Ultimate Guide To Market Segmentation

Do you know that the marketing campaigns focusing on every segment end up appealing to none?

Yes, your marketing strategies are worthless if you try to sell your product to everyone. Intelligent marketers often target a segment of customers and understand their needs and preferences to devise strategies accordingly. They target only a specific group of buyers from the initial stages. Then they personalize the campaigns therefore to make the most of them. But how to target the right segment of consumers?

In this guide to market segmentation, we will help you narrow down your audience to get better results.

Market Segmentation: Meaning And Benefits

Market segmentation refers to narrowing down your target audience to use a personalized approach. There are different criteria for segmenting customers. But the primary focus remains on grouping customers with similar traits or characteristics for improving campaigns.

Let’s now consider why spending time, money, and efforts on market segmentation is worth it.

• Market segmentation helps develop a better understanding of the needs and preferences of your target audience. You make better decisions once you know who you are selling to.
• Develop a recurring customer base by providing excellent customer service.
• Breaking down the markets into distinct segments opens up opportunities for innovation.
• Improved rate of success as you develop a deep understanding about your target market.
• Helps in developing strategic marketing strategies and ensure efficient use of available resources.

Types Of Market Segmentation

Market segmentation has the following four primary types:

Segmentation Based On Geographic Location

People residing in the exact geographic location share similar characteristics. It’s easier to understand their cultural preferences and convey the right message accordingly.

Segmentation Based On Demographics

Segmentation based on demographics places people with similar gender, age, occupation, income, religion, etc., in the same category. A combination of different criteria is preferred in this segmentation. Brands often end up with detailed buyer personas guiding other marketing decisions.

Segmentation Based On Psychographic

Psychographic segmentation targets people with similar hobbies, interests, or ideas. It’s one of the most popular niche marketing segmentation tactics. Understanding interests and other preferences are essential as niche-specific businesses target a concrete customer base.

Segmentation Based On Behavioral Pattern

Past-purchasing behavior has become a significant factor in assisting businesses. Users are likely to take action when product recommendations are based on past purchases. No one likes missing out on discount alerts for their favorite products.

What Is The TAM-SAM-SOM Approach To Market Segmentation?

Businesses also prefer the TAM-SAM-SOM Approach of market segmentation as it relates to the market size. They go for this approach after the initial segmentation. Understanding the market size helps create strategies focused on calculated growth.

• Total Addressable Market or TAM consists of the total demand for your product or service.
• Serviceable Available Market or SAM is the potential target market you can reach.
• Serviceable Obtainable Market or SOM is the target market you are likely to reach.

How To Implement Market Segmentation?

Let’s now move forward to the best practices for successful market segmentation:

Procure Crucial Data From Relevant Sources

Establish an entire data collection process to cover every vital aspect of your customers. Use one or different blends of market segmentation tactics based on your business requirements. Collect relevant insights from various sources and categorize the collected data accordingly. An overall market profile is a blend of internally and externally-extracted data. Here are some tips for gathering customer data:

• Identify all possible channels of gathering customer data, including email, social media analytics, website data, etc.
• Can you gather data from your offline sources? For instance, you can use the data collected through POS systems in brick-and-mortar businesses to enhance your marketing campaigns.
• Businesses with their apps can use the app data to understand customers better.
• Data was collected through customer surveys and testimonials.
• Lastly, use publicly-available census data to enhance your buyer persona.

Categorizing Markets Into Main And Sub-Markets

Next comes breaking down your target market into primary markets and submarkets. The main market is a large market with different customer segments. Make it a point to avoid choosing a highly generic primary market. For instance, let’s say you own a restaurant. Your primary market is casual dining customers. The sub-market will involve different cuisines like Asian, American, Italian, etc.

Then comes breaking it down into customer segments. Here are some examples you can analyze:

• Vegans looking for a quick healthy diet.
• Professionals in search of a convenient eating option.
• Office workers with a small lunch budget.
• Freelancers looking for a place to work and enjoy their meals or coffee.

You can consider a visual representation of the customer segments for a better understanding.

Checking Viability Of Customer Segments

It’s time to check whether or not you will cater to the needs of your customer segments. Let’s say your restaurant doesn’t stand up to the requirements of health-conscious or vegan consumers. Take a look at the following characteristics of viable customer segments for a better idea:

• A significant number of people satisfy the requirements or criteria of a specific group or segment.
• Customers within each segment share multiple similar traits.
• Relevant data backs up the accuracy of each segment size.
• The divided customer segments have enough sales potential. If not, it isn’t constructive to invest in the marketing strategies for those specific segments.
• The customer segments must be responsive to all the marketing efforts.

Developing And Evaluating Segment Profiles

Create a segment profile with a detailed description of the audience segmentation, including customer needs, product usage, etc. They help in narrowing down your marketing efforts for enhanced results.

Next, work on evaluating these segment profiles to derive the value of each profile to your company. Here are some areas you must cover during the evaluation:

• The targeted segment must align with the company’s goals and objectives.
• It must have the potential to become profitable in the future.
• All the targeted segments should have enough growth potential.
• The company must have a detailed understanding and relevant data of all targeted segments.

What Comprises A Great Customer Segmentation Strategy?

An excellent customer segmentation strategy covers the following:

• A clear understanding of the size of the target market.
• Have a tremendous future growth potential even if the customer group is small.
• The customers in every segment are actually within your reach.
• It aligns with your business goals and vision.
• An actionable strategy with enough approaches or avenues for growth.

Final Words

Create heavily successful marketing campaigns by targeting relevant customer segments. You will end up creating campaigns that resonate with your target audience by using the right tactics. Also, you can further use customer segmentation in target market analysis to acquire valuable insights for business growth.