When marketing your product, you have to grab a consumer’s attention and make them feel that you have exactly what they want. You want to highlight the benefits that are important to them and use a language that resonates. But how do you do that when every consumer is unique, has unique needs, and is at different stages in their journey? Your answer is – Customer Segmentation.
Customer segmentation is the process of dividing an audience and/or customer base into groups of individuals that are similar in specific ways relevant to marketing. The result is your marketing no longer being one-size-fits-all and instead, becoming more targeted, relevant, and effective. It increases your chances of consumers becoming buyers, and one-time-buyers becoming loyal customers.
For any modern marketer, customer segmentation is not an option – it’s a necessity.
In the age of uber-personalization, consumers are too self-aware to take a second look at generic messages. By not segmenting your audience, you’re simply putting your product “out there” and hoping for the best. However, by ditching a “spray and pray” approach and applying data-driven segmentation you can significantly
- improve marketing effectiveness
- increase competitiveness resulting in increased sales and revenue
- expand your customer base strategically
- increase customer retention by staying relevant and connected to your customers even after a sale
There are many good things that can come from segmenting your audience. But, good segmentation needs good data.
Good data determines your segmentation success
How you segment customers is largely subjective to your business interests – We’ll explore different methods later in this article. But, ultimately, the secret to successful segmentation tends to come down to having good data. If your data is uninteresting, your segmentation will be uninteresting.
Data accuracy is everything for modern marketers – but it’s not easy to come by. It continues to be an enormous challenge for segmentation and targeted communication. Marketing to people with inaccurate data can result in wasted marketing dollars, loss of market share, and lack of brand awareness because your message doesn’t stick in a competitive market.
As a marketer, there’s nothing more frustrating than spending time, budget, and creativity on messages, designs, and campaign no one is interested in.
A conversational marketing platform can help you gather reliable data and insights, identify patterns and buyer personas, and uncover new audiences that can be used to create segments. You’ll gain a much better understanding of what your audience wants and can fine-tune your product and messaging specific to their needs, making them feel as if you’ve created it just for them. This translates to more personalized and contextually relevant campaigns that deliver a strong ROI.
Let’s take a closer look at how you can go about creating these segments.
Level 1: Geographic Segmentation
Most businesses have a strong geographic element, as in they cater to a specific geographical area, such as city, county, state, region (e.g. East Coast), country, or international region (e.g. Asia), climate, and population type and density (urban, suburban, rural).
How you’d market to people from New York could be distinctly different from how you market to people in Texas. By using geographic segmentation, you can specifically target consumers based on their contrasting region-specific needs, wants, and cultural characteristics.
For example, Mc Donald’s advertises different menus in the countries they expand. Not considering cultural nuances in different regions would lead to irrelevant, unnecessary messages and products that could lead to a decreasing market share.
It’s relatively easy to break your market down to geographic segments and it’s an effective approach if you address large national or international markets. Even for small businesses with a limited budget, geographical segmentation can help spend marketing dollars in a more effective way.
Level 2: Demographic Segmentation
Also fairly easy to implement, demographic segmentation assumes that people with similar demographics have similar purchasing patterns or interests. This can involve several characteristics such as age, gender, ethnicity, income, education, and occupation.
For example, hair salons could use different imagery for Caucasians and Hispanics. High-end brands may choose to market to a demographic consisting of people with household income > $100,000. Gyms could market to young people emphasizing long opening hours, and when marketing to older customers, emphasize the benefit of staying young and fit.
After Puma has seen that the female market has been growing, the brand strengthened its strategic focus on women. It signed up brand ambassadors like Rihanna, Cara Delevingne, and Kylie Jenner to appeal to this demographic in its “Do you” campaign, resulting in a 2-digit sales jump.
Level 3: Psychographic Segmentation
Psychographic segmentation is a little more difficult to nail but can be quite the winner if you can indeed figure it out. It enables you to more precisely target and retarget consumers based on their personality, traits, values, attitudes, interests, and lifestyles.
This approach is extremely powerful and has become a go-to approach for top marketers that want to increase average order value and retention rate, lifetime value, and loyalty. Simply put, psychographic segmentation can help increase marketing ROI due to more effective marketing campaigns and messaging that ultimately inspire action.
Samsung, the South Korean conglomerate with a deep product portfolio spanning mobile devices, refrigerators, washing machines, smart home products and TVs, does a stellar job communicating its competitive advantages by addressing consumer pain points in a brand philosophy video clip.
Psychographic segmentation enables you to uncover and truly understanding what your target audience wants and what makes them buy to craft messages that stick.
Performing psychographic segmentation enables you to build buyer personas and gain insights into buyers’ decisions such as attitudes, concerns, and criteria that go into making a purchase. The key is asking the right questions to learn what your customers like and lots of other information that can later be used to segment your audience.
So, these are the three most common segmentation approaches that can act as a starting point, after which you can very well set your own criteria.
- Do adequate research to identify your target audience and understand the different subgroups within your target audience.
- Understand their unique preferences, their needs, and priorities as well as what makes them click. Use this data to divide them into segments that you can market to individually.
- Create a persona for each segment and carefully document the needs, preferences, and priorities of each segment.
The entire process is more intuitive than theoretic.
Here are some segmentation best practices that will help you maximize the effect of your strategy and avoid the most common segmentation traps:
Tips for successful segmentation
Don’t be too broad
Simplistic segments like ‘18-35-year-old male’ are far too broad to make up a meaningful segment. Your segments need to be a little more specific, usually combining elements from two or more of the above categories of geographic, demographic, and psychographic. You’re better off creating segments like ‘24-35-year-old male on the east coast interested in tech gadgets.
Develop segments with the customer journey in mind
There is a certain language you’d use for attracting new customers, a different tone for appreciating and encouraging existing customers, and a whole other approach to reward and thank longtime customers. You should also have a strategy for re-engaging lapsed customers or those who have stopped doing business with you. So, the customer journey can be a very crucial factor when creating customer segments.
Observe dynamic segmentation as opposed to frozen state segmentation
Segments can’t just be left rigid and frozen once created. With time, everything from your customer’s age to jobs, income, location, and interests will change. For a business that’s here for the long game, you’ll want to meet your customers’ needs dynamically.
Truly differentiate, don’t just change the verbiage
Market segmentation is more than just changing a few words in your messages. Everything from the chosen products you promote, the unique value proposition you communicate, the customer benefits you highlight to the brand messaging you deploy to package it all, everything needs to be customized to each segment.
When personalizing for thousands, perhaps millions of customers sounds like a long shot, customer segmentation comes to the rescue. Do your homework and really nail your market research. Find out who your target customers are, what segments they fall into, what products they like, how and where they like to buy them and what kind of messaging is most likely to make them say, “Yes, that’s what I need right now”.
That’s the kind of marketing that will not only bring in a higher ROI but also helps forge long-term relationships.