Marketers and business leaders are often told to "find your market segment." A market segment is a group of individuals that share similar characteristics, separated and brought together from a larger group. Market segmentation is the practice of dividing your overall target market — all of your potential customers — into smaller, more approachable groups.
Data shows that segmented marketing campaigns can lead to a 760% increase in revenue. Whether you're seeking to improve your marketing or you're just getting started with understanding market segmentation, read on to learn how to develop a market segmentation strategy that works for your business.
5 types of market segmentation
There are many ways to approach segmenting the entire market for your product or service into smaller audiences. Typically, however, marketers use one of five main approaches: demographic, psychographic, behavioral, geographic, or firmographic segmentation.
The first option is to use demographic segmentation. In this method, business leaders create groups based on individual attributes, such as gender, education, income level, or age. This information can be found on social media platforms and through government sources, such as the U.S. Bureau of Labor Statistics.
Geographic segmentation often combines with demographic segmentation. This strategy creates market segments by targeting audiences who live, work, or travel near your physical location. It works well for storefronts and restaurants that are trying to entice foot traffic.
Psychographic segmentation creates smaller audience groups using consumers' attitudes, aspirations, values, and other criteria. Psychographics include lifestyle choices, personality traits, values, and opinions. Some social media platforms offer psychographics that you can use to target advertising. Customer surveys are also an excellent way to understand your customers' opinions.
Behavioral segmentation is similar: Marketers create groups using customer behaviors such as product usage, purchase decision, occasion, and at what stage in the buyer's journey a customer is. For instance, a marketer might create a group of potential customers who have added an item to their online shopping cart but have not hit the purchase button yet.
[Read more: What is a Product Market Grid?]
Finally, firmographic market segmentation is a business-to-business approach that mimics demographic segmentation but for other companies. "Firmographics explain their business target market characteristics and include their industry, number of employees, legal status, company size, financial standing, and other business-related variables," SurveyMonkey explained.
Where can you find your customer data? It exists in the tools you use to run your business.
How do you find your market segment?
Market segmentation begins by defining your entire market. This requires a combination of competitive analysis, defining the problem that your product or service solves, and strategic pricing to determine who will pay for your offering.
Then, determine which approach (firmographic, demographic, psychographic, etc.) you wish to use to segment your market. Many companies use a combination of approaches to create their marketing strategy. Some approaches fit naturally with your business’s target market. For instance, B2B companies can use firmographic segmentation as their default and layer behavioral segmentation to further refine marketing audiences.
It also helps to create customer personas that represent your market segments. Customer personas are semifictional representations of your target audiences. To create these personas, use feedback from your sales team, dive into your Google analytics, send out customer surveys, and use research from third parties to understand whom you are selling to.
Then, test your strategy. Create segmented marketing campaigns that speak to each distinct customer persona. Images, ad copy, and video can be used to connect directly to your market segments, considering their unique beliefs, attitudes, and place in the buyer’s journey. See what resonates the best, adjust your strategy, and test again.
[Read more: How to Segment Your Email Marketing List for Marketing Success]
How to analyze customer data to define your market segments
Regularly check tyour market segments to ensure they reflect your actual customer base. Some brands create initial segments based on demographic or behavioral assumptions and as they grow, those assumptions become outdated. Compare your market segments with your customer data to ensure your messaging is aligned.
Where can you find your customer data? It exists in the tools you use to run your business.
"Google Analytics can help you analyze your website data. Tableau is a user-friendly business analytics tool that's scalable and efficient, so it can grow with your business. HubSpot Marketing Analytics gives you insights into how your marketing campaigns are performing," according to an article from the William & Mary Raymond A. Mason School of Business.
Your point of sale system, customer relationship management software, and qualitative data, such as online reviews, can also give you insight into your customer groups. Each type of segmentation requires different data, so decide which approach you want to use to determine from where you source your information.
Examples of successful market segmentation
There are dozens of companies doing market segmentation well from which to draw inspiration. One company that excels at geographic segmentation, for example, is Coca-Cola. This global brand sells its core product worldwide, but with some variations. "For example, they acknowledge that consumers in Asia prefer sweeter flavors than those in the US or Europe. They modify their drink formula to satisfy different preferences," reported HubSpot.
Nike, Adidas, and other activewear brands also provide good examples of market segmentation. These brands create products for elite, professional athletes as well as for everyday consumers. For example, Nike's website divides products by sport, gender, age, and level of activity (from yoga to HIIT). It also offers the Nike Training Club for active customers compared to sponsored gear for sports clubs for more casual fans.
Market segmentation is unique for each company. And as you grow, your approach to grouping customers may change. Ultimately, the goal is to use segments to send tailored, targeted messages to smaller groups of customers and satisfy their specific needs.
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