Market segmentation converts existing audiences into smaller and more specialized groups of customers. Doing so provides marketers with the opportunity to target higher-value potential clients with ads most relevant to specific interests or needs, and increases profits to the advertiser.
Tapping segments based on specific interests, demographics, geographic locations, or lifestyles, maximizes ROI compared to more general marketing approaches. Segmentation should be of particular interest to small businesses because it provides them with the ability to more efficiently capture ROI compared to a scattergun approach.
The Skinny on Segmentation
There are two types of marketing strategies agencies use to segment customers: concentration strategy and multi-segment strategy.
A concentration strategy focuses on an individual product feature that targets a single segment. Product details are often highly relevant to a specific group of people, providing marketers with the ability to analyze the needs and wants of a single segment and focus all efforts on it. Rolex, for example, deploys a concentration strategy by focusing on the luxury segment of the watch market.
Alternatively, a multi-segment approach markets a product to several contrasting segments, and identifies product details that may appeal to a wider variety of consumers. Automotive manufacturers are notorious for deploying a multi-segment approach. Ford markets its Fiesta compact vehicle to a cost-conscious buyer with an eye for fuel efficiency, while its Edge crossover is targeted to higher income customers needing to shuttle around growing families.
Several segmentation methods that should be identified:
- Demographic segmentation – Consider identifiers such as age, gender, income, education, religion, and other personal factors when creating demographic segments.
- Geographic segmentation – It may be beneficial to market to specific locations. This ranges from extremely broad (multiple countries) to extremely niche (such as a neighbourhood within a city). Other factors to consider would include local climate or regional legislation.
- Psychographic segmentation – Focuses on social class, personalities, and lifestyles.
- Usage segmentation – Targets users with high product consumption rates and an appetite for product information.
- Behavioral segmentation – Uses data to target consumers based on previous actions in an online environment (i.e: tests or focus groups).
- Interest-based segmentation – Identifies and groups users with similar interests and “likes” across various social channels. For example, a consumer interested in fair trade coffee and non-toxic cleaning products would likely be interested in learning about other organic products.
How Does Segmentation Benefit Targeted Marketing?
Segmentation should be considered mandatory in a targeted marketing strategy. Identifying characteristics that drive purchasing decisions and proper segmentation helps marketers get their products into the hands of people who want them the most. Segmentation is an incredibly useful way to increase sales because it addresses pain points and identifies product differentiators within individual customer segments.
As access to customer data grows in the digital age, insights into consumer habits and behaviors are more important than ever. Segmentation provides marketers with easily-digestible data at a more granular level that helps them extract maximum value from their ad spend dollars.