Why aren’t customers purchasing as frequently as they used to? Is your advertising on social media not engaging enough people? Are you having problems retaining customers or acquiring new ones?
You may be having trouble segmenting your market. As a result, your customers aren’t motivated to purchase or interact with your services because their needs are being ignored.
A market segmentation analysis is the most effective way to determine what your customers want.
You will learn the following in this article:
- What exactly is market segmentation analysis?
- Market segmentation types that are most prevalent
- Why does any of this important, and how can you conduct your market segmentation analysis?
Let us begin by considering…
What is Market Segmentation Analysis?
Market segmentation analysis examines customers in smaller groups to ascertain their unique features such as behavior, age, income, and personality.
Smaller businesses have an easier time promoting their products and services when marketing to a smaller customer base; this allows for highly targeted campaigns tailored to each group’s features.
A business’s presentation of a product or service is determined by the audience it hopes to reach.
What is the Purpose of Market Segmentation?
It’s all about leverage. This is the primary reason why companies use market segmentation in their advertising, promotions, and new product launches.
Businesses can achieve the highest level of success when maintaining a laser-like focus on segmented groups (rather than a global aggregate) rather than on customers in general.
Segmenting the market enables optimal customer engagement, retention, and acquisition.
Businesses build campaigns and then distribute them to customers. Unfortunately, this results in a hit or miss response – with a higher likelihood of missing than hitting.
Consumers want specific products, services, and offers at particular times, but only when they meet their needs.
Types of Market Segmentation Analysis
Businesses can segment their customers’ attributes in many ways. There are, however, certain types that are more prevalent (and popular) than others. The following are five segments of market segmentation to examine.
Businesses sometimes use demographic segmentation in conjunction with geographical segmentation to distinguish customers based on their characteristics.
Several factors go into segmenting consumers, including age, gender, income, education, and race.
One of the most straightforward market segmentation techniques is determining how and what we buy based on our characteristics.
Therefore, demographic segmentation (often paired with regional segmentation) is often the first segmentation technique used.
A study of a customer’s environment is required when segmenting clients geographically. This is because individuals’ needs depend on the conditions in which they live.
For example, people living in Japan may purchase items to prepare for natural disasters like typhoons and earthquakes.
A person living on a peninsula and without any water on either side is less likely to be concerned about these issues.
Businesses can create new products by understanding their customers’ environments, but it can also reveal whether the company wants to expand in that area as well.
A psychological segmentation examines behavioral characteristics that impact a customer’s purchasing decisions. This scenario assesses variables like personality, opinion, lifestyle, and beliefs.
A person’s psychological profile can be more difficult to pinpoint than their physical characteristics. Nevertheless, the majority of industries rely on it, particularly the health and fitness industries.
For instance, some people enjoy going to the gym while others do not; why is this? This is precisely the type of information uncovered by psychographic segmentation.
Time segmentation may be less prevalent than other types of segmentation, but it is helpful in certain situations.
For example, opening and closing times of physical stores might have an impact on sales.
Some businesses remain open all year, while others close on “dead” days such as Sunday and Monday because of lower sales volume.
Time segmentation also impacts seasonal sales and promotions, such as Black Friday and Cyber Monday.
These sales occur only once a year, and buyers expect to spend more since they anticipate time-limited offers.
Price segmentation is yet another method used in segmentation studies. However, pricing segmentation digs deeper into the issue of household income than demographic segmentation.
The income level can influence what they buy; someone with a higher personal income may have the resources to purchase luxury items, whereas someone in the working class may prefer to save.
Premium brands make use of this segmentation, such as BMW and Tesla.
How To Do Market Segmentation Analysis?
Market segmentation analysis can be both practical and simple regardless of the different types of segmentation. Make sure you have the following four components before you start:
- Initial research
- Segment your list
- Prepare your study
- Test now!
You may have to dedicate a significant amount of time to this section, so prepare accordingly.
