Strategy

Market segmentation: Everything you need to know to attract and retain more clients

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Unless you’re operating in the most niche of niches, chances are there’s a lot of potential customers out there for your products and services. But everyone is different, and there’s no one message that can target them all. This is where market segmentation comes in to save the day.

Marketing segmentation is one of the most effective elements of any strategy. It’s a process that can help you understand your audience in detail, find out all of their buttons – and push them!

In this article, we’re going to discuss everything you need to know about market segmentation. Let’s dive in, shall we?

What is market segmentation?

In short, market segmentation is a method of assembling potential B2B clients into smaller groups (segments) that share similar interests and needs.

While the individuals themselves will all still be different to each other within each segment, generally you can guess that people in a group have the same kinds of needs. Because of this, they probably behave in a similar fashion, too.

From a marketing perspective, this is gold – being able to categorise people into segments means we can use different approaches to appeal to different groups of people. This is the beginning of personalisation, where we target the right people at the right time with the right message, based on their segment.

A person hand putting the final square piece shaping an image of market segmentation

If we were to send impersonal, broad messages instead – that old fashioned ‘one-size-fits-all’ approach – these days, we probably wouldn’t get very far. It’s a war for attention out there, and segmentation can help you study your clients’ requirements and behaviours thoroughly to cut through that noise.

Digging deeper: Reasons to segment your clients

1. Become more relevant

Your clients’ inboxes and social feeds are already full. If you’re going to make any headway attracting attention, your message has to be perfect.

Knowing the needs and wants, as well as challenges and behaviours, of customer segments allows you to cater for those needs specifically and craft content that is perfectly tailored to your audience’s interests.

This is the same difference as talking to someone at a party about the weather, and talking to them about their passions and hobbies. You can guess which of those will be more engaging.

2. Drive marketing results

It’s a simple formula: More relevancy equals more interest, leading to more people generally performing the actions you want them to. Salespeople have known this for years – understanding a sales prospect’s interests helps you gear a sales pitch to them. Now, with market segmentation, marketers can not only do the same thing, but do it at scale.

This improvement in relevancy will almost always lead to better marketing results.

3. Improve advertising ROI

With your marketing message going out at the right time, to the right people, in the right place, there’s huge potential for your advertising return.

Thanks to market segmentation, you’re ensuring that none of your actions end up giving a mediocre or futile outcome. This should help build your reputation, create promoters among your audience (which could build some positive word of mouth), and deliver good customer experiences – all leading to better advertising ROI.

Types of market segmentation

Audience groups can be segmented in a few different ways, and you must choose the most suitable ones according to their (and your) needs. So, what are your options?

A business man put the stickers on the board to figure out the types of market segmentation

There are four main segmentation types, which are:

  • Demographic segmentation
  • Psychographic segmentation
  • Geographic segmentation
  • Behavioural segmentation

Then, for a B2B audience, we’ve got a few more options too:

  • Firmographic segmentation
  • Value segmentation
  • Need-based segmentation

Besides these seven categories, there are even more! For example, you could also segment based on tiers, customer sophistication, and so on.

It’s OK if some of that sounds intense – let’s break down each of our seven segmentation types so you can see what they mean.

Demographic segmentation

Demographic segmentation is one of the most basic segmentations, and most common. It breaks people down based on their personal information, like:

  • Age
  • Sex
  • Marital status
  • Educational background
  • Race
  • Occupation
  • Income
  • Religion
  • Nationality

But how do you gather that information?

The best part about this segmentation is the information is quite easy to get, and cost-effective too.

There are two ways you can go about it…

  • Ask directly: Just ask! It’s the best way to get accurate information, but it can be a little time-consuming. If you choose this method, remember to be respectful and consider what words you’re using – you don’t want to seem too invasive. Ask for only the data that you need.
  • Use social media: Check out clients’ social media or online profiles to gather information. These second and third-party providers can be pretty useful for that purpose. The data here might not be as accurate or complete as asking people directly, but it’s quick to do.

When you’ve obtained the necessary information, storing it in a DMP (data management platform) will help you keep everything organised. This will also make further processes like creating personalised content easier.

Psychographic segmentation

Psychographic segmentation deals more with people’s mental or emotional characteristics. For example:

  • Personality traits
  • Beliefs
  • Interests
  • Values
  • Lifestyles
  • Attitudes

Understanding these aspects can really guide you towards generating more effective and personalised content that your clients can relate to. Indeed, if you’re not getting a full response on your demographic segments, try adding some of these psychographic traits.

It can be a bit challenging to observe someone’s psychographic traits, but the same methods for gathering demographic information work here too.

Geographic segmentation

Geographic segmentation is one of the most valuable nowadays, since most online businesses operate worldwide.

