A Guide to Market Segmentation

Times have changed, and so has the way business is conducted. Earlier, entrepreneurs would bank on their experience, intuition, and even charm to attract and retain customers. Today, businesses heavily rely on a systematic approach to understanding their customer base. The concept of market segmentation has existed for a long time and has proved to be as effective as it was.

Let us divide the term ‘market segmentation’ to better understand it. ‘Market indicates a business’s prospective target audience, which includes both its existing and potential customers.

Segmentation is to divide and group the customer base based on several aspects such as basic demographics (age, gender, location, etc.), preferences, needs, interests, and other criteria like spending capacity, social conformity, etc.

Have you ever looked at an advertisement and felt this product was made just for you? Whether the product is an acne-reducing cream or a detergent that whitens, companies use market segmentation to understand the pain areas of a certain group of consumers. This helps in connecting better with the consumers, enhancing engagement, and increasing conversion rates.

When the company’s marketing approach is focused and targeted, it is more likely to engage with the customer, making the process more efficient and effective.

It is also easy to identify the most receptive audience for a product, resulting in a higher Return on Investment (ROI). Such targeted marketing campaigns save time, money, and resources for the company.

Market segmentation has several stages:

• Setting data points for analysis regarding the company’s offerings
• Conducting surveys and analysing recorded data
• Inferring insights into customer needs and preferences
• Creating catchy, relevant, and compelling marketing strategies and advertisements
• Engaging further with potential consumer base for brand recall and driving sales
• Adapting to customer needs and preferences by realigning or tweaking offerings

The process of market segmentation is a simple one if done diligently and with attention to detail. Data can be gathered directly from the consumers through surveys or resellers. E-commerce also has a lot of visibility of their consumers.

The common data points that are gathered across industries are:

• Consumer demographics (age, gender, income, etc.)
• Geographic segmentation (location, urban/rural living)
• Psychographic segmentation (lifestyle, priorities, values) and
• Behavioural segmentation (purchasing behaviour, brand loyalty)

Since each data point captures a different aspect of a consumer, several categories can be created through permutation and combination. This can be done manually or automated through Customer Relationship Management software. Many automated systems offer analysed data as a report or graph.

The benefits of market segmentation have far-reaching effects on the company. It helps a business in many ways, such as:

• Know if its products and services are welcome or desired
• Understand if its products and services need realignment or revamping
• Catch the attention of a potential customer base
• Create effective and focused marketing and advertising campaigns
• Improve brand image, recall, and loyalty

All these activities help the business save money, time, and resources and maximise the outcome of its marketing campaigns.

Effective market segmentation helps in better brand positioning. Products or services are mostly aimed to fulfil a need or solve a problem. When a business offers a solution through relevant and appealing value propositions, it is able to achieve higher conversion rates. This, in turn, fosters customer loyalty and long-term relationships.

Marketing and sales teams try very hard to reach out to audiences and are often burdened by the pressures of target achievement. One of the benefits of market segmentation is that it helps these teams by prudently allocating resources to engage with the right audience. This also ensures higher conversion rates, thereby maximising ROI.

Market segmentation is all about data. When this data is analysed, and insights are drawn from them, this knowledge is powerful. These insights help businesses make informed data-driven decisions and create strategic business plans that not only align with market demands but also drive sustainable growth.

The power of data can never be underrated. Market segmentation has been used for a long time to tap into a potential market base. Today, the use of automated tools for market segmentation makes data analysis easy and offers marketing insights with a mouse click.

These insights can be used for brand repositioning, innovation, product diversification, customer engagement, building brand loyalty, forecasting consumer demands, analysing buying patterns, and eventually building a strong brand reputation.

All in all, market segmentation is necessary for both existing businesses and new businesses to survive in the competitive world.