What is Segmentation & How It Can Help Your Business
There are many moving parts to consider when you're in business, and your goal is to grow. You have to think about strategy, people, products, and a slew of other factors. It can be overwhelming at first, but if you focus on one thing at a time, you'll eventually get the hang of it.
The most important thing to remember is that growth doesn't happen overnight. It's a gradual process that takes time and effort. So don't get discouraged if something isn't happening as quickly as you'd like. Just keep plugging away, and eventually, you'll start to see results.
Everything has to start somewhere, and that somewhere is knowing whom you want to target. If you're starting out, this can seem daunting. If you're a marketing director of a major company, you might take this step for granted, but you'll need to start somewhere if you're a small business or just setting up.
One of the most significant steps in starting a business is deciding whom to target with your product or service. This process is called market segmentation, and it can seem daunting if you're just getting started. However, market segmentation is essential to determine where to focus your limited resources.
Traditionally speaking, marketing-related issues are top of mind for entrepreneurs and businesses of all sizes. After all, only marketing and sales can bring in money to pay the bills. So from that perspective, Sprocket could target anyone of any size; this shotgun approach would work if we had an unlimited budget.
Unfortunately this is not the case. After doing some research, we realised that three main groups of people would benefit the most from using our platform: small business owners, mid-level marketers, and non-marketers. We kept these three groups in mind while continuing to develop Sprocket and tailor the experience to each group.
For small business owners, Sprocket is the perfect way to get organised and streamline their marketing efforts. They can create projects for each area of their business, track progress on those projects, and see results all in one place.
Mid level Marketers love Sprocket because it allows them to keep tabs on all of the different moving parts of their campaigns. They can assign tasks to team members, set deadlines, and see how everything is progressing towards the overall goal.
Non-marketers appreciate Sprocket because it is simple and easy to use. They don't need to have any prior knowledge of marketing to get started and be successful with the platform. We provide the resources, coaching and tools required to gain enough insight to create full-fledged professional marketing campaigns.
Thanks to market segmentation, we were able to identify our target market and create a product that is enjoyable and beneficial for all types of users.
We identified numerous segments: startups, micro-businesses, small businesses, medium businesses, large businesses, enterprises and charities. We decided to focus on startups, micro-businesses, and charities because they are often the most under-served for professional services. Plus, we felt that we could better relate to their struggles since we are small businesses ourselves.
We identified that we would have over 5 million target customers in the UK from our research. This is a lot of people to focus on, so we decided to segment our market by location further. We chose to focus on London and the North East. London is the largest city in the UK, and we felt that there would be a greater density of potential customers. Additionally, we already had a presence in London, making it easier to get started. The North East because we also have a local connection to the area.
Combining these two factors, the individuals who would benefit and the types of organisations they work for, gives us more focus, helping us do more with less.
Once we had our target market segment defined, we could create messaging and positioning that would resonate with them. We also knew what channels would be most effective for marketing and sales outreach.
Once we had decided on our target market segments, we could then think about how best to reach them. We knew that word-of-mouth would be key since startups are often connected, so we began building relationships with many people. Additionally, we utilised social media platforms and online directories to increase our visibility.
Enough of our story, you get it, segmentation is useful, but you probably wonder how you can best implement it yourself.
There are a few different ways to segment your market, and the best way to do it will vary depending on your business and your goals.
Market segmentation is dividing a market of potential customers into groups, or segments, based on different characteristics. The segments created are composed of consumers who respond similarly to marketing strategies and share similar characteristics.
Why Segment the Market?
The most obvious reason to segment your market is that it allows you to focus your resources on a specific group of people who are more likely to buy from you. This means that you can allocate your time, money, and energy in the most efficient way possible. Additionally, by segmenting your market, you can create targeted messaging and positioning that will resonate with your target customer.
Another reason to segment your market is that it allows you to understand your customers better. By understanding who they are, what they want, and how they behave, you can improve their overall experience. Finally, segmenting your market can also help you identify new growth opportunities.
Digital technology and customer-level data have made market segmentation more manageable. Businesses can now track their customer's online behaviour and use that data to segment them into groups. Additionally, companies can utilise social media platforms to understand their customers better.
Amazon utilities market segmentation to great effect, which has helped them penetrate the market and become synonymous with eCommerce. By understanding their customers' online behaviour, they can provide them with tailored recommendations for products they may be interested in. As a result, Amazon can increase customer satisfaction and loyalty.
Segmentation is a good thing. It allows companies to target their advertising more effectively and sell products that are better suited to the needs of their customers. However, there are also some drawbacks to segmentation.