Here, you’re splitting up clients into groups depending on their location. This can give you a better understanding of their needs based on where they live, and of course you can then use that to better customise their content.

Ways to split audiences up by geography include:

  • State
  • County
  • Country
  • Postcode code
  • Area features (i.e. weather, population)
  • Development conditions (urban, suburban, rural)

There are quite a few variables at play here, so when using geographic segmentation, you’ll have to be very specific about what you’re offering to the area’s clients. You might even need to adapt your content to include different lingo, or even write in another language, to target different customers.

Behavioural segmentation

As the name suggests, behavioural segmentation studies an audience’s behaviours regarding your products and services. But what does that really mean? Well, here are some ‘behaviours’ to look at:

  • Online purchases: This tells you how someone usually deals with online shopping. Judging by their patterns, you’ll be able to figure out if they’re likely to buy from your website (and what they will want).
  • Desired advantages: These are the qualities a client is looking for in a product. It can tell you what benefit or solution they’re looking for.
  • Website actions: Tracking users’ website activity, you’ll be able to find out what attracts them and then hit them with the type of content they find engaging – and build a user experience most likely to appeal to their needs.
  • Loyalty: Clients often grow loyal to a brand after seeing specific results, or using it for a particular time. If you can identify these brand VIPs, it’s your cue to personalise the message and reward them for their loyalty.

There are several sources where you can collect this type of information. Website cookies, for example, or your CRM’s purchase data. Third-party data providers may also be able to help.

Firmographic segmentation

Firmographic segmentation is very similar to demographic segmentation. However, instead of looking at people it looks at companies that can be turned into clients.

So, the criteria here centre around the data of industry, revenue, location and employee count. For B2B businesses, you can see how this would be invaluable – which is why firmographic segmentation is used most of the time!

Value segmentation

Value segmentation does what it says on the tin – it splits up groups based on clients’ transactional worth. Basically, each person’s group depends on how much they spend on products and services.

This data can be pulled largely from your own shopping data, which can tell you who is spending what, and how much. For example, you’ll find out:

  • How much someone spends monthly, on average
  • How much they shop online
  • The number of purchases that they make

Need-based segmentation

This segmentation type, based on needs, is a popular one. Here, clients are segmented depending on what outcomes they seek from a certain service.

Because it’s all about what a client needs, you may find this is a little more subjective. Picking out markets with similar pain points is easier.

What are the benefits of market segmentation?

A business man in black suit holding a benefit of market segmentation

We’ve already touched on how market segmentation is a crucial strategy that can skyrocket conversion. So, let’s now dig into that a little deeper and see what the core benefits are from market segmentation:

1. Improved consumer insights

With good segmentation, you can understand your customers better. Segmenting customers makes you really pick up on a client’s way of looking into things, helping your company focus on how it can serve them best.

2. Product development

While your marketing team is getting to know customers better, they can pass all that good information on to R&D and product teams so they can leverage it too. With these valuable insights they can create improved features, services, or even introduce new products according to clients’ needs.

If you’re trying to stand out in a cluttered market, being able to cater specifically to people’s interests is going to be an advantage.

3. Better marketing results

By pairing these improved services with your marketing team’s tactical customer experiences, you can potentially vastly improve your service quality, eventually leading to better marketing results.

4. Win better quality prospects

If you’re targeting specific groups with improved, tailored experiences, chances are this will lead to a higher quality of prospects.

Essentially, marketing will continuously bring more and better leads.

5. Generate higher ROI

So we’ve got better services, better marketing results and a higher quality of sales prospects. What does this all lead to? ROI.

Since market segmentations allow you to access detailed data about different segments and their value to the business, you can easily use that information to shift priorities towards clients with more and higher lifetime value – ultimately landing you greater ROI.

6. Better customer retention

The other side of bringing in higher-quality prospects is that you’re bringing in people more likely to enjoy your products and services, and so come back for more later (further increasing lifetime value).

So, it’s vital that you always strive for clients who are most suitable to your business and are easier to understand, from a data perspective. That way you’ll be able to provide more for them personally and they’ll stick with you for longer. Take these 5 brands as examples.

7. Brand loyalty

Better customer retention means improving customer loyalty rates. These VIPs are incredibly important to the business, not only providing higher lifetime value but also acting as promoters – their positive experiences, feedback and reviews can bring in even more customers, as well as improve your data.

Closing thoughts

Market segmentation can bring fantastic results, boost conversion rates, fetch higher-quality leads, improve communication with clients, and better meet people’s needs through your products or services.

So, if you haven’t tried it out for your business yet – perhaps now’s the time you do.

If you need a hand getting started, get in touch with the experts at Pounce Marketing – we pride ourselves on understanding every market we work in, and would love to help you understand yours.

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