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Market Segmentation Explained – How To Use Segmentation For Maximum ROI

What Is Market Segmentation?

When you are running a business, you need to keep leads organized in different categories in order to effectively market your products to new customers. Before you started your business, you likely made a business plan that addressed which types of customers should be the audience for your products or services. While it’s not possible to predict the segmentation of every consumer that will desire your products, your business plan should address ways to reach your key customers. Utilizing principles behind market segmentation doesn’t end when your business opens its doors; segmentation is something that every business must revisit in order to remain successful.

The purpose of market segmentation is to allow business owners to customize their products, branding, and marketing messages to better suit intended customers. Typically, market segmentation is broken down into three or four categories. There are 3 main categories of segmentation, these are geographic segmentation, demographic segmentation, and behavioral segmentation. The fourth category that’s recommended by many marketing experts is called psychographic segmentation. Mastering each category is vital to appealing to new customers, but some marketing professionals might recommend concentrating on the particular segmentation type that impacts your business the most.

To give business owners a better understanding of these important marketing concepts, this guide will discuss the key parts of segmentation data, the types of segmentation, common mistakes of segmentation, and how to implement your own marketing segmentation strategies.

Key Parts of Good Market Segment Data

Understanding the key parts of a good market segmentation will prompt your team to uncover hidden areas of potential to find customers. Areas to analyze include branding for customer retention to maintain loyalty, focusing marketing efforts on segments of consumers that are most profitable to create the largest return on investments, and effectively creating advertising campaigns to reach out to the appropriate segments of consumers. Running marketing strategies without analyzing segmentation data is a risk that many companies take; this risk is avoided when companies make time to create a plan to reach the consumers that offer the most return on marketing investments.

In order to properly analyze your company’s current marketing segmentation, you’ll need to compile this data in a spreadsheet or similar form. The data should be presented to your marketing department before proceeding with your next marketing strategies. This type of segmentation evaluation should be done at least once each quarter to make the best use of funds that have been allocated for marketing and promotions. In addition to winning the approval of customers, analyzing marketing data will appeal to investors that might have reservations about the use of company funds.

Types of Segmentation

The four types of market segmentation include geographic segmentation, demographic segmentation, psychographic segmentation, and behavioral segmentation. Each type has its own unique properties that help define entire groups of consumers. These four types of segmentation must be dealt with separately in order to capitalize on connecting to consumers that have different ways of living. When you revisit your marketing plan, you’ll need to make sure that each of your marketing strategies are directed towards a specific segment of the population. Even if you’re running a large business that deals with massive amounts of customers, you’ll need to make sure that customers have a specific idea of what your brand has to offer.

Knowing that there are different types of consumers to market to within your industry shouldn’t be alarming information. Pay attention to how your business already makes use of reaching out to these four segments. Even if you haven’t already utilized complex segmentation types in your marketing plan, you’ll have the opportunity to revisit your webpages and other marketing content to make changes to the way that your brand is represented. Some companies use multiple products to market to different customers in the same segment in order to increase sales, so there’s room to be creative in your marketing strategies in order to appeal to more consumers than you’re already addressing.

There are three criteria that define each type of market segmentation. The three items of criteria are homogeneity, uniqueness, and response. Look for segments of your customer database that need the same thing from your company, which makes them homogeneous. Additionally, you need to identify segments that are unlike any other groups of consumers. Lastly, it’s vital that you take note of the similarities in the way that groups of customers respond to marketing, advertising, and promotions.

Geographic Segmentation

There are several reasons to include geographic segmentation in your marketing plan. The first reason is that there are language barriers for people in distant parts of the world, so your product might not appeal to people that don’t understand the language used on packaging, in website design, and through marketing. In order to appeal to customers in remote parts of the world, you’ll need to make sure that you have product labels with the correct information that appears in the common language (i.e. the language that’s predominantly used in each geographic location). This doesn’t mean that you need to stop selling your products to consumers that don’t fit your current geographic identifiers. This process may be simplified by getting the help of marketing professionals and language experts.

The second reason to consider geographic segmentation as part of your marketing plan is because it’s a good search engine optimization (SEO) practice. In order to pull in new customers from all around the world to your company’s website, you’ll need to utilize something called location-based keywords. These are specific keywords that include the names of cities, states, and other geographic identifiers. Good SEO practices are vital to operating a company that sells products and services through any means of digital marketing. The age of high-speed internet has broadened the marketplace for businesses to sell to parts of the world that were off limits to many businesses in the past.

