A Strategist’s Guide To Marketing Segmentation

Market Segmentation Graphic

Facebook has 1.86 billion monthly active users. Each one receives a personalized news feed, packed with photos and game activity from friends and family, alongside blog content and videos from savvy businesses.

What users don’t see is the complex algorithm that delivers this flow of information. Engineers at Facebook have spent great sums building an experience that is equally tailored for each user, regardless of the absolute size of the user base.

It’s this reality that is pushing businesses to do the same. Current and potential customers expect a personalized touch, but very, very few businesses possess the same resources as a Facebook. Fortunately for the ambitious startup and the seasoned veteran alike, intimate market understanding and tailored marketing are possible through market segmentation. Utilizing a judicious process of audience research, profile construction, and resource development, businesses can make informed positional and targeting decisions to optimize both ROI and customer satisfaction.

Market Segmentation: A Primer

An email arrives with the recipient’s name in the subject line. An online catalog offers suggestions based on prior purchasing history. Banner ads around the web remind us of the shopping carts we abandoned. Each of these represents an example of the kind of marketing personalization taking place on the Internet today, thanks to new tracking and data collection technologies.

The significance of these developments is far reaching. Not only are businesses capable of delivering customized campaigns to their customers, the customers themselves have come to enjoy and expect this kind of marketing. In this new ecosystem, failure to include the name of the recipient in the subject line of an email results in a 50% reduction in click-through rate.

Unfortunately, not every campaign can be fully individualized to customer needs. However, the true benefit of all of this data is the growing understanding that large customer bases are divided along clearly definable lines. These groups, or “segments”, of the customer base are the foundation of market segmentation, and their existence enables the kind of targeting and personalization that businesses need and patrons expect.

Through market segmentation, enterprises are able to more efficiently deploy resources and develop messaging that resonates with particularly segments. Particularly for businesses with large customer bases, these methods have come to fully eclipse the old methods of hyper-generalized, “scatter shot” marketing.

While market segmentation provides value to marketing and sales teams alike, some basic criteria are required to merit the practice. These include:

  • Market size: Your market must be large enough to justify segmenting
  • Difference: There must be a measurable difference between the segments
  • Money: Their must be a projected net profit after additional marketing costs
  • Accessible: The segments you determine must be logistically reachable
  • Different benefits: Each segment must benefit in a different way

 

At first blush, market segmentation appears to be a tool for medium to large size businesses with the resources for research. However, small businesses and startups may benefit as well, particularly from the ability to determine which segments to pursue when resources are scarce.

Segmentation Types

So, where are these divisions drawn? How do businesses determine which customers fall into which category? Furthermore, how can these categories be developed to accurately encapsulate customer identities?

The foundation of all market segmentation lies in consumer data. What’s unique about modern segmentation, however, is that the divisions are more nuanced, more highly tailored to the psychological and emotional characteristics of buyers, not simply their location and gender.

Through a combination of profiles, marketers are able to better understand what makes their buyers tick, understanding their needs on a level that they themselves may not be able to articulate.

Geographic

Some characteristics are more complex, but discrete data is also vital to an accurate segment. Geographic data carries with it a multitude of insights, including best times for posting on social media and what languages to utilize when writing copy.

Geographic data is also indicative of a myriad of other characteristics. Hobbies and lifestyle, for example, may be dictated by the climate and topography of the area. Cultural differences may also exist between two countries, indicating a division in segments.

What’s common when investigating your consumer base is the discovery of inferred differences based on the data provided. A difference in state religion, for example, may articulate the approach of an ad campaign. The presence of state or religious holidays may also indicate opportunity for targeted marketing.

This is, to a large degree, why geographic segmentation remains viable. Differences in culture and lifestyle exist based on geography, and the more information available to better understand the lives of your customer base, the more effective your segmentation will be.

Demographic

Another discrete data source with far-reaching implications for buyer characteristics, demographics are still heavily trod territory for segment delineation. Demographics specifically refers to distinguishing factors, such as age, gender, religion, income, and social class.

To begin with, many of these items paints an economic picture that is important to understand. Since consumer purchases often involve an element of image, marketing to the wrong segment can reduce its efficacy. Additionally, age, income, and social class all suggest a level of purchasing power that must be taken into consideration. For obvious reasons, marketing cars to teenagers is a fruitless endeavor, but marketing cars to the parents of teenagers is not.

Other items, such as gender and religion, affect the decision to buy. If religious beliefs prohibit the acquisition of particular items, regardless of the buyer’s purchasing power, the product will go unsold. On the positive side, certain items may appeal to the values of the individual, such as green products to environmentalists.

Psychographic

The final, broad category used to understand the divisions of distinct market segments is psychographic information. Psychographic information details more subtle information about consumers, including their behavior, mentality, reactions to marketing activity, and ethics.

Psychographic information is best illustrated with an example. Let’s say we have an individual who resides in a large city. Their love of niche coffee and haute culture would suggest that their tastes are cultivated, discerning. With this buyer in mind, a prudent advertising strategy might include depictions of a bohemian urban setting, punctuated by catchy indie music. Print materials may feature vintage boutiques and art galleries and online media may carry a tone of delight and creativity.

