What Is Market Segmentation and Why It Is Important
If you want to get your message heard, it needs to make it to the right people at the right place and time. As a business owner, getting your products or services to resonate with your target audience is at the core of marketing.
But before you embark on marketing your business, it’s crucial to determine precisely who it is you’ll be targeting. Market segmentation is the first move you’ll want to make in order to define who your brand should address and appeal to.
Segmenting your market will allow your business efforts - from creating a website to launching a service or product - to be perfectly aligned with what your audience is looking for.
This complete guide will explain more about this vital business practice and dive into the different types of market segmentation strategies, plus provide tips on how to conduct your own.
What is market segmentation?
Market segmentation is the process of dividing a targeted audience into subgroups based on commonalities, ranging from age, gender or location to priorities, values and behavior.
This is a critical part of building a marketing plan, as it allows you to effectively determine consumers’ purchasing habits. Segmenting your market can help you understand what personal, cultural, economic or social factors may influence clients’ dealings with your offerings.
Segmenting your customers will give you better insight into their wants and needs. It shows how specific groups of consumers are more likely to seek or buy a product over others, as not every customer is alike.
By grouping your audience into niches, you’ll be able to market in a more cost effective manner rather than focusing your resources either on an individual level, or on a level that’s too broad.
Benefits of market segmentation
The best business websites share a deep understanding of their target audience. Whether your industry is food or retail, your small business can benefit from conducting in-depth market segmentation. Having a clear understanding of your audience increases conversion rates and revenue, and makes it easier to expand your reach down the line.
Cost effective marketing: Market segmentation can help you get the most out of your marketing strategies, as it allows you to direct your resources at the right audience with the right message. Segmenting your target audience correctly is also the most efficient way to increase your revenue.
Better conversion rate: The more specific you are in addressing the needs of your prospects, the more likely they are to convert. You will have a better sense of what motivates your audience, which can help you make more informed decisions, such as writing effective calls-to-action on your site. As a result, you could increase your conversion rate.
Customer retention: Segmentation is a good way of keeping customers satisfied and retention rates high. With the data you’ve captured from your market segmentation, you’ll know how to tailor your customers’ experience to meet their individual needs. One way to do so is to employ different marketing automation methods to ensure you’re targeting them at each strategic milestone of their customer journey.
Expand your business: Segmentation can reveal new areas where you can expand. It can help businesses, who are now armed with a plethora of information about their prospects, find new audiences they may not be currently tapping.
Improve product development: With your target audience segmented, you are more likely to identify new interests your customers have. This can lead to development of new products or services that will better cater to their needs.
Types of market segmentation
As one of the most common types of segmentation, demographic segmentation refers to splitting up an audience into subgroups based on variables like age, gender, occupation, income level, marital status, nationality and more.
It is perhaps the most obvious and simplified type of segmentation. Statistical data about people is relatively easy to obtain using various market research methods, like a demographic survey. This takes the form of a questionnaire or an online form, allowing you to extract specific data about your audience.
When writing your demographic survey you can choose between open-ended and closed-ended questions. You can keep your intention narrow in a question like “How old are you?” or broaden your results with the query “What’s your favorite hobby,” depending on how much you’d like to know about your clientele.
Some businesses or products cater to certain demographics based on at least one trait. A personal care store, for example, may sell one shampoo for men and another for women. Alternatively, some brands are designed with a narrow demographic in mind - such as grooming products brand targeting stylish young males.
This type of segmentation is about knowing your customer’s attitude and actions toward your brand. It allows you to divide audiences by behavior and decision-making patterns.
Types of customer behavior to consider include:
Shopping habits: What they are purchasing
Brand loyalty: How often are they returning to your brand
Usage rate: Are they using your service a lot or not at all
Benefits sought: What needs are being met by the product or service
Readiness to convert: Where are they in the marketing funnel; do they have awareness, interest, consideration or intent to convert
Behavioral data gives you insight into the customer experience, allowing you to adjust or change elements of your business accordingly for better results. If you know the benefits that users are seeking from your product, it will help you highlight that part of experience for them.
For example, a yoga studio could offer a loyalty program toward more sessions as a way to enforce engagement with the brand. Alternatively, if most consumers only have time to read over the weekend, bookstores could incentivize their purchases with special weekend sales.
Behavioral segmentation variables are often collected from a person’s digital footprint. This is information that is gathered while visitors browse a website, consisting of their online actions and the way they interact with the site. This sort of insight can be accessed using different tools, such as Google Analytics.
