Market segmentations studies are powerful tools for businesses. They help organisations divide up the market into distinct segments that share specific attributes. The business can then focus on the most lucrative of these market segments. Segmentations can guide everything from marketing to product development right through to identifying new market opportunities. In this article we outline the key benefits of this approach.

The benefits of market segmentation studies

Focus on the customers that matter most

The core principle at the heart of market segmentation is to break the market down into groups of customers than you can target, rather than addressing the market as a whole. Rather than being all things to all people, this approach allows you to zone in on the most valuable customers for your organisation so that you can focus your efforts where it matters most.

So what does this look like in practice? A recent case study brings this to life. We partnered with a leading university to design a segmentation of its alumni. Securing donations from alumni is a core revenue stream for universities. You might assume that targeting all alumni equally would be sure-fire way to elicit donations. But in reality, it’s a small proportion of alumni that make the most difference.

There are many ways of segmenting a market. In this instance, we opted for a needs based segmentation, where we explored the attitudes and values of past students. A demographic segmentation would have allowed us to target those in the highest income bracket or those in particular professions. But actually what mattered in this case was the attitudes of the alumni towards the university. We helped our client see that those that had enjoyed their time there and considered it a valuable stepping stone towards their future career were most likely to donate. Dividing the market up in this way means that you can focus on the customers that are most profitable or easiest to convert. This in turn helps to lower your acquisition costs.

Power new product development

Another benefit of carrying out a market segmentation study is that it can uncover new opportunities for innovation. Needs based segmentations are particularly valuable for this purpose. They do as the name suggests: break the market up into distinct segments based on different customer needs. This can be a great starting point for innovation. By understanding what customers are looking for from your brand or the category and the pain points they face, you can identify whitespace and design products, services and experiences that truly meet their needs.

Segmentation studies can also help post launch. They can help you to understand where a specific product falls down versus consumer needs and how it can be improved to pull ahead of the competition.

Design more effective marketing

Segmentation studies can also provide valuable input to your marketing strategies. Not only do they indicate who to target, but they can also reveal where to market to these people and how to speak to them. The result? You’re able to spend your marketing dollars more wisely and achieve greater cut through with your comms.

Your firm could be investing in TV advertising year after year, hoping to reach as much of the mass market as possible. A segmentation might reveal that in actual fact, the people you want to target are Instagram addicts or avid readers of a particular publication. These people could be reached on these channels at a much cheaper price. In a world where we’re able to harness digital platforms to target at such a granular level, understanding who to reach and where to find them is vital for any successful marketing strategy

Another application of a segmentation to marketing strategy development is in shaping your marketing messaging. Different customers react differently to different messages and segmentations can help you understand what to say to who. Imagine you’re a mobile phone company, with a broad audience spanning all ages and levels of tech proficiency. Segmenting your customer base will allow you to create targeted campaigns that appeal to the needs of each segment. Your early adopters may want to see the tech spec of your new devices front and centre. But your bargain hunters are likely to want to see something else entirely. By taking a targeted approach to your marketing, you’ll achieve better engagement with your campaigns and maximise conversion.

Deliver better customer service

Segmentation studies are often mistakenly seen as being something that belongs to the marketing department. But in actual fact, to get real value out of a segmentation, the segments should be shared with and understood by everyone in a business – from the CEO right through to the cashiers on the tills.

We worked with an online dating service to identify key segments based on usage patterns and other behaviours. We then assigned all existing customers in the company’s database into one of these segments. This information popped up wherever the customer interacted with the firm. This was a powerful tool for the company’s call centre operators who quickly got a sense of the type of person they were talking to – and could understand how best to approach them. This is something you’ll have recognised in your interactions with brands yourself. That network provider that offers you new benefits to stay at the slightest hint you’re dissatisfied? The TV provider that knows just what service to offer you based on your viewing history? These are all based on powerful segmentations designed to empower those working in customer service. Armed with the right knowledge, customer service agents are able to up-sell or aid customer retention.

Stay ahead

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

• First Name*
• Last Name*
• Business Email*

Use your resources more efficiently

As the examples above demonstrate segmentation studies can be really useful in helping businesses understand where to focus. This can allow for more efficient use of resources – be they human resources (e.g. getting a sales team to focus on a specific market segment for their outbound activities), or budget (e.g. investing in a trade show that you know is popular with your target customer).

