What is Market Segmentation - Benefits & Examples

Market Segmentation allows you to send the right message to the right people at the perfect time. Here is how it works:

What is Market Segmentation?

Marketing segmentation is a term referring to the process where a brand divides its total addressable market into smaller groups or segments based on similar characteristics. It can help you target the perfect audience and save wasted advertising dollars.

• Market segmentation allows you to tailor your products/messaging to a specific group of consumers

• There are many benefits to market segmentation including an increase in profits by about 10% according to research done by Bain & Company

• Marketing segmentation also lets us learn more about each segment and discover new opportunities for product development

Market Segment Characteristics:

1. Homogeneity: the customers in each customer segment have needs in common

2. Distinctiveness: each customer segment is different than another in at least one way

3. Reaction: ideally, the customers grouped into each segment will respond similarly to the messaging/advertising they receive

Definitions:

Total Addressable Market

A total addressable market (TAM) is a monetary value calculated by multiplying the average revenue * the number of customers for the entire segment of your target market. It helps determine the revenue opportunity for your business.

Benefits of Market Segmentation

There are many benefits to market segmentation including (but not limited to) those below:

1. Increased Profits: different customers have different amounts that they are willing to spend on your product, so segmentation can allow you to cater to multiple price points and therefore increase sales

2. Relatability - rather than having to speak broadly to your entire audience, you can speak directly to specific groups and relate to them on a more meaningful level.

3. Understanding: because you are able to "narrow down" who you are speaking to, you can collect more information and have a better understanding of the kind of communication/solutions they are responsive to

4. Brand Loyalty: when customers feel understood, or feel that a brand is truly authentic they are more likely to remain loyal to you. According to Business Wire, 64% of customers would prefer to purchase a product from a brand that understands them.

5. Decreasing costs: because you are not spending money targeting every person possible, you will save money by targeting

Types of Market Segmentation

You can create your segments however you would like, but these are the most common ways businesses tend to divide their customers:

1. Demographic Segmentation: This segmentation type is most common, and the most basic. It works by grouping your customers into segments based on things like age, ethnicity, income, job title, education level, martial status, number of children etc. Firmographic: This same demographic segmentation concept can be applied to organizations and is called firmographic segmentation. It essentially looks at things like number of employees, number of sales, number of locations etc.

2. Geographic Segmentation: This is when you group potential customers based on the physical location they are in. You can do this by country, state, province, zip code etc. These work best when you have a physical location or an offering a specific geographic location can take advantage of.

3. Behavioral Segmentation: Dividing up your customers based on their behaviors (spending habits, click rates etc.) can be a little more challenging, but you will develop a deeper understanding of your customers journey and buying cycle.

4. Psychographic Segmentation: Psychographic segmentation classifies consumers based on things like personality traits, opinions, and interests. This is the most difficult kind of segmentation to achieve, because it can change easily, or there may not be enough information available to make decisions.

How to Segment Your Market

1. Define your target market - Who needs your product/service? Is there a market for it? Where? How do you compare to others in your industry?

2. Segment - How do you want to segment demographic? Psychographic? what combination works best for what you need?

3. Understand your market - Find out more information. Send out surveys, conduct a focus group etc.

4. Create customer segments - What does your research say? How should you segment, and what is most important for you to focus on first?

5. Test - Analyze your data, are the segments you created working for you? Should you make changes?

Conclusion

Market segmentation can help you determine the best strategies for you to increase your profits, but unfortunately there is no single formula for me to give you to help you segment. However, through research, and testing you can gain a better understanding of what will work for you. If you need help with this, or would like other marketing advice email simplyaskloren@gmail.com I'd be happy to help!