One of Netflix's big selling points is its personalisation features. It uses algorithms to learn about its users' preferences and then recommend what they might want to watch next. However, this can also have a downside. If you've ever looked at another family member's Netflix account, you know exactly what I mean. You may be offered Breaking Bad if you have similar taste, while they get Kindergarten Cop. This can be quite frustrating, especially if you're not interested in the same things as the person whose account you're using.
Instagram is another app that relies heavily on personalisation. It shows users content that it thinks they will like based on their past behaviour. While this can be great for finding new things to look at, it can also get repetitive after a while. For example, if you're someone who likes football, you may start seeing nothing but football-related content in your feed even though you'd like to mix things up a bit sometimes.
There are a few different ways to segment your market, and the best way to do it will vary depending on your business and your goals. Some common market segmentation methods include geographical, demographic, and psychographic segmentation.
Geographical segmentation involves dividing your market into smaller groups based on location. This can be helpful if you have a brick-and-mortar store and want to focus on customers in a specific area. Additionally, it can be beneficial if you are planning an event or marketing campaign and want to target people within a particular city or region.
Demographic segmentation involves dividing your market into smaller groups based on age, gender, income level, etc. This segmentation method can be helpful if you want to create targeted messaging that resonates with a specific group of people. For example, if you sell products aimed at seniors, targeting people over 65 would likely be more effective than targeting millennials.
Psychographic segmentation involves dividing your market into smaller groups based on psychological factors such as values, lifestyle choices, personality type, etc. This method of segmenting your market can be helpful if you want to create targeted messaging that resonates with a specific group of people. For example, if you sell environmentally friendly products, targeting people who care about the environment would likely be more effective than targeting people who don't care about environmental issues.
Another way to segment your market is by customer needs or interests. For example, if you were selling outdoor gear, you might target those interested in hiking and camping. Or if you were selling beauty products, you might target those interested in fashion and beauty trends.
Finally, businesses can also segment their market by behavioural factors. This includes purchase history, online behaviour patterns, and Brand loyalty. By understanding the behavioural patterns of your target customer, you can provide them with a better overall experience.
Your organisation benefits from segments because it helps them identify customer attributes that have not been met. Better products and services result when firms aim to satisfy the underserved segments. Segmentation also allows firms to target their promotions better and customise their products; both strategies increase customer satisfaction.
What segmentation looks like
Once you've identified your target market segments, you can begin thinking about how best to reach them. You'll need to consider what channels will be most effective for marketing and sales outreach.
What criteria to include in segmenting your market; identifiable, substantial, accessible, stable, differentiable, and actionable.
Your segments should be identifiable.
This means that you should be able to identify the segment in your customer data. If you can't identify the segment, you can't really target them with your marketing efforts.
Your segments should be substantial.
The segment should be large enough to justify targeting with your marketing efforts. If the segment is too small, it might not be worth your while to focus on them.
Your segments should be accessible.
This means that you should be able to reach the segment with your marketing efforts. If the segment is too difficult or expensive to reach, it might not be worth targeting them.
Your segments should be stable.
This means that the segment should remain relatively constant over time. If the segment is constantly changing, it won't be easy to target them effectively.
Your segments should be differentiable.
This means that the segment should be different from other segments to target them separately. If the segment is too similar to other segments, it might not be worth targeting them separately.
Your segments should be actionable.
This means that you should be able to take action on your information about the segment. If you can't do anything with the information, it's not useful.
Another important consideration when segmenting consumers is the usage rate. Usage rate refers to how often a consumer uses a product or service. For example, someone who only buys shampoo once every few months would have a low usage rate, while someone who buys shampoo every week would have a high usage rate. Understanding usage rates can help firms predict how much of their product or service a particular segment is likely to consume.
Life Cycle Stage
Finally, it's also important to consider the life cycle stage when segmenting consumers. The life cycle stage refers to the point that a consumer is at in their relationship with a product or service. There are four main stages: awareness, interest, evaluation, and purchase. Consumers in the awareness stage are just becoming aware of a product or service; those in the interest stage are considering whether or not they need it; those in the evaluation stage are comparing different options, and those in the purchase stage are ready to buy. Firms need to tailor their marketing efforts accordingly for each life cycle stage. You should map your content and activities to your potential customer's position.
"Firmographics" is the process of dividing businesses into groups based on shared characteristics. This information can be gathered by analysing customer purchase history, online behaviour patterns, and brand loyalty.
Organisations benefit from firmographic segmentation because it helps identify business attributes that have not been met. Firmographics are especially important for B2B marketers, who need to understand the different types of businesses they are targeting. For example, a marketer selling office furniture needs to know if they target small businesses, large corporations, or government agencies. Each type of business has different needs, budgets, and buying processes, so the marketing strategy needs to be tailored accordingly.
Some common firmographic variables used in segmentation include industry type, company size, geographic location, and primary decision-maker
Who Are the Customers?