This emphasis on using resources wisely is why market segmentation studies can be most useful for the businesses that are least likely to consider them: SMEs. The most effective market segmentations do require some investment as they rely on market research to understand behaviours, attitudes, values and needs. But until you’re able to invest, our advice is to start small. Take a more basic approach to segmentation. This could be a geographic segmentation. You could also segment on demographic factors or on behavioural data if you’re lucky enough to have this to hand. This can cut through the noise and provide some much needed focus for your business.

Develop a more customer centric culture

A further benefit of a market segmentation is that it can result in a more customer-centric company culture, encouraging employees across departments to truly understand your target market and their needs, and to place this at the heart of everything they do.

But it’s important to recognise that developing a segmentation alone will not automatically result in a shift in company culture. This needs to be actively managed, and there are a number of things you can do to encourage this.
The first is to secure buy in to the segmentation early on. You can do this by working with key stakeholders to make them sure they are involved and engaged in the process. Segmentations can be disruptive. Ensuring that the people that will using it feel a degree of ownership of the customer segments is critical if they are to be embraced and adopted in the long-term.

The second is to make sure that segments themselves are clearly communicated across the organisation. Segments should be easy to understand and to distinguish from one another. Visual outputs can be a helpful tool in aiding understanding and memorability. Over the years, our in-house design team has developed a range of deliverables that have transformed slides that may not have made it beyond the insight department into easily accessible outputs that help all employees to embrace the segments and ensure they live on in the business. These deliverables should be shared far and wide. Everyone – from the engineer working on a new model of car to the sales team at the dealership – should be able to visualise the segments and have them front of mind in their day-to-day work.

Our final tip for encouraging a more customer-centric culture is to activate the segments and embed them into future strategy. We often work closely with individual teams to help them understand what the segments mean for their department and their role.

Create a superior experience for customers

Ultimately, the real benefit of a segmentation is the impact for the end customer. Targeted marketing, great customer service and innovation rooted in customer needs will come together to create a fantastic customer experience that drives brand loyalty.

Segmentations can be powerful tools. In a world where behaviours, needs and attitudes have drastically shifted, they are more important than ever before. Find out more about our experience in running market segmentation studies, or get in touch to discuss a specific challenge.

Market segmentations can be powerful tools for companies big and small. By tailoring your strategy based on the needs of your key customer segments, you can better appeal to the customers that matter most. But how do you segment your audience and what are the different forms of segmentation you can use?

There are 5 main types of segmentation

A segmentation divides the market up into distinct groups of customers, and identifies those that are most valuable to your business. There are 5 main ways you can do this. 

Geographic segmentation

The first and most basic form of segmentation is geographic segmentation. This approach to segmentation looks to create groups of customers based on the following factors:

• Country
• Region
• City 
• Area e.g. urban, suburban, rural
• Climate or season
• Timezone
• Language

Geographic data is some of the easiest data to obtain and analyse, and for some businesses this can be a useful way of segmenting the market. Imagine you’re an automotive manufacturer selling a four wheel drive. Segmenting the market based on location could be useful as a starting point as you’re likely to have much greater success targeting those in rural locations than urban centres. But this example shows that the effectiveness of a geographic segmentation is limited. There are a number of other factors that play into willingness to buy a four wheel drive – income level, lifestage, previous purchase patterns, attitudes and values all play a role too.

This demonstrates that in most cases segmenting on geographic factors alone is insufficient. Doing so can lead you down a dangerous path. Assuming that all customers are the same simply because they live in the same place is reductionist and can risk stereotyping and as a result, alienating customers. 

Demographic segmentation

As the name suggests, a demographic segmentation seeks create customer segments based on demographic information including:

• Age 
• Gender
• Income level 
• Level of education 

As with a geographic segmentation, this is one of the easiest ways for a company to approach segmentation as demographic data on existing customers is easy to collect and in many cases, is already readily accessible in a company CRM system.

It does have some uses. For instance, if you’re a luxury brand, focusing on existing or potential customers who earn above a certain income threshold is a no-brainer, as it means you’re able to focus your resources on the people that are most likely to be able to buy your product. 

That said, segmenting on demographic factors alone has been largely discredited, as whilst people may be the same age or earn a similar amount, this does not mean they are all the same. 

That said, many brands still seem to be falling into the trap of targeting based on generational differences and the current obsession with “millennials” or “Gen Z” is case in point. Joon, Air France’s failed attempt to to create an airline for millennials, shows the danger in doing this. The airline played into all the stereotypes about this segment – hip and trendy uniforms for the crew, digital services including VR headsets on board and quinoa front and centre in the in-flight menu. Unsurprisingly, the concept alienated target and non-customers alike and the airline flopped.

