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Market Segmentation: A Complete Guide For 2020

market segmentation

Starting an online or offline business on the right foot requires proper market research. This analysis should include what is known as market segmentation, which helps you define the target audience to whom you are going to offer your products. This article explains what this process consists of and how you can improve it by applying tools from the lean startup and design thinking methods.

Based on these idea organization systems, we have divided the information to make it easier to understand. Here you will find the definition of market segmentation, its importance, criteria, strategies, and steps to know how to segment a market. A complete guide will serve as a reference source when you need guidance.

What is market segmentation?

As an essential part of market research, market segmentation creates target groups. This means dividing a certain number of consumers into groups that share similar aspects. Each of these groups is also called a market segment.

Since the people who make up a market segment show common characteristics, differentiating them from other potential clients. These shared qualities tell you that they can show a consistent reception to your marketing strategies. When you identify this target audience, you tailor your value proposition to meet their needs.

To understand how to segment a market, several conditions must be met first to obtain the result you are looking for. Among those aspects that cannot be missing, we must distinguish:

  • It is measurable. Based on knowing how many people you want to capture, you should measure the size of the groups. In addition, you need to identify and give value to their sociodemographic characteristics.
  • It is actionable. This implies creating a marketing strategy that influences the ideal customer sets you have arranged.
  • It is substantial. It would help if you did not choose samples of various target audiences that are too small, as they will not be profitable for your objectives.
  • It is affordable. Choosing a segment allows you to have the capital and resources required to give them value and satisfy the ideal customers’ needs for your product or service.

Why is it so important to segment the market?

If you are thinking of starting an online business or creating your own online business, a well-segmented market allows you to focus your marketing strategies. When you are unclear about whom your products or services target, you risk inconsistent demand. This definition can cost you success or failure in choosing a niche market.

On the other hand, market segmentation can be critical for small and medium-sized companies that have to compete with larger companies. As long as their value proposition is well defined and can serve their target audience with more remarkable dedication, they can be on their way to a sustainable business. Since general strategies are falling out of use, specialization has become more necessary.

That is why we consider that there are several important reasons to segment a market:

  • It serves to apply more personalized marketing strategies. The need to speak to your consumers with a closer message is more latent than ever. If you have a good understanding of their interests, motivations, or concerns, you have a better chance of influencing their behavior. When your messages reference those things they like, you link them more and create greater identification with your brand.
  • It makes it easy to identify your target audience and their needs. The fundamental purpose of market segmentation is to know potential customers’ desires, emotions, and conditions. Once you have this knowledge, you will direct your efforts to identify the best channels and forms of marketing to encourage loyalty.
  • It allows reducing costs. When you know how to market segmentation, you understand which market niches will be profitable and which will not. That way, you don’t have to invest resources unnecessarily to attract consumers who seem more challenging to convince.
  • Promotes increased sales. Given the need for a more focused proposal on the ideal customer, the 4Ps of the marketing mix must be adjusted to the target audience’s expectations. If you have the right price, the product that solves their problems, and the message that captures their attention, this will be reflected in the profitability.
  • Increase the loyalty rate. If you put all your efforts and resources into pleasing your target audience, it will be easier to keep them satisfied. This personalized and dedicated attention translates into greater loyalty because they understand that you exceed their expectations.

Market Segmentation Criteria

Market Segmentation Criteria
Market Segmentation Criteria

As expected, the classification of target groups has several variables. This is nothing more than subdivisions related to the data that consumers present so that you can put them together in similar sets. In this sense, the most used types of market segmentation are usually:

Psychographic Segmentation

This segmentation by psychological and aspirational elements may be more challenging to carry out due to its complexity. It requires a much more expensive market study, which may not reach those looking to start an online or offline business. This classification is divided into three main aspects:

  • Lifestyle
  • Social class
  • Personality

Geographical Segmentation

It is not difficult to guess how this categorization of the market segment is done. You are simply going to make your selection according to the geographical information of potential customers. As an example of market segmentation for this classification, you can use:

  • Climate
  • Density
  • city ​​size
  • Autonomous communities
  • Countries or regions of the planet

From the point of view of marketing strategy, you need to understand how to apply the corresponding actions according to the information collected. If you have an online business of food products, you must adapt your offer according to the demands of each location. While some consumers will prefer more fish, others meat, and others will want vegetarian or celiac products.

Demographic Segmentation

This kind of segmentation can be organized into different groups because it has more criteria that you must evaluate. In general, the most common aspects are:

  • Age
  • Gender
  • Religion
  • Profession
  • Education
  • Generation
  • Nationality
  • Social status
  • Income amount
  • Biological development stage

Each of these categories provides you with information to make a more detailed profile of the ideal client.