Demographic Segmentation

Before launching a marketing strategy that focuses on a particular demographic, it’s important that you understand the risks associated with brazenly targeting demographics of customers. It’s better to simply let demographic segmentation influence your marketing strategies. While being aware of the race, gender, hair color, eye color, ethnicity, and age of customers, your marketing team will be able to create content that adds to the conversations that these particular consumers are currently having.

According to CMS Wire, this type of marketing segmentation requires a delicate sensibility. There’s a good chance that your marketing materials could offend someone from within the demographic that you seek to impress. For example, advertisements mocking the ideals contained within certain demographics could be mislabeled as insensitive. CMS Wire also claims that some companies could encounter legal issues by utilizing strict demographic marketing techniques, so be sure to tread lightly when you organize marketing strategies around specific demographics of customers. It’s better to show people that your company supports people of all backgrounds instead of singling out one particular demographic as your sole type of customer.

Psychographic Segmentation

You might think that you’ve analyzed your customers enough already because you know which types of people are buying your products based on their demographic information and geographic location, but psychographic segmentation must be taken into account to have a well-rounded view of each customer that could potentially purchase from your company. People are more complex than what their demographic and geographic identifiers may say about them; people have opinions, ideas, hobbies, and other aspects of their lives that you may not have considered. Taking time to listen to what your customers enjoy about their lives will put you in touch with the people that your company intends to serve, and it will refine your marketing strategies.

Fortunately, your products and services are used by active people that lead full lives, so you there’s likely a way to appeal to these desires by reenforcing their habits. If you try to remove a customer from their way of life, they could resent your brand for being too pushy. Identifying psychographic segmentation will help your marketing team learn about the human beings that are able to find your company’s products through organic searches. The process of finding your company starts with the consumer needing to fill an empty void in life by typing their needs into a search engine. Your company stands to gain profits by answering their inquiries.

Behavioral Segmentation

The behaviors that consumers take within retail engagements are strong indicators of their suitability among your customer base. Since every business must make a profit to survive in their industry, the behavior that your company is most likely trying to focus upon is their choice to purchase. The behavior to buy products can be broken down further to better understand what types of buying behaviors will benefit your company. The perfect consumer visits your site, following links from organic web searches, and they end up buying your products on their first visit. However, this isn’t the case for every consumer.

Your marketing department should be analyzing the behaviors of consumers by visiting competitors’ sites, and they should be analyzing the abandoned shopping carts that don’t turn into conversions as well. To make the best use out of behavioral segmentation, you’ll need to figure out why those potential customers prefer to do business with your competitors instead of your company. Does your brand’s appearance to consumers cause a certain type of buyer to dismiss your company? An easy solution for this is to make similar products with branding and messages that appeal to other types of consumers.

Other items for behavioral segmentation include social media influence, click-through-rates, and targeting consumer behavior through email marketing. When you consider the lifestyle of the customer that your are trying to reach, you will have a better idea of how to manipulate the way in which your ideal customer behaves.

Common Mistakes Marketers Make With Segmentation

Mistake #1: Oversimplification

When you create a segmented group of customers, you should consider the unique qualities that will bring these people to your company. If you try to oversimplify the audience to which your brand intends to appeal, you will run the risk of using vague, ineffective marketing strategies. Vague strategies use simple keywords that are highly competitive in each industry, which makes it difficult to attract potential buyers through internet searches.

Mistake #2: Failure to Act

Once you understand which segments of customers your brand should be targeting, it’s important that your brand takes measures into its own hands. You need to work on tailoring your products and brand image to meet the expectations of the desired group of customers. In order to help facilitate this process, many business leaders choose to bring in a third-party marketing company.

How to Implement Your Own Market Segmentation Strategy

Step 1: Research Market Segments

In order to evaluate which segments of the market will be most profitable for your business, you need to have a clear understanding of how each segment operates. Take time to look through what your competitors offer to see how they are marketing to various segments of customers.

Step 2: Decide Which Segments Are Most Profitable

With every new marketing strategy, the first question you ask should be about whether it will bring in a high return for your company. Focus on the segments of customers that will yield the most profits.

Step 3: Analyze Data on Profitable Segments

The last step before launching a marketing program for a particular segment of the market involves analyzing data from your previous sales and industry resources. You’ll have a better idea of how to sell to the profitable segment of consumers, and your promotions will be better informed as well.