market segmentation in marketing

Guide to Market Segmentation

Post #2 of our 4-Part Series on Audience Targeting

“Content is king” is a familiar phrase for those working in digital marketing, but the saying has also started to resonate outside of this realm. Last year, 93 percent of B2B marketers used content marketing, and 70 percent of organizations reported that they’re creating more content than they did in the past, regardless of how effective they “feel they are at content marketing—or whether or not they have a documented strategy.” Interestingly, rather than creating content that caters to the needs of consumers, such companies may be merely cluttering the digital landscape. Understanding your audience can help you stand out from the crowd, truly connect with your customers, and produce relevant, useful content. Market segmentation can help you get there.

What Is Market Segmentation?

Oftentimes, a market may share one overarching goal, such as buying a car, but with several variations: for example, some people prefer economical cars to SUVs, and others may be looking for luxury or sports cars. Market segmentation is the process of dividing your target market into groups based on shared characteristics. In this example, if you were a car dealer who sells hybrids and larger vehicles, you would want to segment your market into at least two categories so that you can focus on understanding the needs of each one, which will allow you to then create customized content that speaks to those needs, respectively.

How to Segment Your Audience

Step 1: Brainstorm Your Business Objective and Define Scope

Segmenting your market will be the most effective if you first determine an objective. Your objective may be as simple as: tailor content for people interested in hybrid vehicles. Or it may be multi-pronged and specific to your current state of business. This will be unique to you and which goals you hope to meet.

Furthermore, you can define the location-specific scope of your products or services so you only focus on information that is actionable and relevant. For example, if a car dealership in Los Angeles were sorting through data in Google Analytics, he or she would not be overly concerned about analyzing website traffic from San Francisco unless there were plans to open another location or curious about testing new opportunities. On the other hand, an online retailer may not need to limit by location.

Considering objective and scope will also give you a general understanding of your market and whether or not it is large and diverse enough to merit market segmentation. For instance, if you own a store specializing in running shoes, you might find that your market is too narrow and homogeneous to need broad market segmentation. The strategy would be more about segmentation around the product.

Step 2: Research Your Market

In order to effectively segment your market, you’ll want to obtain facts, statistics and other data about your current and potential customers. This may entail using public resources, online analytics tools, and, if your budget allows, some traditional market research methods like focus groups (even small groups can be effective). Below are some places to collect information about your different market segments.

Public Resources:

  • demographic data
  • economic and demographic data
  • demographic data by city
  • The Bureau of Labor Statistics: financial and career information
  • Newspapers: national and local press coverage of events and trends
  • Official Organizations: free public studies and data

Web Properties:

  • Google Analytics: demographic and behavioral information
  • Google Adwords: advertising and keyword insights
  • Facebook, Twitter, and other Social Media Analytics: personal and psychological insights
  • Company Social Media Accounts: customer attitudes like comments and complaints
  • Online Business Directories: competitors user reviews
  • Customer Databases: geographic and demographic customer data

Market Research:

  • Focus Groups: personal preferences and psychological insights
  • Surveys: customer viewpoints concerning products and services
  • Competitors: presence, positioning, differentiation

Because you will be dealing with a large amount of data from various sources, it will be helpful to use a spreadsheet to organize and track the information. At this stage, you are collecting everything you can about who your customers are, based on indicators specific to your industry. For example, you may be able to access a database in a region to find out how many Toyota Priuses are registered in your county, and if there are any notable data points available. The research stage will draw upon what you already know about your industry, product or service and help you discover hard facts and statistics.

Step 3: Organize Data Into Categories

Once you’ve collected a substantial amount of data about who your customers are or might be, the next step is to create groups based on shared attributes. Below are some common categories for segmenting one’s market.

  • Demographic/Socioeconomic: age, gender, education, occupation, income, and family status
  • Geographic: location, address, climate
  • Psychographic: values, attitudes, and lifestyles
  • Behavioral: occasions, customer loyalty
  • Business-specific: relationship to your product, service, or content

Focus on the segments of your market that are most relevant to your business. Using the example from our previous post, if you are a gym owner, you could start by segmenting your members based on their business-specific relationship to your service.

Below could be some of the motivating factors for your gym members:

  • Lose Weight
  • Socialize
  • Address a Health Problem
  • Prepare for Performance Event
  • Train for a Sport

Using our dealership example, if you sell hybrid cards, you may find demographic information on the age ranges, income status and maybe even genders of your different markets. At this stage, you are now sifting through the research to organize your findings into distinct segments.

Step 4: Evaluate and Select Segments

After you’ve defined your market segments, it’s time to evaluate which ones could benefit the most from your products or services while also offering a return on investment for your marketing efforts. Consider the following points when determining which segments to target.

  • Size: Is the segment large enough to be worth tailoring your marketing to? What proportion of your overall market does the segment represent?
  • Uniqueness: Is the segment different enough from other segments to justify customized marketing? Does the segment’s relationship to the product, such as how the product could meet its members’ specific needs, vary enough from that of other segments? Could one marketing message be appropriate for multiple segments?
  • Profitability: What are the segment’s purchasing habits? Would you profit from marketing specifically to this segment?
  • Accessibility: Do you have the marketing tools necessary to reach this segment in a cost-effective manner?
  • Competitors: Are competitors vying for the segment’s attention and business? What is the cost to compete? What is the likelihood that you would be successful? What differentiates your product or service?

Persona Building and Audience Targeting

After you’ve selected your segments, you are better equipped to customize your marketing content to speak to the specific needs, wants, and concerns of each one. However, market segmentation may only give you a general understanding of your audience; for more specific insights, you may want to take your inquiry a step further by building personas. Personas can help you delve deeper into the psyche of your customers so that you can understand their needs and wants. The goal is to align marketing campaigns, content and ad copy to their specific needs and wants.

Move ahead to our next blog post to learn how to create personas. This will help you visualize your customers and their lifestyle.

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