different ads at various times.
What is a target market?
Sales target deserves special attention in corporate slang. By this name, a sales target is a goal set for a salesperson or sales department. It is measured in revenue or units sold over a specified period.
Setting up sales targets helps keep the sales team focused on achieving goals. A sales goal helps the team set a clear path and strategy to achieve sales results. Once the team knows its annual goals, it can break them down into quarterly, monthly, and daily goals. Doing so allows the entire year to plan accordingly and keep track of the department's strategic goals.
Why is market segmentation important?
If you implement a marketing strategy with audience segmentation in mind, your brand can create more relevant advertising campaigns.
These segmented audiences can turn into devoted customers who will likely make repeat purchases. Segmentation's other advantage is that it can also be used as a tool to help pinpoint deficiencies in the customer path map or areas where a decline in engagement or number of purchases is observed.
If you are running your own business, market segmentation is an extremely essential issue. It is almost as essential as your own website, which you can create with an AI website builder from WebWave.
Types of market segmentation
What is demographic segmentation?
Demographic segmentation allows you to reach audiences selected based on demographics. This segmentation involves identifying characteristics such as age, gender, nationality, occupation, family size, or education level.
This is one of the most common forms of audience segmentation — it helps ensure that your products are displayed to the right audience.
One of the easiest ways to implement demographic segmentation is to ask customers to share relevant information. Including characteristics such as age, gender, and income can help ensure that your brand's ads reach the right demographic.
What is behavioral segmentation?
Behavioral segmentation refers to marketing that targets groups of customers selected based on buying behavior. This type of segmentation can be more difficult to define than other audience segments because it is not based on easily measurable characteristics.
Previous purchases, brand loyalty, or buying patterns can be considered. For example, grocery brands with a higher ratio of regular customers should consider adding recurring discounts or bargains for their most dedicated audiences.
What is geographic segmentation?
Geographic segmentation allows you to organize audience groups based on geographic characteristics. This is another fairly simple method for ensuring that advertisements or new products that reach potential customers are appropriate for their location.
What is psychographic segmentation?
Psychographic segmentation divides customers based on their lifestyles, values, attitudes, interests, and personalities. The goal is to understand customers' motivations and the factors influencing their purchasing decisions.
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Benefits of market segmentation
Marketing segmentation offers many benefits. It can help you create personalized, or tailored, marketing campaigns, optimize resources, reduce risk, increase brand loyalty and identify niche markets. Learn about the four main benefits of marketing segmentation and audience segmentation.
Personalized digital marketing
Segmentation enables marketing professionals to create more personalized digital ads because it gives them statistics and definitions of audience group characteristics. This allows them to target online marketing activities to the right people based on their age, location, shopping habits, interests and other criteria.
How do you segment a market?
The process of market segmentation usually involves several steps:
1. First, the company must identify the different consumer groups in its target market.2. Then it must assess the attractiveness of each of these segments, for example, in terms of size, profitability, or accessibility.3. Finally, the company must target one or more segments with its marketing efforts. We can then use knowledge of customer segments to increase revenue and gain a competitive advantage.
How to create a market segmentation strategy
There is no single answer to the questions of how many buyer profiles a company should have, or what will make a segmented audience appropriate. A good first step is to determine the available target market and the obtainable market (known as TAM SAM SOM analysis).
The next step is to use surveys filled out by customers and conduct A/B tests during advertising campaigns, which will give you important insights into the behavior and needs of your audience.
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Market segmentation - summary
Market segmentation is a process that considers various market characteristics. Companies that use market segmentation effectively can enhance their competitive advantage and increase profitability. By performing market segmentation, organizations can better align their products with customer needs, ensuring they remain relevant in a dynamic marketplace.
FAQ
What is market segmentation?
Market segmentation is the process of dividing a broad consumer or business market into smaller, more defined groups known as market segments. This allows businesses to tailor their marketing campaigns and products to meet the specific needs of different market segments.
Why is understanding market segmentation important?
Understanding market segmentation is important because it helps businesses identify specific market segments that are most likely to respond positively to their products or services. This targeted approach can lead to more effective marketing campaigns and improved customer satisfaction.
What are the common segmentation variables used in market segmentation?
Common segmentation variables include demographic data (age, gender, income), geographic factors (location), psychographic elements (lifestyle, values), and behavioral aspects (purchase behavior, brand loyalty). These variables help firms to create distinct market segments.
Can you provide an example of market segmentation?
An example of market segmentation could be a smartphone company targeting different market segments: young professionals looking for high-tech features, families wanting durability and safety, and seniors prioritizing ease of use. Each segment would require different marketing strategies and product features.
What are some common segmentation errors to avoid?
Common segmentation errors include failing to define clear market segments, basing segmentation solely on demographic data without considering behavioral factors, and neglecting to regularly update segmentation strategies based on market research and changing consumer preferences.
How can market segmentation help improve marketing campaigns?
Market segmentation helps improve marketing campaigns by allowing firms to tailor their messaging and promotional strategies to specific market segments. This targeted approach increases the likelihood of engaging customers and achieving higher conversion rates.
What methods of market segmentation can be used?
Methods of market segmentation include demographic segmentation, geographic segmentation, psychographic segmentation, and behavioral segmentation. Each method utilizes different criteria to identify and categorize market segments effectively.
How does customer segmentation differ from general market segmentation?
Customer segmentation is a more specific type of market segmentation that focuses on dividing existing customers into groups based on their behaviors, preferences, and purchasing patterns. This allows businesses to personalize their offerings and improve customer retention.
How does segmentation in marketing benefit businesses?
Segmentation in marketing benefits businesses by enabling them to concentrate their resources on specific market segments that are more profitable. It allows for personalized communication and product offerings, ultimately enhancing customer relationships and driving sales.
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