Market Segmentation: Overview

by Vlad Ungureanu

Feb 2020

Key takeaways from this article!

What is market segmentation?

Market segmentation is the process of dividing potential customers into different groups (or segments) based on distinct characteristics, considering that people within a certain group are more likely to have similar interests and needs and would respond in a similar manner to specific marketing strategies. By targeting segments instead of individual customers, companies can reach potential customers in a more efficient and more cost-effective manner.

Adamant Links - Market Segmentation Benefits

Create stronger, more specific marketing messages

Create custom tailored messages that address the unique needs, wants and characteristics of each market segment. For example, men and women have different needs and preferences when purchasing electronic products and so do different age groups. Instead of using generic messages, market segmentation allows you to address each segment’s needs in a particular and efficient way.

Identify the most effective marketing strategy

Having multiple marketing strategies at your disposal implies that not all of them have the same results for all potential customers. For example, social media marketing might be more suited for young adults while newspapers, TV or radio might provide better results for seniors.

Attract (and convert) quality leads

The right message will attract the right people. Instead of investing large amounts of money on general ads and campaigns, targeting the people that are more likely to be interested in your product or service is more cost effective and has a better chance of converting quality leads.

Differentiate your brand from competitors

Segmenting the potential market into relevant groups allows you to differentiate yourself from your competition. For example, most soda product campaigns address the same category, teenagers; other companies, with much better segmentation, differentiate in their campaigns and ads between teenagers and adults (especially with families) with a much higher success rate. Addressing the specific needs of each segments makes your brand more likeable and more involved compared to your competitors.

Enables better control

Efficient segmentation facilitates creating and managing your marketing plans and strategies. Segmentation simplifies tracking and measuring ads, campaigns, conversion rates and satisfaction, enabling business to take specific, concrete actions to improve their marketing processes.

While there are many ways to segment a market, not all segmentation criteria are relevant. In order to gain the market segmentation benefits, proper attention and interest need to be invested in establishing proper market segments for your business. For example, hair colour might be a poor way to segment the market for bakery products.

Adamant Links - Market Segmentation Requirements

Measurable

After market segmentation is done, we can clearly define the size, profile and purchasing power of each segment. This implies that we have access to reliable data (for example census data) or a reliable way of measuring segments. For example, knowing that your product is a perfect fit for people that have a specific height is not relevant as you do not have access to height data in specific regions, and the region average might differ from the overall country average. In a similar manner, purchase power, consumption rates, habits, cultural differences, physical characteristics and many other criteria, even if they would be very relevant for your market segmentation, are almost impossible to determine for specific regions (consider countries with high ethnic diversity, emergent economy or economic issues and so on).

Accessible

While the segments themselves might be correctly established, you also need to be able to reach these segments with your message and your products. For example, you can be certain that your product is best suited for VPs and CEOs (based on education, income, availability to spend, social expectations), but there are very few ways to reach top management people directly.

Substantial

The obtained segments should be relevant in terms of size and purchase capability. Having a segment that represents 97% of the population and the other segments consisting of 1% each is not a valid market segmentation.

Differential

Each segment is well defined by unique needs, desires and characteristics that do not overlap (as much as possible). This allows for specific approaches, messages and campaigns dedicated for each segment. If segments overlap then segmentation might not be useful. For example, marital status is not enough to differentiate segments when it comes to perfume preferences. Marital status overlaps with gender segments and age segments, leading to the inability to adress specific needs of the overlapping groups.

Actionable

Depending on the approach, segments might be too difficult or too expensive to reach. Even if the segmentation is correct, the inability to take proper actions towards marketing to specific segments makes these segments useless. The goal is to create segments for which you are able to take actions (implicitly create and run your marketing campaigns) and then be able to evaluate the results.

Taking into account these requirements we can define two main criteria for market segmentation:

• Demographics (gender, age, race, geographic location, occupation, religion)
• Psychographics (personality, values, principles, beliefs).

In our next article, get a detailed look at demographics:
Market Segmentation: Demographics