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Market Segmentation - Why it Works

You know that your customers are not all the same, and how you address their differences and commonalities is a crucial part of your business strategy. That’s where marketing segmentation comes in. 

Market segmentation is the process of dividing the market into subgroups that have certain characteristics in common. Using segmentation, you can better understand your market and leverage the advantages of targeted marketing.

Everyone uses shampoo, but shampoo products are branded radically different to appeal to different populations, and sold in separate places. You might find organic shampoo products in the aisles of health-conscious grocery stores, while color-protecting cosmetic products are more likely sold at beauty stores. The growth of the men’s care market has led to companies launching products specifically aimed at men, such as Dove’s Men+Care campaign. While the product may be near-universal, the ways that it is advertised and developed are not, and that’s because companies address the differences in market segments.

Understanding trends in your business market and the purchase behavior of customers is a crucial aspect of successful marketing. While an individual’s purchase behavior cannot be perfectly predicted, segmentation is a way to paint a clearer picture about commonalities in your market.

Types of Segmentation

Before you can target the customers you want to reach, you have to know who you are marketing to. There are many different ways to segment a market, but five major categories are demographic, geographic, behavior, benefit, and psychographic.

Demographics are the who of your market, and one of the most common and straightforward ways to segment customers. You might sort your market by age, gender, family status, income bracket, occupation, or education level. This is essentially looking at a bisection of culture. You’ll find a wealth of insight about your customers if you gather data along demographics.

Geographics are where your customers are located, and is sometimes grouped in with demographics (or “geodemographics”). You can use regions to segment your market, and geographic factors, such as rural vs urban, warm vs cold, or seacoast vs interior. For example, beach products will focus on coastal locations during the summer. The different cultures of regions results in different customer behavior, so geographics are closely related to demographics and lifestyle. People behave differently depending on the cultures of the region, so geographics are closely related to demographics and lifestyle.

Behavior segmentation is about the customer’s patterns of consumer behavior -- how they purchase, how they use the product, their spending habits, and their brand loyalty. Online there is a lot of behavior that can be tracked and taken advantage of, such as retargeting products to people who have browsed the products before. Occasion based segmentation addresses the different behavior of customers around occasions such as holidays.

Benefit segmentation categorizes customers based on what benefits they seek from the product or service. These benefits are often divided between economic, medical, cosmetic, and taste benefits. For example, a person might choose one shampoo over another because it’s the cheapest (economic), because it is good for dandruff (medical), because it makes hair more voluminous (cosmetic), or because it has their favorite scent (taste).

Psychographics are about the personality of the customer -- their lifestyle, hobbies, interests, values, and opinions. This is largely assigning psychological factors to behaviors. Understanding psychographics requires research, but can be particularly useful as it approaches understanding the motives of customers and what might convince them to use your product or service.

With these categories in mind, it’s important to customize the way you segment your market to suit your needs. The benefits of any type of segmentation will depend on the unique situation of your company and customers.

The Advantages of Segmented Marketing

If you know your market better, you can find new opportunities to develop products that will match the needs of a segment. Using research, Dove realized that a segment of their market (men) were increasingly concerned with personal hygiene and did not relate to depictions of men in media. This lead them to launch the Men+Care campaign in 2015, which was a new line of products that had the message that caring is strength.

Customers also respond positively to marketing that feels more personal. Customized content results in improved engagement rates, whether addressing a pain-point of a particular segment, or closing a sale with remarketing ads. 

Segmentation may also reveal a part of your potential market that is being underserviced. 

Once you gather data about your segment, figure out how your products or services address their needs. This is an opportunity to adjust what you offer to better serve the segment. Then, you can tailor your marketing to reach the segment at the most profitable opportunity.

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