This type of segmentation splits up your market based on location. Identifying users due to their geographical settings, such as by country, state or zipcode, enables you to tailor your message around regional interests, languages, climate or cultural norms.
If you’re targeting customers who live in colder climates, for example, they are more likely to show interest in ads featuring warmer clothes than those living on a tropical island.
Depending on the area you’re targeting, you may need to build a multilingual website or localize your visual content. Images carry different meanings for different cultures so make sure that you’re sending the right message.
Less tangible than demographic or geographic segmentation, this category deals with characteristics that are more emotional. They give you insight into how consumers decide to buy a product or book a service, what are the motives behind those purchases and which preferences they may have toward a brand.
Psychographic characteristics consist of personality traits, beliefs, opinions and lifestyles. Taking into account a customer’s values, and not just their demographics and geographical location, can lead to a better understanding of their needs and behavior.
For example, someone who leads a healthy lifestyle may not have the same values as their work colleague who doesn’t. Though these two individuals share at least one demographic trait - occupation - they will ultimately make dissimilar purchasing decisions and therefore must be approached differently.
There are several methods you can use in order to obtain this level of insight of your target audience. These include focus groups, surveys, interviews and tests you can run among your market. One common methodology is A/B testing, which compares similar versions of an interface design with only one variant between the two, to measure which of the versions performs better.
How to conduct your own market segmentation
01. Analyze your customers
The first step in creating your own market segmentation is to analyze your existing customer base. This process will help you create your segments of consumers who share similar traits and responses. There are several ways to perform your customer analysis:
Interview your users: Building products around the needs of your users is at the heart of your business, so why not go straight to the source? Conducting user interviews gives you a deep understanding of how customers feel in relation to your brand. Asking the right questions will give you the information necessary to set up all four types of market segmentation.
Use your own business data: You may have already gathered some useful details about customers as part of your day-to-day interactions, from your mailing list to your clients’ invoices. Using this data, you’ll be able to find patterns that indicate what customers are buying time and again, where they are coming from, and more.
Check in with website analytics: Your website is a great source of data about users who’ve navigated through your pages. This can be turned into powerful knowledge for your business, with the help of website analytics. These platforms are a great way to gather insights about visitors’ online actions, from the number of users on each page, to the average time one has spent on your site and so on.
02. Create a buyer persona
The next step is to put a face on the data you’ve gathered. Creating a buyer persona, or a fictional character that serves as the mold of your ideal customer, allows you to visualize your target market. This in turn will help you maximize your marketing efforts since you already know precisely who you want to attract.
When writing down your buyer persona, try to create a fictitious name for your persona to give them a realistic depth. Add demographic details, like age and gender, and give them an image for visual context.
03. Segment your data
At this stage, you can begin to sort the data into segments. A good practice is to ask yourself questions such as “Is the segment attainable to me?” or “Will this segment be around long enough to want to invest in?”
These initial questions can also help you extract additional market segment opportunities, as well. A good practice is to think back to how you built your brand in order to pin down what sets you apart from your competitors, or what segment is currently not being served.
04. Understand your potential segment
You might want to check that you’re on the right track before kicking off a marketing campaign. Verify whether your segmented market will be interested in your offerings by doing a little research. By looking at how your audiences search for the terms you’re targeting, you will be able to measure whether your business efforts line up with their needs.
05. Trial and error
It’s now time to test your market segmentation. Here are a couple of targeted campaign methods that will allow you to track performance and see your results:
Facebook campaign ad: Customize your Facebook ads to fit your objective and match your target market. Displayed prominently on users’ feed, Facebook ads are highly visible to your desired market. The ads appear in various media formats, including video, image text and slideshows. At the end of your campaign, you can track your ad’s performance and see if it's impacted sales using Facebook Pixel, a tool which can be easily integrated to your Wix website.
Email blast: An email blast is a marketing tool to promote your brand and a fun way to spread the word. At the core of email marketing, it may come in the form of newsletters, promotions, product updates, eBooks and more. Email blasts are sent to subscribers on your mailing list, which you can segment by demographics, geographics and behavior. You can track and optimize your performance using various email metrics, from the delivery rate to the click through rate. You can view your email marketing statistics on your Wix dashboard to analyze and understand the fruits of your labor.
By Cecilia Lazzaro Blasbalg
Wix Blog Writer