Firmographic segmentation

A firmographic segmentation is often used for segmenting B2B customers. It relies on similar principles to a demographic segmentation, looking at factors about current and target companies such as:

• Company size
• Industry 
• Job title

Like geographic and demographic segmentations, this type of data is readily available either in a company CRM system or online so can be a good starting point for businesses wanting to segment the market and focus on the customers with most potential. But when working in B2B, we mustn’t forget that the clients we are dealing aren’t just companies. They are people too. A marketing manager in a small firm in the professional services sector might have more in common with a marketer in a large FMCG firm than with their peers, as their motivations and values may be similar. 

Behavioural segmentation 

Stay ahead

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

• First Name*
• Last Name*
• Business Email*

More sophisticated forms of segmentation look not just at who consumers are, but how they behave in relation to your brand and category. Behavioural segmentations do what they say on the tin, they analyse customers based on their past behaviours such as:

• Spending patterns 
• Browsing history 
• Interactions with the brand 

Behavioural segmentations have become popular with digital first brands and B2B firms embracing marketing automation, as not only can this data be easily gathered and analysed, but once the segmentation has been finalised, it’s possible to allocate customers to a segment and then tailor comms accordingly – all within the digital ecosystem. For instance, a first time buyer will receive different promotions and messaging to a returning customer. This can be very powerful, ensuring that marketing campaigns have more cut through and result in greater conversion.

However there are some drawbacks. Behavioural segmentations are predominantly based on a consumer’s digital footprint. As we’re all aware, this only tells half the story. Whilst you might be able to identify that a customer is looking for a new pair of shoes, you won’t know why. As such, marketing strategies based on behavioural segmentations tend to be quite product-focused and won’t necessarily connect with consumers on a deeper level. Behavioural segmentations are also less helpful for informing product development. Sure – you’ll be able to ascertain the product or service a customer is interested in right now, but behavioural segmentations don’t take into account customer needs which can reveal opportunities for innovation or to optimise your existing offering.

Needs based segmentation 

The fifth and final type of segmentation is a needs based segmentation. Needs based segmentations look to segment customers based on attitudinal factors such as:

• Needs
• Values
• Motivations
• Priorities

Needs based segmentations are widely regarded as the most effective approach to take segmentation and as such, make up the vast majority of segmentations used by businesses nowadays. Why?

Needs based segmentations don’t assume that people are the same simply because they share geographic or demographic characteristics or because they’ve bought the same thing. Instead they look deeper, creating groups of people based on shared needs and values.

This can be extremely powerful as it allows you to understand how your product or brand fits into customers’ lives, helping to put their needs at the heart of your strategy and allowing you to be more customer-centric as a business.

Segmenting based on needs can power innovation by illuminating unmet needs or areas where your product or service falls short. It can provide inspiration for powerful marketing campaigns that align with consumers’ attitudes and values, creating a strong connection with the brand and fostering loyalty.

Market segmentation studies can be powerful tools for any business. Find out more about our capabilities in this area or get in touch to discuss a new project with us. We’d be happy to share our expertise.

In today’s globally connected world, every product has a potentially vast market. Trying to target everyone in this market with the same materials, approaches, and techniques would be crazy — people are too varied and different to respond to the same marketing message.

So how do you ensure your marketing connects effectively with as many people as possible in your target market? The only real solution is to use market segmentation.

In simple terms, market segmentation is the process of taking a diverse and varied market and dividing it into more homogeneous segments.

Typically you’ll split your market into sub-groups based on criteria like their needs, behaviours and attitudes. . Market segmentation is nothing new, but it delivers a wide range of benefits to businesses if you do it the right way.

In this guide, we’ll take a look at why market segmentation is so important, the benefits it delivers, and how you can do it effectively.

Why do we need it?

Targeting everyone in a broad market with the same message is a fast route to poor response rates and low conversion rates.

Imagine you’re selling a new smartphone. The kind of message that will resonate with a 19-year-old customer is likelyto be very different from the message that resonates with a 74-year-old. Whichever you opt for, you’ll end up alienating a segment of your market.

It’s crucial to split your market into different groups so you can use a more tailored marketing message for each one. This works across all channels, from social media ads to email and direct mail.