Behavioral Segmentation

These market segmentation variables also require good research because they are the target audience’s consumption habits. Although it is the most susceptible to change due to market niche trends, it helps you investigate people’s primary motivations at certain times.

The division of this type of segmentation would be:

  • level of use
  • According to the provision
  • Depending on the level of loyalty
  • According to the time of use
  • Depending on the frequency of use
  • According to the expected benefits
  • According to the perception of the brand or product

To better understand how these categories work, we will use some examples.

If we take the level of use, the subdivision could be the following:

  • Not consumers.
  • Potential customers.
  • First-time consumers.
  • Occasional clients.
  • Regular consumers.
  • Old consumers.

According to the moment of use, you should consider when purchasing products or services. It can be an occasional, periodic or special event.

Regarding the frequency of use, you have to distinguish between occasional, regular, and habitual purchases. Many online or offline businesses offer discounts or rebates for spending more or using their services more. Similarly, different companies reward loyalty through programs with benefits for their most avid consumers.

If we talk about disposition, you need to make a differentiation between potential customers who do not know you exist, those who do know, those who have specific information, and those who intend to buy. Depending on where they are in the sales funnel, you have to adjust your marketing strategy to get them to close the deal or capture.

Regarding the level of loyalty, it can be defined in 4 degrees: none, medium, firm, and unconditional. The market study helps you to know who could be the ambassadors of your brand and, at the same time, the reasons of those who are not convinced of your proposal. Your loyal audience is valuable for the sustainability of your business, so it is essential to reward them for their preference.

Other Segmentation Criteria

Market segmentation variables can also be classified in another way. A more straightforward distinction is used to address the different criteria among SMEs. If you find it more practical, you can use the following parameters:

  • Generals. Variables that are common to the entire audience (demographics, gender, or socioeconomics)
  • Specifics. Criteria focused on your product or service.
  • Objectives. They are those parameters that provide you with quantitative data.
  • Subjective. Unlike the previous ones, these give you qualitative information.

Market Segmentation Strategies

Market Segmentation Strategies

If you know how to segment a market, you have in your hands the tools to direct the right actions to attract the most significant amount of target audience to your business. This is achieved by defining the marketing strategy for each segment. The more knowledge you have of the consumer, the more efficient your campaigns and resources are.

Among these types of market segmentation, we must distinguish 4 main models:

Niche or Differentiated Segmentation Strategy

Using this model, you proceed to create 2 or more market segments that are going to be made up of your target audience. This will allow you to implement a marketing mix strategy considering their needs. You can see it in practice with beauty products with different audiences for their offer.

When you have an online or offline business, you develop different communication or content strategies for each selected group. Therefore, you try to create a connection with your brand based on those psychological, social, or demographic characteristics that you seek to exploit. This differentiation implies that you will not sell the same product to your target market.

Undifferentiated or Massive Segmentation Strategy

Contrary to the previous one, this modality aims to make a single product or service available to potential customers. It can be said that it is more linear because you do not have to evaluate several groups simultaneously. This implies that your marketing strategies are not focused on the differences of each market segment.

This massive strategy was much more effective when the available means were scarcer and less competition. Few companies currently resort to it because many platforms allow exact, cheap segmentation to reach millions of consumers.

Concentrated Segmentation Strategy

Similar to the differentiated model, this marketing strategy also proposes the creation of various market segments for study. The fundamental difference is that you will concentrate on a single group, which will become your target audience. It is usually used when you don’t have enough resources to pay attention to each set.

The purpose of having a single market segment is that you cover a smaller number of people, reducing the acquisition investment. At the same time, the main problem with this approach is that you focus all your energies on a single market niche, and its advantage is that you spend less money to promote your products or services.

Custom Segmentation Strategy

Also called one-on-one marketing, it is about offering particular experiences designed to meet the individual expectations and needs of the target audience. It can be said that it is a much more focused version of the robust strategy. Therefore, you use greater personalization and practical techniques for loyalty.

Today this modality is presented as one of the most used tools by the available media and the technology that facilitates greater segmentation. Thanks to platforms that allow more in-depth customer knowledge, tailored products, and personalized messages are greatly accepted among the target group.

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Steps To Carry Out A Market Segmentation

Based on what we have seen, you can already consider carrying out a market segmentation by identifying its purpose. Since you already know the characteristics that should define the market segments, now it’s your turn to establish the process. To learn how to do market segmentation, start with:

Segment The Total Market

In principle, you need to find out the total market you will cover through your marketing strategies. This means that you must divide your target audience into market segments to know to whom you will direct your offer. This total market represents the number of current or potential customers for a specific product or service.

