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What are the benefits of customer segmentation?

May 4, 2021.
Yellow lemon segments on a pink background

Segmentation is a way to focus your resources to target a specific group of people. The people who read your newsletters or buy your products are likely to all have different needs and interests. Segmenting your audience can save your business time and money by allowing you to target the right people with the right content, and demonstrate to your audience that you view them as individuals with distinctive needs. This pays dividends when it comes to customer loyalty and engagement. For example, in HubSpot's 2020 State of Marketing Report, findings showed that almost 30% of marketers surveyed use audience segmentation tactics to improve email engagement. Find out the definition of segmentation and how it can help your business's marketing strategy below.

What is segmentation?

The cornerstone of any marketing strategy, segmentation is all about dividing up your audience or market into specific groups that are defined by characteristics. These characteristics can be anything from location, age, spending habits, education, or even lifestyle. Targeting the relevant customers helps you avoid wasting your resources rather than trying to appeal to those who wouldn’t be interested from the outset. Essentially, creating clusters of customers sharing the same needs or behaviours creates useful distinctions within a market, allowing businesses to focus their efforts on their most compatible audiences. Note that although your customers have different characteristics, this does not necessarily mean that they form their own market segment. For example, if your business is a law firm, you would not need to market your services differently to clients who are female versus clients who are male.

What is the difference between a segment and a market?

It is important to understand that segments and markets are not the same thing. A market is simply the group of people you are selling to - this could be an industry, or a geographic area, for example. If you owned a tapas restaurant in a bustling city centre, your market would be fans of Spanish food, or people who are looking for a meal out in that particular city or the surrounding area. A market segment, on the other hand, is located within your market. Using the example of a tapas restaurant, your segments could include students who use your takeaway delivery service, and large groups who take advantage of the sharing menu.

Statistics from Semrush to demonstrate the value of customer segmentation for businesses
Statistics from Semrush to demonstrate the value of customer segmentation for businesses

What are the benefits of customer segmentation?

As mentioned, you can save on resources, advertising spending, and time by focusing on the most suitable audience. For example, the dog online subscription box service Barkbox gives customers and potential subscribers the option to select which sized dog they have in order to receive tailored products and information. It is a quick and straightforward way to segment the audience into three categories.

Segmentation provides advantages throughout the marketing strategy. Here are some of the key benefits of persona segmentation:

  • Determining market opportunities - Allows the study of each segment, taking into account current offerings by competitors. Segments with low levels of satisfaction present great opportunities to improve.
  • Adjustments in marketing appeals - Allows you to create separate marketing programs designed to satisfy the needs of different customers, instead of one program aimed at all potential buyers. This can be done by making adjustments to products and other appeals.
  • Developing marketing programs - Programs and budgets are based on a clearer idea of the response characteristics of specific segments.
  • Product design - Helps in designing products that really match the demands of the target audience. Products with high market potential are more specified towards the needs of the target audience.
  • Media selection - Advertising media and its funding can be implemented more intelligently. 
  • Efficient use of resources and time - Being the ‘master of some’ as opposed to ‘master of all’ can make more efficient use of the marketing resources. This helps in setting the timings and placements of promotional efforts so more emphasis is placed on where and when it will have its biggest impact.
  • Better customer satisfaction - When concentrating on a specific area of the market, you are paying more attention to the needs of a smaller group of customers. Therefore increasing the likelihood of satisfying said group and increasing customer retention.
  • Enables the fixing of prices - Since different market segments have different price perceptions, it is necessary to adopt different pricing strategies for the markets. For example, the prices for lower-income groups have to be lower and the product ad promotional efforts can be adjusted accordingly.
  • Assists in distribution strategy - Different segments may require a different distribution mix. If the product is of premium quality at a high price point, then the emphasis should be placed on distributing to luxury retailers where customers with more disposable income may be more likely to make a purchase.

How to segment your audience

1. Identify your audience - Firstly, you need to consider your audience. Are you targeting a consumer or business-based market? Outline the potential audiences you encounter on a regular basis. This action of splitting your audience into smaller pieces is the core process of segmentation. The most challenging task comes first, determining how to segment your audience. Fortunately, these days we have more accessible data to form a basis for how to move forward rather than just by location, age, or gender.

A good starting point is for you to look at your customer database, if you have one or look at what types of people are engaging with you on social media. Alternatively, look at who has been calling you and what services they are looking for? Who do you see walking into your business? All of these offer a starting point for you to think about and begin to explore. This can help you determine what types of groups your market is constructed from, and then what their interests and lifestyles are like.

2. See if the characteristics meet the basics - The next thing to do is see if the segments are going to be suitable for their purpose. To do this, you should consider the following:

  • Do the individuals in the same group share the same needs from your business?
  • Are the groups different from each other? 
  • Are there enough people in each group?
  • Are the groups easy to be reached?

With your audience firmly in mind, consider how you would split up each segment. As a framework, you should identify their key characteristics, what your archetypes need to know, what you need to tell them, the key search terms they may be using, and what types of content they engage with regularly.

3. Know your audiences - If you have established the foundations for your segments, you may wish to follow up with market research to effectively understand the groups. Methods such as polls, focus groups or surveys will help you directly identify the audience’s needs and behaviour. Often best conducted with key stakeholders within your organisation, this ensures all bases are covered and there is as much input as possible from those who relate best to your program.

4. Test the strategy - decide whether the segments work for the needs of your business and make sure they are useful to you - do they encompass your core audiences? If the segments are not reflective of your audience, their behaviours, or their expectations from you, then you can revisit or refine them until they do. Once you have got some groundwork, you will need to test your strategy to determine whether the segmentation has been effective. You should allow sufficient time before deciding whether the segments have been successful or not, depending on your business. If you are disappointed by the outcome, you should undertake market research or take another look at how to segment your groups.

In essence, define the market, create persona segments, see who fits into those segments, and evaluate the viability of those segments. Once effective segments have been identified, the decision can be made on how best to position the proposed strategy and develop tactics which exceed the cost of action.

Summary

In conclusion, segmentation is an indispensable part of a market strategy. It is an excellent way for a business to discover who their audience is and identify the ways in which to make the most efficient and effective use of their marketing resources. Segmentation is a way to target your time, resources, and spending towards a specific demographic who you feel will benefit the most from specific campaigns, products or services. It is also a way to tailor the marketing of these services, products and newsletters to suit different audiences. This is important so you can reach the right groups of people with the correct content. Ultimately, you want your audience to feel that your business has their needs and expectations firmly in mind at all times.

If you are looking for some assistance with segmenting your audience, please see our Marketing Communications services or contact our customer services at customerservice@mackman.co.uk.

Paul Mackman

Paul Mackman

Managing Director

Paul is a co-founder and the Managing Director of the Mackman Group. He is a Chartered Marketer and Fellow of the Chartered Institute of Marketing (CIM). He is also a member of the CIM, Eastern Region Board and current Vice-Chair. He has broad commercial and marketing experience across sectors, including retail, hospitality, manufacturing, construction, education and professional services.

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