Market Segmentation: Why So Important?
Commercial success requires clear understanding of your customers.
As marketers, we are obviously trying everything in our effort to increase revenue and profits. But, there is an old Chinese proverb that goes like this “To win is to know your enemies”. While we definitely don’t mean you have to find an enemy and fight with him/her, instead, what we want to emphasize here is that commercial success requires clear understanding of your customers. And to do that, you need to understand the concept of market segmentation first.
What is Market Segmentation?
Market segmentation, in short, is a marketing strategy that put forth quality in exchange for quantity. It basically enforces brands to divide their customers into different segments based on different categories.
Theoretically there are 4 common categories that businesses use: geographic, demographic, psycho-graphic, and behavioral. These categories are supposedly helping brands to prioritize and optimize their marketing approaches to their target customers. More specifically, the strategy enables brands to design an in-depth and precise approach in their message delivery, which to some extent, could also potentially boost their sales.
Why Market Segmentation?
There are various reasons why market segmentation is beneficial to business.
Competitive Advantage
Naturally, when brands know more about their target customers compared to their competitors, it solidifies their market position. At such, market segmentation helps to increase brand’s competitiveness and capability of generating better profits. Even smaller businesses are able to compete with stronger and leading brands in the market with careful and proper targeting.
Why? By dividing the market into smaller groups and focusing on just the need of the target market segment, brands will be able to come up with a more personalized marketing approach and have an edge in this particular segment. This precise segmentation will also give others very little space to break into.
Cost-effective Marketing
When it comes to advertising, most brands think that the wider the target audience is, the better chance they have to get their online presence known. In other words, they try to cater to everyone’s demand. As such, they are sometimes forced to spend more money and most often, the results are not enough to cover the cost or at times, left very little space for profits.
With market segmentation however, brands have already identified the target customers that they want to focus on. When customers especially have different disposable income and different sense of spending, segmenting a market enable companies to sell the same product to different set of customers based on their income. This way, companies can effectively reduce the cost and enhance their profits by raising their prices for different customer segments.
Customer Loyalty
As mentioned earlier, customers react differently against different marketing approaches. And so are their needs. As such, by creating different solutions for different categories of customers through effective segmentation, brands can easily increase their customer satisfaction metrics.
On top of that, there’s the indispensable element of belonging to a community. When customers feel like they were part of your brand community, it’s easier for them to become your most passionate brand advocates, which also translates to an increase in customer loyalty.
Effective Market Segmentation: Spotify
With over 50 million users, Spotify is the clear market leader in music streaming. But, how did they edge out their other competitors? The answer is simple. They used market segmentation to reach the right audience, which also ignited their growth tremendously.
Ever since its establishment, Spotify adopted a more targeted approach to its marketing initiatives. They narrow their focus to a small pool of relatively similar customers and attracting them to their brand with content and offers that are ‘relatable’ to these individuals. Modern consumers, after all, not only want but expect the marketing campaigns to “speak” to their personal needs and demands.
On one of Spotify’s ads, for example, it uses a quirky message written on a bright red billboard: “Dear person who played “Sorry” 42 times on Valentine’s Day, what did you do?” From the message, Spotify clearly tries to attract younger audience with its “banner blindness”. Spotify knows that younger audiences literally don’t even see most ads, hence, they come up with the bright color and entertaining message to attract their interests. It’s colorful, fun and intriguing. For audience under 30, they will easily resonate with the messaging in the ad.
Key Takeaways
Here’s a quick stats for you. 86% of customers say personalization of content and offers affect their purchasing decisions and 73%of consumers prefer brands that use their personal data to provide a relevant customer experience. These two stats pretty much sum up the importance of market segmentation: personalization.
Market segmentation is extremely crucial to create targeted ads, content, and offers that resonate with the customers. That’s because market segmentation requires brands to consider everything they know about their customers before they design their marketing campaign, rather than presenting their messages to a mass audience and hoping they resonate with somebody. As Peter F. Drucker put it, “The aim of marketing is to know the customer so well, the product or service fits them and sells itself.”