The way to do this calculation is to evaluate the market segmentation variables that we have already described above. Therefore, you must consider the geographical, demographic, psychogeographic, and behavioral aspects. This research will give you an estimate of the people who might be interested in buying from you.

Evaluation Of The Attractiveness Of Each Segment

Before moving on to market segments, I remind you not to pick too broad a total market because it might be too generic to be attractive. For example, if you have a restaurant, choosing a category like “people who go out to eat” could be overwhelming, so we recommend you be more specific.

Choosing the market parts that could be more profitable requires a series of questions to specify them. These questions correspond with what we have already discussed about the qualities of a market segment. For this task, you can use questions such as:

  • Is it possible to know the size of the market? Can I measure the market?
  • Is it accessible? Do I have the necessary resources to cover it well?
  • Is it substantial? Does it have a minimum size to be profitable?
  • Is it actionable? Can I execute a proper marketing strategy?

Select The Target Market

Considering the information you have collected up to this point, it is time to define who your target market will be. This means that you will choose that part of the most profitable market and on which you are going to dedicate all your promotion and recruitment efforts. Do not forget to keep in mind the number of resources you will need to implement your actions.

Further, Define Your Target Audience.

Once the market niche has been established, you must define your target audience. You can use one or several cards to describe their needs, pain points, desires, and other particularities that you are looking for. What is intended with this exercise is that you lead the potential client from his current place to where you would like him to arrive.

To find out more about the target audience, we leave you with a series of questions that are very useful in this task:

  • Who. In this category, you have to determine who buys the product and who decides to buy it.
  • Where. The questions you will use tell you where they believe and look for information.
  • How much. This line tells you how much the customer intends to spend and how often he consumes
  • when. Following the examples above, you need to determine when to purchase and repurchase the product.
  • How. You should also find out how the purchase is made, how they use the product, and how marketing strategies influence their decision.
  • What. Not least, you must understand what you expect from the product or service, what aspects you consider before buying, what factors you compare with other options, and what information sources you use. In addition, you must know the main benefit that he wants is his basic need and wishes.

With the tools of lean startup and design thinking, you have several effective methods at your disposal to hyper-segment your target audience. The best known and used are usually:

Develop Your Buyer Persona

Develop Your Buyer Persona

The buyer persona forms a fictitious representation of the ideal client for the product or service that you want to launch on the market. This recreation requires considering demographic, social, psychological, and behavioral data. This way, you can estimate in more detail their tastes, attitudes, needs, and where they seek to satisfy them. With this profile, you will begin to shape your ideal client.

Prepare The Empathy Map

The empathy map is graph-structured in 6 sections and is focused on having an empathetic approach towards the client. Following a series of questions, these parts allow you to order the thoughts, emotions, needs, and pains associated with the target audience. It forms the basis of the customer journey, which we’ll look at next.

Create Your Customer Journey

The customer journey or customer journey is a concept that derives from the customer experience within the marketing strategies. This kind of map is designed to determine the contact points between the company and the potential client. Depending on the context of the buying process, this interaction can be short (minutes) or long (months). This system clarifies consumers’ concerns or problems to achieve their goals.

Put your results to work through testing and validation with PMV

Within design thinking and lean startup models, validation and testing actions are critical to know the chances of success. If we focus on the target audience, the essay will indicate the acceptance or rejection by potential clients. With the information you get, you can return to correct to retest or stay with a viable product that you can practice.

Also, not all the segments you will define will be viable when performing the tests. When you decide to dig a little deeper, it may be that your company is not offering enough options for a specific consumer. In any case, the objective is that the most feasible target groups show characteristics such as:

  • Consumers within each market segment have relevant similarities.
  • Potential customer groups should respond positively to your marketing strategies.
  • Each specific element has many potential buyers that match the established criteria.
  • You should have information on hand so that you can estimate, at least roughly, the size of each set of people.
  • The sales potential of the market segment should be attractive enough to be worth jumping into.

Conclusion

If you want to have a well-founded market study, you must understand how to segment. This information will give you the keys to your ideal clients so that you can focus your efforts precisely, with good results and less investment.

Since you have to fight with your competitors for the same market niche, you need to show a more excellent knowledge of the target group that you have chosen for your marketing strategies. Only then can you gain valuable insights and have the flexibility to adjust to changing purchasing habits.

I hope you liked this comprehensive guide on market segmentation.

So what’s your story? Are you using market segmentation already? Please tell me about them in the comments.

Yours Sincerely, Devansh Pathak

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