What are the benefits of market segmentation?

There are many good reasons to segment your market, such as:

• Better conversion rates. The ultimate reason to use segmentation is to improve your conversion rates and increase your revenue. By targeting groups with an offering more relevant to them,  you boost your chances of a positive response.

• It helps you lower acquisition costs by focusing on the most profitable customers. By targeting customers who are easier to sell to and bring on board, you’ll be able to focus your efforts more efficiently and avoid spending lots of resources on tricky customers. This is the approach MetLife took with their segmentation efforts, and it’s strategy we’ve used to great effect with a university looking to secure donations from its alumni. 

• Create more tailored marketing content. By creating content and ads that are specifically targeted to a certain sub-group of your market, you’ll be able to build a closer relationship with customers. This ensures better retention and stronger connections that, over time, leads to more sales.

• Better response to marketing campaigns. Email is one area where segmentation can work extremely well. Research by Mailchimp found that segmented campaigns had open rates 14.31% higher than those that didn’t use segmentation.

• It saves cost. By increasing the accuracy of your marketing, you’ll get more for your money and ensure less is wasted on poorly targeted marketing campaigns

• Greater personalization. In one report by SmarterHQ, 80% of people who classify themselves as frequent shoppers said they only shop with brands who personalize their experience. By segmenting your market, it’s possible to personalize your messaging and connect more deeply with your target audience.

• Better service. A good segmentation can help you to provide more effective customer service. Some businesses empower their front of house or call centre staff with information as to what segment a customer falls into so that they can tailor their interactions accordingly. 

• It provides a focus for further market research so that you spend your budget and time on getting to know your most valuable customers

How to do market segmentation

Stay ahead

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

• First Name*
• Last Name*
• Business Email*

Before you start segmenting your market, it’s important to know what to aim for. A good market segment should have the following attributes:

• It’s big enough to be profitable. If your segment is too small, there simply won’t be enough demand for your product or service and you’ll fail to reach your goals.

• The members of your market are similar enough to respond to one message. This is the main reason to segment — is your sub-group homogenous enough for the same marketing strategies to be relevant and effective?

• It’s future-proofed. Will your segment stand the test of  time?

• It’s distinct. The segment is memorable and easy to distinguish from other segments.

What categories should you segment your market into?

When it comes to deciding on the criteria for your segments, there are a number of options. Let’s take a look at some of the main types of market segmentation and the benefits and drawbacks of each.

• Demographic segmentation. This involves using criteria like age, gender or income level to segment your customer base.. It’s one of the easiest ways to quickly start dividing up your market,but it is a very simplistic and outdated approach to segmentation. As Mark Ritson rightly argues “millenials are not a segment”. Assuming that everyone of a certain age has the same needs and attitudes and behaves in the same way is misguided and has resulted in some well-known marketing fails. Take Joon, Air France’s sub-brand for millennial travellers. Rooted in stereotypes, the brand alienated its target customers and crashed and burned. 
• Geographic segmentation. Similar to demographic segmentation, segmenting your customers based on where they live can leave you in hot water. Assuming that all consumers are the same just because they live in the same place is reductionist and is unlikely to be effective as a segmentation strategy.
• Behavioral segmentation. This type of segmentation is based on how customers have responded or behaved in the past in their interactions with your brand. It’ll help you understand your most profitable customers and what to sell to them but the drawback is in the name. This type of segmentation only tells you how customers have behaved in the past. As such, it’s a poor predictor of future behaviour, and it doesn’t provide any insights around motivations, values or needs which can help you connect with consumers on a deeper level. 
• Psychographic segmentation. This segments customers based on their views, values and lifestyles. s . It makes it easier to create a more resonant and relatable marketing message and avoid alienating your market with views they won’t agree with.
• Needs-based segmentation. This is by far and away the most effective approach to segmentation. Segmenting people with similar needs allows you to be more targeted in product and service design or marketing campaign development, as you can focus on addressing customer needs and pain points. What’s more needs-based segmentations tend to be more long lasting and future-proofed than other approaches. 

Market segmentation is a great way to ensure you’re targeting the right customers  and tailoring your interactions for maximum success.

It allows you to forge a deeper bond with your audience. and whilst, it requires more work than a one-size-fits-all message, it’s well worth it in terms of the results.

At Kadence International, we help our clients design effective market segmentation studies and do it in a way that maximizes revenue. To find out how we can do this for you, get in touch.