For example, suppose you're selling a new type of car dashcam. In that case, you'd want to target people between the ages of 25 and 44 - Living in an urban area - Having a college education - earning more than £50,000/yearly. These people are old enough and have enough disposable income to purchase expensive cars but perhaps not enough to buy those with a factory-fitted model. If you target people with a low income, you may not be able to demonstrate the economic value. If you target wealthier segments, their cars may already have one installed, so they do not need an after-market addition.
This is just a general example, but it shows how combining different data points can help you zero in on your target customer.
Customer Purchase Behaviour
After a firm has identified its target market, it needs to understand the behaviour of these consumers. How do they make purchasing decisions? What factors influence their decision-making process?
Past behaviour as a predictor of future behaviour
One of the best ways to understand customer purchase behaviour is to look at past behaviour as a predictor of future behaviour. This can be done by analysing customer purchase history, online behaviour patterns, and brand loyalty. By understanding how customers have behaved in the past, firms can make better predictions about how they will behave in the future.
Customer decision-making process
Another important consideration when understanding customer purchase behaviour is the customer decision-making process. This refers to the steps that consumers take when making a purchasing decision. The main steps in the consumer decision-making process are:
1) Need recognition: This is when the consumer realises that they need a product or service.
2) Information search: The consumer starts gathering information about potential products or services.
3) Evaluation of alternatives: The consumer compares different options and decides which one to buy.
4) Purchase decision: This is when the consumer buys the product or service.
5) Post-purchase evaluation: This is when the consumer evaluates their purchase after using the product or service.
By understanding these steps, firms can tailor their marketing strategies to better influence the purchasing decisions of their target market.
Customer loyalty results from a customer's satisfaction with a product or service. When customers are happy with what they've purchased, they're likely to come back and buy again. This creates loyalty and repeats business, which can be essential for any company's success. However, there are some well-reasoned arguments for focussing on penetration.
There are many ways to measure customer loyalty. One common method is to track customer retention rates or the percentage of customers who continue doing business with a company. Another way to measure loyalty is through Net Promoter Scores (NPS), which gauge customers' likelihood to recommend a company's products or services to others.
Building customer loyalty isn't easy, but it's worth the effort. Loyal customers can be more valuable than new ones because they cost less to retain and generate more revenue over time. Plus, loyal customers can act as advocates for your business, referring new leads and helping you reach new markets.
If you want to build customer loyalty, there are a few key strategies you can implement:
1) Deliver excellent customer service: This one should be obvious, but it bears repeating: happy customers = loyal customers. Excellent customer service is the foundation upon which all other loyalty-building strategies are built.
2) Offer quality products: If your products or services aren't up to par, you won't be able to build lasting relationships with your customers. Make sure you offer quality items that meet (or exceed) your customers' expectations.
3) Be consistent: Consistency is key to building customer trust and allegiance. If you consistently deliver on your promises and provide a great user experience, your Customers will stick around for the long haul
Why are your customer your customers?
You should also consider the statement by Andrew Ehrenberg. "Your customers are the customers of other brands who occasionally buy you".
There are many reasons why customers may choose to purchase your brand over others. Maybe they like your products more or appreciate your company's values and mission. Whatever the reason, it's essential to understand why your customer base has chosen you – and how you can keep them coming back for more.
Here are a few tips:
1) Get to know your customers: Take the time to learn about who your customers are, what they need and want, and what motivates them. The better you understand them, the better able you will be to serve them.
2) Offer quality products and services: This one is crucial. If you want to keep your customers happy, you need to make sure that you're offering quality products and services that meet their needs and expectations.
3) Build relationships: Customers are more likely to remain loyal if they feel like they have a personal connection with your brand. Make an effort to build relationships with your customers, and let them know that you value their business.
4) Be responsive: In today's world of instant gratification, customers expect quick responses from brands. If you want to keep your customers happy, make sure you're available when they need you – whether that means responding quickly to customer service inquiries or resolving problems in a timely manner.
5) Show appreciation: Customers like feeling valued by brands. Show appreciation for their business by offering loyalty rewards, discounts, or other perks.
Now that you've segmented your market based on who, what, and why, how do you decide which segments to choose? Targeting involves evaluating each market segment's attractiveness, selecting one or more segments to pursue, and then designing marketing programs to serve them.
1) Evaluate your options: There are many different ways to target customers, so it's essential to evaluate your options and choose the approach that makes the most sense for your business.
2) Consider your resources: When deciding which segments to target, it's essential to consider your available resources. Ensure you have the budget and workforce necessary to effectively reach your chosen market segment.
3) Think long-term: It's essential to consider the long-term when choosing a target market. While it may be tempting to go after a segment that offers quick results, such as a new customer group with high potential, it's essential to consider whether or not this is a sustainable strategy.
