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Brand Strategy >November 25, 2021

All You Need to Know About Market Segmentation

November 25, 2021
Marilyn Wilkinson Prof Pic
Marilyn Wilkinson
Digital Marketing Expert

What if there was a way to improve brand loyalty, increase customer satisfaction, drive sales and run more effective marketing campaigns? Luckily, there is — it’s called market segmentation.

Read on to learn how you as a brand manager can use market segmentation to understand your target audience on a deeper level.

What Is Market Segmentation?

Market segmentation divides your target audience into groups (or “segments”) based on a set of shared characteristics.

Let’s take a basic example. If you sell books for children, teenagers, and young adults, you could segment your customers based on age. That’s a basic market segmentation method. However, you can go much deeper based on the genre of books they enjoy reading, how often they purchase from you, where they live, and more.

Let’s dive into the different types of market segmentation, also known as audience segmentation, and how they can help you understand your customers better.

The Four Different Types of Market Segmentation

There are four main different types of market segmentation: demographic, geographic, behavioral, and psychographic. Let’s dive into how each type works and when to use it.

1. Demographic

Demographic segmentation splits your customers into groups according to basic characteristics such as age, gender, education, income level, and occupation.

Demographic segmentation is one of the most common forms of market segmentation because it’s very black-and-white. The data is readily available and makes it easy to spot patterns and trends between, for example, age, and purchase behavior.

Here are some simple questions to ask when segmenting your customer according to demographics:

  • How old are they?

  • What is their gender?

  • What is their level of education?

  • What is their job?

  • What is their income level?

2. Geographic

Geographic segmentation splits up your customers based on their location. Customers have different needs, preferences, and interests depending on where they live. Marketers need to be aware of these differences for their campaigns to be effective.

For geographic segmentation, you will be looking at questions like:

  • What country/state do they live in?

  • What is their Zip code?

  • Do they live in a big city or urban area?

Understanding where your customers live can help you understand their needs better. For instance, you don’t want to market warm winter clothes to people living in a hot climate!

3. Behavioral

Another popular market segmentation method is behavioral, which splits your customers into groups according to behaviors they display, particularly with regard to your product, website, app, or brand.

Some types of behaviors to look at include:

  • Do your customers order from you via your website, your app, or in-store?

  • What kind of content do they consume on your website?

  • How often do they purchase/use your product?

  • When was their last order?

  • How long have they been a customer?

  • Are they 100% loyal to your brand, or do they also buy from your competitors?

You can get this data from various sources, including Google Analytics or other website analytics tools and your customer relationship management (CRM) database.

Behavioral segmentation is a powerful tool for brand managers because it relates directly to how customers interact with your brand or products. Understanding their behavior enables you to market to them more effectively – for example, if a customer hasn’t purchased from you recently, you could send them a special offer to remind them how great your brand is.

4. Psychographic

Psychographic segmentation looks at the mental and emotional traits of your customers. These attributes are not easy to quantify as demographic data, but they provide valuable insight into your customers’ needs and desires.

Examples of psychographic characteristics include personality traits, interests, beliefs, values, attitudes, and lifestyles.

  • What personality traits define them? For instance, are they kind, humorous, outgoing, or introverted?

  • What hobbies are they interested in?

  • What is their stance on the environment and sustainability?

  • Are they religious?

  • Do they lead a healthy lifestyle?

Psychographic segmentation provides insight into your customers’ mindsets and values. This can help you market to them on a deeper level and come up with powerful messaging which speaks to their individual needs and desires.

How Does Market Segmentation Benefit Brands?

1. Run relevant promotions and offers

91% of consumers are more likely to shop with brands who recognize, remember and provide relevant offers and recommendations. Segmenting your audience is the easiest way to offer customers what they are truly interested in, which is more likely to drive engagement and, ultimately, sales.

2. Create compelling marketing messaging

Instead of being generic and vague, you can focus on the specific needs and desires of your target audience.

3. Build effective marketing strategies

Understanding different customer groups and how they tick helps you understand which products they are most interested in, which tactics they will respond to and which channels you can reach them on.

4. Targeted paid advertising

Paid ads on social media, video, and display enable marketers to target precisely who they want to reach, based on characteristics like age, gender, location, browsing behavior on your site, and more.

Segmenting and targeting specific audiences is more effective, and also more cost-efficient, than a “spray and pray” approach blasting the same marketing messages out to everybody.

5. Inform your product development

Who are your top customer segments and what do they need most? These insights can help you set priorities and structure your product roadmap to ensure you are meeting customer needs in the best way.

How to Get Started with Market Segmentation

So, you understand why you need market segmentation for your brand, and now you’re wondering how to get started? Here are the steps you need to follow so you can level up your brand marketing with customer segments.

1. Set goals.

What are you hoping to achieve? Do you want to increase sales among already-loyal customers, reduce churn among customers at risk of breaking away or identify new target audiences? Understanding your business goals and KPIs will help you select and prioritize your segments later.

2. Collect quantitative data.

First, make sure you have the data you need. Typically, this will be your company database (CRM), a web analytics tool, and possibly third-party data sets.

3. Collect qualitative data.

Conducting surveys, focus groups, and polls can help you get the necessary psychographic data. Google Analytics won’t tell you that your customers go hiking at the weekends, are career-orientated, or want to start a family soon. Qualitative data will help you understand the why behind the what.

4. Segment your customers.

Decide which of the four types (demographic, psychographic, geographic, or behavior) you want to use. You don’t need to stick to just one! Feel free to use a combination and experiment with what works for your brand.

5. Try and test.

Once you have chosen your segments, you can use them for your campaigns. Use conversion data and brand tracking to check the effectiveness. Keep testing and reiterating to figure out which segments are working well and where you need to make changes.

Latana Brand Tracking for Advanced Audience Segmentation

Brands who are serious about understanding their customers are using brand tracking software, rather than relying on basic demographics or treating all their customers the same. Learn more about how top brands like Duolingo and Monday.com use Latana for advanced audience segmentation.

Latana uses an AI-powered algorithm to track how different audiences engage with your brand and gives you accurate insights even for niche audiences. You can build custom audience segmentations and track the exact audiences which are most important to your brand, which enables you to make marketing decisions based on information you can trust.

Do’s and Don’ts of Market Segmentation

Market segmentation is a powerful tool to gain a better understanding of your customers but it’s important to do it right! Here are some tips to help you get the most out of this strategy.

Do….

  • Do combine segmentation methods.

You may realize that segmenting based on simple demographics like age doesn’t help you build a powerful campaign, yet behavioral or psychographics does.

  • Do iterate based on your findings and learnings.

Market segmentation is not an exact science and as you go through the process, you will get a better idea of what works for your brand and what doesn’t.

  • Do ensure your marketing, sales, and product teams are aligned. Each team needs to understand how to use the segments to drive business value.

Don’t…

  • Don’t get carried away building segments that are too specific.

Tiny, niche segments are unlikely to be representative and biases can easily skew the data if the sample size is too small. It might not be worth your time and effort building a campaign targeting, say, retirees who care about the environment and take their dog for a walk on Sundays. It’s important to strike a balance.

  • Don’t forget to update your segments.

Customers and their needs change and evolve constantly, especially since COVID. Customers who might have bought from you offline in the past might be more likely to purchase online now, so your data needs to reflect that.

Final Thoughts

What separates a good brand from a great one is the ability to understand their customers and speak to their needs. Market segmentation is a great way to do exactly that.

Do you know who your top audiences are, how they feel about your brand, and how to engage with them best? Check out the Latana Ultimate Guide to Target Audiences to learn more.

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Brand Marketing

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