Customer Segmentation and Market Segmentation
What Is Segmentation Strategy?
When creating marketing plans, marketers should apply the STP method i.e. Segmentation, Targeting, and Positioning.
A strategy or some strategies must be developed for Segmentation i.e. Segmentation Strategy.
Segmentation allows marketing teams or your marketing work to reach the most suitable visitors who are likely to convert into leads. This reduces spending on wasted impressions or clicks (in digital marketing campaigns) that will never become leads (and then conversions or sales).
A business-to-business (B2B) may segment the market by business types or countries. A business-to-consumer (B2C) should segment the market by demographics, lifestyles, behaviours, etc.
The typical consumer market segmentation may include:
- Geographic market segmentation
- Demographic market segmentation
- Psychographic market segmentation
- Behavioral market segmentation
- Other types of consumer segmentation
- What Is Customer Segmentation?
- Customer Segmentation In Practice
- What Is Marketing Segmentation?
- How To Create Your Marketing Segmentation Strategy?
- Four Stages For Developing Your Marketing Segmentation Strategies
- Best Practices When Developing Your Marketing Segmentation Strategies
- Segmentation Strategy For A Product’s Customer Journey
What Is Customer Segmentation?
In Customer Segmentation, customers with similar characteristics are identified, and are placed into a segment (i.e. a distinct group). Customers with another similar characteristics are put into a second segment. This goes on with multiple segments.
The main advantage of customer segmentation: Customer Segmentation is powerful when identifying unmet customer requirements which are new opportunities for business.
Segmentation helps a company effectively allocating resources to product development, marketing, services, pricing, and more.
Customer Segmentation is most effective when a company customizes a unique product for a specific segment when this segment is the most profitable of all segments. The company provides services (that go with the product) with obvious distinct competitive advantages.
That’s why a company who can identify many underserved segments will outperform competitors.
The company develops marketing campaigns and pricing strategies to get maximum value from the customers in the specific segment, whether they’re high-end and low-end users.
Customer Segmentation In Practice
Companies may use customer segmentation to do the following:
Prioritize new product development projects
Product managers need to determine the amount of IT development resources that must be invested into a product targeting a specific segment.
Sometimes within a product, product managers have to decide which feature or features are worth the time and resources to further develop and continuously improve.
Product manager should figure out the profit potential of a specific product in a segment, and the company’s ability and potential to deliver the service that follows.
Develop customized marketing campaigns
Marketing managers in enterprises require dividing the entire market into measurable segments. Each segment is based on the customers’ specific needs or their past behaviors or their demographic profiles.
Marketing managers are responsible to measure performance of each segment. When market conditions change over time for a specific customer segment, a new marketing strategy must be applied.
Customer relationship managers (or retention managers) have to determine the profit potential of each segment by analyzing the revenue and cost impacts of serving each customer segment.
What Is Market Segmentation?
The first step is to know your market segment when selling your products or services. A well planned marketing segmentation strategy divides your target market into subgroups of users (or potential customers).
Market Segmentation is a strategy where it breaks down a target market audience into multiple, smaller and more manageable groups.
Only after the bigger market is correctly segmented in smaller ones, customer experience can be improved.
A customized customer experience allows marketing teams to launch better focused marketing campaigns to each segment. The segmented marketing campaigns arrange your customer based into higher focused demographic, geographic, or behavioral groups.
This directly leads to higher loyalty and better brand recognition from the users. The long term positive effect is usually higher profits for a product.
How To Create Your Marketing Segmentation Strategy?
Let’s put the ultimate objectives upfront: The marketing segmentation strategies must answer these questions:
- Who are your customers?
- Where are your customers located?
- What are your customers interested in?
- How can you market your product to your customers?
A well designed marketing segmentation strategy should help your business predict where your products are most wanted. This allows you launching marketing campaigns that will result in better customer experiences, loyalty, and niche marketing.
Each marketing segmentation strategy should offer a distinct marketing solution for a specific demographic, geographic, behavioral, or psychographic customer group.
Demographic Market Segmentation
Demographics may include age, gender, marital status, education level, occupation, income, religion, etc.
Demographic groups can be combined to create a practically useful segment.
For example, to identify people who are interested in buying properties in a specific area, you may combine age, marital status, education level and income.
Geographic Market Segmentation
Geographic or regional groups may include country, state, county, community, college, etc.
