Marketers and business leaders are often told to “find your market segment.” A market segment is a group of individuals that shares similar characteristics, separated and brought together from a larger group. Market segmentation is the practice of dividing your overall target market — all your potential customers — into smaller, more approachable groups.
A study by Bain & Company found that 81% of executives believe market segmentation is crucial for growing profits. 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 Bureau of Labor Standards.
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 already added an item to their online shopping cart, but who have not hit the purchase button yet.
[Read more: What Is a Product Market Grid?]
Finally, firmographic market segmentation is a B2B market segmentation 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,” explained SurveyMonkey.
Psychographic segmentation creates smaller audience groups using consumers’ attitudes, aspirations, values, and other criteria.
How do you find your market segment?
Market segmentation begins by defining your entire overall market. This takes a combination of competitive analysis, defining the problem that your product or service solves, and strategic pricing to figure out 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 semi-fictional 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 who 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]
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