Ultimately, this information is a look into the personality, goals, aspirations, and ideals of the buyer. Used correctly, it can help build a strategy that’s both psychologically and emotionally resonant.

A Bustling Market

Developing Your Own Segments

While broad swaths can be drawn across all markets, the most effective way to utilize market segmentation is to draw your own segments. Using available public resources, data collected from owned properties, and a bit of judicious research, your company can evaluate its available consumer ecosystem and make strategic marketing evaluations on an informed basis.

Researching Your Market

The first place to start is public resources. A great deal of information, particularly demographic information, can be found through public resources. Additional, industry specific information can be found through a collection of resources, including trade shows and competitor research. Here’s a look at some of the data available:

  • The Bureau of Labor and Statistics (US)
  • Chambers of Commerce
  • National and International press coverage
  • Industry and trade research
  • Figures from trade fairs and exhibitions
  • Annual Reports

 

The next place to look is owned marketing properties. These properties include advertising accounts, social media accounts, websites, and other outlets where customer facing interaction yields statistical data. Some of these may include:

  • YouTube accounts
  • Corporate websites
  • Twitter and Facebook profiles
  • Google AdWords
  • Accounts with advertising vendors
  • Mobile applications
  • Customer forums and comments

 

The last, and perhaps most expensive place to look is original research. Even if your budget is limited, focus groups can help yield insight into the thinking and interests/priorities of your customer base. In addition, this research can help yield the most specific and in-depth information about your specific market, helping to determine your competitive advantage and brand positioning.

Connecting the Dots

Each of these sources can provide demographic, geographic, and/or psychographic information, but the true capacity of this insight lies in the analysis and understanding of the data set as a whole.

The process requires a methodical approach and a willingness to step into the buyer’s shoes. Begin by collecting the data by distinguishing characteristic. Note the trends in age, location, income, and occupation to draw broad segments.

Next, look at behavioral data and trends, along with data on beliefs and culture. Draw connections between demographic information and behavioral data in order to further articulate individual segments. For example, middle to upper class income earners may purchase trendier products or access your website in conjunction with white collar work schedules.

Finally, look at the data related to your competitors and work to understand their strategy. Based on established segments, note trends in advertising tone and positioning in order to better understand the competitive environment of your business and the media environment of potential and current customers.

All told, the practice of data analysis and marketing strategy requires some prior training and understanding. The process itself may be challenging, but the end result is a bevy of guiding resources for further marketing efforts.

Putting it Into Practice

The generalized audience insight alone can help to contribute to numerous marketing functions, but development of strategic resources is an excellent way to make this knowledge available to design teams, copy writers, and salespeople alike.

Developing Buyer Personas

While broad marketing segments can help cultivate big-picture understanding of the existing market, buyer personas help break down content creation efforts, sales efforts, and messaging on an individual basis.

Buyer personas are a portrait of a hypothetical user. Using the information obtained in the previous steps, businesses can understand the purchasing power, lifestyle, schedule, external factors, challenges, fears, and priorities of a key decision maker or daily user. With this knowledge, content can be developed to educate end users while sales pitches can be built around the buying journey of upper management.

Much like segmentation itself, development of buyer personas is a process. Fortunately, we here at Single Grain have created a step-by-step guide to building buyer personas for your viewing.

Product Positioning

The tone, imagery, and placement of advertisements and content marketing in the media ecosystem says a lot about the intended purchaser of your product. Rolex, for example, is a common sight in Wine Spectator, but rarely graces the pages of magazines like Wired, where IBM and Apple occupy available ad space.

Identifying the positioning of market segments along characteristic axes helps inform advertising and placement efforts. A selection of clothing, for example, may lie along axes of form vs. function and gender. High-dollar, bejeweled jeans would then land in the form/female quadrant, with tailored, rugged, dark-wash jeans lying in the function/male quadrant.

By breaking your product and service selection based on segments, everything from emails, to print ads, to promotional videos can be distributed based on the regular channels of respective audiences. The added efficiency and customizability will come as welcome considerations for both businesses and customers.

Crafting Messaging

Messaging, copy, and visual tone are difficult concepts to nail down. With segment information, however, tailored marketing benefits from a more intimate portrait of consumer beliefs and emotional behavior. An understanding of the emotional reactions of particular marketing tactics and tone can help writers craft more resonant messages, while graphic designers benefit from guidance in the development of visual resources that connect with viewers.

In Conclusion

Regardless of the size of your enterprise, your customers expect a personal touch. Data collection, analysis, and distribution technologies have reached new heights in the past several years, enabling customized campaigns that communicate and commiserate with consumers on their terms.

Through these developments, smart market segmentation is made possible. A methodical process of audience investigation offers businesses the capacity to target and reach users in a way that’s both satisfying to the consumer and profitable to the business.

Strategic resources, product positioning, and customer understanding are all boons to the modern business. The dissemination of data en masse has almost paradoxically permitted a greater understanding of the individual. Fortunately for those offering there personal information to marketers, this better buying experience insures that discerning customers are getting what they asked for, and discerning businesses are delivering products that enrich and further the lives of their patrons.

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