It works well when you know your product should be sold to customers based on where they live.
Psychographic Market Segmentation
Psychographic groups may include interest, personality type, personal value, opinion, attitude, social status, etc.
A lifestyle brand (such as fashion) should target customers with interests (or hobbies). This is an effective strategy to get customers’ attention for improving brand recognition. Product prices usually aren’t the main concern for this customer segment.
Behavioral Market Segmentation
Behavioral groups may include brand loyalty, price sensitivity, usage patterns, benefits sought.
Behavior data of customers are all over the Internet and can be collected through web analytics reports, online surveys, marketing trends, and more.
For example, a loyal customer (of an ecommerce website) may have purchased many times from this website. The website has the customer’s buying patterns i.e. the items, how many times, and when she has bought. This leaves opportunities (in the data) for the website to figure out what items this customer will buy next. To increase sales, the ecommerce website can often send item recommendations to this customer.
Four Stages For Developing Your Marketing Segmentation Strategies
Let’s break down into four stages when creating the marketing segmentation strategies for a business.
Stage 1: Objectives
Set the segmentation objectives.
Develop assumptions, and identify the variables based on your assumptions.
Stage 2: Customer Segments
Create the market research plan (to identify the most profitable niche with low competition).
Get the data.
Analyze the data to identify the possible segments.
Validate all the data and results.
Stage 3: The Segmentation Strategy
Choose the segment (or segments) for your product.
Dig deeper to understand each segment (that you have chosen).
Stage 4: Launching
Identify the key stakeholders of the market segments (and the product).
Create the launch plan (that is backed up by a digital marketing funnel).
Develop the process for all communications (among the project stakeholders, local and global marketers, etc).
Put up an operational team (where team members can be from both local and global teams).
Montior the progress.
Review the results at intervals, and revise the plan.
Best Practices When Developing Your Marketing Segmentation Strategies
When developing the marketing segmentation strategies, the best practices are:
Always start with a market research. You should run a thorough research and analysis for your market segments. Based on the information and data you have collected, build your marketing segmentation plans.
Avoid defining your segments too broadly. You don’t want to have a hard time dealing with your major competitors who may have been segmenting more narrowly for a niche market.
Organize your business by market segments. For example, set up a team to focus only to a specific market segment, and a second team to deal with the second market segment.
Make use of both local and global teams. You don’t want to manage 20 market segments in 20 different locations across the entire world all from one location (e.g. your head office in New York). You should make use of the best skills from each location. Combine your global and local teams, and make them work together to get the most out of both.
Segmentation Strategy For A Product's Customer Journey
Let’s demonstrate how to develop the segmentation strategy for the customer journey of a product.
Segment 1 – Newbies
The users (in this segment) have signed up for your product yesterday, and have been using your product for no more than 1-2 times.
These users may know what your product can do for them, but still haven’t explore many features. They need an introduction guidance to take them through many important features of your product.
Create a segment for these new users, and provide them with product introduction tours. During user onboarding, track their progress to ensure they’re adopting the product features.
Segment 2 – Completed Free Trial
In this segment, the users have been using your product on a free trial basis, and are approaching the end of the trial period. They mostly have potential to become paid users (of your product). Before paying to use your product, these users need to decide whether they forget about your product, or they should continue but with the paid user option.
Your next immediate step is to persuade the users with a smooth transition to the paid user option. You can send them reminder to continue with a special offer.
Segment 3 – New Paid Users
The users in this segment have recently upgraded to become paid users of your product.
The features available for free trial users and fully paid users may be different. Make the most of out this opportunity to build a more solid credibility of your product (and your service).
Create a introduction guide to show these users the new features that are only available to the paid users. Follow this by providing step-by-step guides for each of the “paid” features.
Segment 4 – Milestones
Create a milestone system for this user segment. For users who have made much more progress with your product (such as completing a few tasks with the paid features), you should show them the milestones that they have come through.
For those features that the users haven’t spend time using, reveal them to the users. Now they know what features are waiting for them to explore.
Segment 5 – Inactive Users
In this segment, users are those who have been inactive for a certain period of time. Start reminding them with:
“You haven’t done task XYZ for more than a month.”
They may have different reasons for being inactive. Some may have completely forgotten your product. Some may not have found time to use your product. Some have struggled when using one of the features, and have mistakenly believe the product is too difficult to use.