Your preliminary research will require an in-depth understanding of your customers. Communication with them directly is the most effective method for achieving this.
You can communicate in person, over the phone, or (increasing frequently) via online surveys. Segmenting your audience will be easier if you have more information.
Segment your list
Once you have client data, it’s time to segment them. Again, you can select depending on the segmentation types mentioned above (price, time, psychographic, demographic, and geographic).
Segmenting your customers into all of these categories creates confusion and havoc. So, what are you going to do to accomplish this effectively? The next stage will follow.
Prepare your study
You should ensure your survey includes questions that pertain to these areas. You can then use the responses to determine the most effective segmentation strategies for your clients.
For instance, if your consumers earn a lot of money, segmenting based on price may be beneficial.
On the other hand, the time segment may be excellent if shoppers are frugal because of (holiday) discounts. This is perfectly normal when your clients fall into multiple segments.
Your data and consumers have been segmented. The next step involves ensuring that segmentation is valuable.
For example, you can test if brief campaigns, discounts, or other marketing materials resonate with the clients in your segments by sending them out. You may need to re-segment your customers if it does not.
Examples of Market Segmentation Analysis
A market segmentation analysis determines which consumers are relevant for a product. Market segmentation involves defining a subset of consumers with similar desires and demands within large target markets.
Businesses can achieve better customer understanding through segmentation research by discovering the demographics and motives of their customers.
A small firm can learn from other organizations’ market segmentation tactics to better understand a target market.
Credit Card Companies
Credit card issuers frequently segment their target demographics based on the different types of credit cards they offer.
For example, some cards are targeted toward higher-income consumers, while others are for those looking for cashback or rewards, and still, others are aimed at consumers seeking to improve their credit scores.
A Dun and Bradstreet survey found that 3.6% of a market consists of innovators – consumers who are most likely loyal to one particular company and interested in a wide array of services.
According to the same study, 17% of participants on the market are “traditionalists” who are risk-averse.
Therefore, a credit card company can tailor its marketing and promotion efforts to a specific consumer’s membership status by using this information.
Community banks, credit unions, and other financial institutions use segmentation research better to understand their account holders’ banking and financial habits.
The bank can categorize its customers based on account activity, savings balances, and investment plans.
For example, customers who are “committed,” for example, have large account balances, are likely to have multiple accounts, and are also inclined to invest in certificates of deposit or bonds.
An account user who uses a bank as a haven for their money, but does not necessarily spend or invest it aggressively, is known as a “Parker.”
Insurance brokers are often employees of a large conglomerate and act as quasi-independent representatives for its corporate headquarters.
For example, a national insurance company splits its market to assign agents more efficiently to specific locations or client segments.
Some prospective insurance clients may fall into the category of “non-traditionalists” since they choose to buy their insurance via the internet rather than through an agent.
In addition, some clients are “hassle-free,” meaning they do not need additional marketing persuasion to make the sale.
Luxury Clothing Retailers
Businesses in the luxury apparel industry segment their customers based on their frequency of future purchases.
Some clients will only buy once – such people may buy a costly bag as a gift or for a special occasion, but they are unlikely to become regulars or semi-regulars.
Companies can build relationships with their high-spending consumers and repeat customers by knowing who they are.
Customers can save money by purchasing clothing from the clothing manufacturer.
They can attend special wine receptions to view new products. They can be followed up via phone calls or handwritten letters following their purchase.
Final Words On Market Segmentation Analysis
The purpose of a market segmentation study is to gain insight into your clientele based on their physical and behavioral characteristics. Then, companies use this data to develop hyper-targeted marketing campaigns.
You will be able to connect more readily with the smaller pieces (and their primary values) if you focus on them.
Customers are more likely to be receptive to a tailored product to meet their current needs rather than touting a long list of benefits that are irrelevant to them.
It is a good combination with descriptive research to get a deeper understanding of client needs.