4) Be realistic: Don't bite off more than you can chew. When targeting a new customer segment, make sure you have the resources necessary to reach and serve them effectively.
5) Test before committing: Before fully committing to a new target market, test out your marketing efforts on a small scale. This will allow you to gauge whether or not the market is responsive to your message before making a more significant investment.
Moving from Segmentation and Targeting to Strategy Formation.
The segmentation and targeting process is essential, but it's only the first step in creating an effective marketing strategy. Once you've identified your target market, you need to develop a plan for reaching them. This involves creating messaging that resonates with your target audience, designing creative that will capture their attention, and developing a media plan to reach them where they're most likely to be receptive.
1) Create compelling messaging: Your messaging needs to be on point if you want to reach your target market. Take the time to craft messages that will resonate with your audience and communicate the value of your product or service.
2) Design creative that captures attention: The design of your marketing materials should be eye-catching and attention-grabbing. Make sure your creative communicates your message clearly and effectively so that it can cut through the noise and reach your target market.
3) Develop a comprehensive media plan: Your media plan should consider all of the different ways you can reach your target market. This includes traditional advertising channels like television or radio and digital channels like social media or search engine marketing.
4) Test before you launch: Before rolling out your final marketing strategy, it's crucial to test it on a small scale. This will help you refine your approach and ensure that it's effective in reaching your target market.
5) Evaluate regularly: Even after you've launched your marketing campaign, it's crucial to monitor its progress and evaluate its effectiveness on an ongoing basis. Regular evaluation will help you make necessary adjustments to continue to reach your target market successfully.
There is no one-size-fits-all approach when it comes to setting prices for your products or services. The pricing strategy that you choose should be based on several factors, including your target market, your competitors, and the value of your offering.
1) Consider your target market: When pricing your products or services, it's essential to consider the needs and preferences of your target market. What are they willing to pay for your product or service? How much do they value it?
2) Research your competition: It's also essential to research what other businesses in your industry are charging for their products or services. This will give you a good idea of what price point is realistic and achievable in the marketplace.
3) Determine the value of your offering: Finally, you need to determine how much value customers are getting from your product or service. This includes both the tangible benefits (e.g., quality, features) and intangible benefits (e.g., customer service, reputation). When you have a clear understanding of all three of these factors, you can start to develop a pricing strategy that makes sense for your business. We have an article on pricing, you should check it out.
Your communications strategy should be designed to engage your target market and build meaningful relationships with them. This involves creating interesting and relevant content for your audience and then distributing it through channels that are most likely to reach them.
1) Develop interesting and relevant content: The first step in developing a strong communications strategy is to create interesting and relevant content for your target audience. This could include blog posts, infographics, videos, or other types of content that will resonate with your target market.
2) Distribute through channels that reach your target market: Once you have developed great content, you need to ensure it's distributed through channels that will reach your target market. This includes both traditional channels like print or television and digital channels like social media or email marketing.
3) Evaluate regularly: It's essential to monitor the performance of your communications strategy on an ongoing basis so that you can make necessary adjustments. Regular evaluation will help you engage your target market effectively and build meaningful relationships with them.
Sales and channel strategy
There are several different ways to sell your products or services, and the best approach will vary depending on your business model and target market. You need to carefully consider your sales strategy and choose the channels that will work best for you.
1) Direct sales: You sell your products or services directly to customers without going through any intermediaries. This can be done either in person or online.
2) Indirect sales: This is when you sell your products or services through intermediaries, such as retailers, distributors, or wholesalers.
3) Channel partners: This is when you partner with other businesses to reach more customers. For example, you could partner with a complementary company to cross-promote each other's products or services.
Customer management strategy
Your customer management strategy should be designed to build strong relationships with your customers and keep them coming back. This involves creating a great customer experience, providing excellent customer service, and developing loyalty programs that incentivise repeat business.
1) Create a great customer experience: The first step in building solid relationships with your customers is to create a great customer experience. This means ensuring that they have a positive interaction with your brand at every touchpoint, from the moment they learn about you to long after they make a purchase.
2) Provide excellent customer service: Excellent customer service is essential for keeping customers happy and engaged. You need to ensure that you're responsive to their inquiries and concerns and that you can resolve any issues quickly and effectively.
3) Develop loyalty programs: Loyalty programs effectively incentivise repeat business from your best customers. By offering rewards for continued patronage, you can encourage customers to keep coming back to your business repeatedly. Be aware that a customer loyalty programme will enable you to maintain business size. However, customers may become more expensive in the long term, and you will still need to attract more to grow.
In summary, customers differ in their preferences. A company must understand these differences and design products and marketing strategies that appeal to different consumer groups. If you do it well, you will be able to differentiate your offering to outperform your competitors sufficiently.