1. Why is market segmentation important?
Segmentation of an organization’s market is the foundation
of a successful marketing strategy. Instead of using a ‘one
size fits all’ approach to marketing campaigns, use of a
tailored marketing mix, designed to suit more individual
customer needs, should help to drive a more personalised,
relevant and a more effective marketing message which is
more efficient in terms of time, money and resources.
Organisations which understand that their customers have
individual needs, preferences and behaviours, are better
able to develop stronger relationships with customers and
therefore, importantly are more likely to retain them.
2. Market segmentation involves splitting a market into
segments and developing different strategies for
those segments.
For example:
Marketers use market segmentation in planning (for example, some soft drinks
producers manufacture some of their products specifically for the diet segment).
Media companies use segmentation as a tool to assist in efficient media buying, for
example, such as purchasing in-game ads to target teenagers or purchasing day-time
TV advertising slots to target retired people.
Insurance company call centers use segmentation to identify ways to adapt their sales
scripts to different customers, based on age, gender, interests etc.
3. Customer segmentation is the same basic idea as market
segmentation, except that the scope is limited to the
organization’s own customers. Typically, customer
segmentations are based on data held in an organization’s
own internal databases.
Customer segmentation involves breaking down an
organization’s customer markets into homogeneous groups,
each of which will react differently to pricing, promotions
and other elements of the marketing mix. Each customer
segment identified should be targeted with an individually
designed marketing mix.
4. Demographic:
Age, gender, marital status
Income
Occupation
Nationality
Ethnic group
This is normally the easiest form of segmentation, as this information is easy to gather and is
relatively inexpensive to obtain. However, it is most often used together with another type of
segmentation to help narrow the target market even further.
Behavioral
Frequency of product/service use
Brand loyalty
Transaction behavior (such as price sensitivity)
Online shopping behavior and habits
Behavioral segmentation assists organizations to understand how a customer interacts with
the product/ service, meaning that it can target them more effectively by knowing how they
are likely to react towards product/service or marketing message.
5. Geographic
Country or region
Rural or city based
Although a basic form of segmentation, it is often a highly effective form of market
segmentation. Understanding the location of a customer can help an organization understand
customers’ needs. Understanding regional differences driven by factors such as culture,
climate or language can allow for a more targeted marketing message.
Psychographic
Social status
Personality
Lifestyle
This form of segmentation focuses on the emotional or psychological behaviors of customers,
where customers are grouped according to values, personality traits, attitudes, lifestyles and
interests. This gives an organization useful insight into customers’ needs and preferences.
Organizations will often combine demographic and psychographic customer analysis when
undertaking customer segmentation, in order to develop a richer and fuller picture of their
customer segments.
6. Benefits of market segmentation
Satisfy customer needs
It is possible to satisfy a range of customer needs with a relatively limited product/service
offering, by using different incentives, promotional activities or product/service bundles. For
example, digital TV service providers offer a range of bundles and incentive plans based on
different customer usage, preferences and interests. The underlying product/ service is the
same, but its offering is adjusted to meet the needs of different customer segments. This
should help to increase focus on that customer and ensure retention.
Targeted communication
Even if an organisation’s product/ service features are identical for each segment, it still
remains important to communicate in a targeted and specific way to each. By targeting the
message, it allows the organisation to highlight the features which are most relevant or
important to each segment (such as price, reliability, availability and prestige). For example, a
car manufacturer may target one set of drivers with marketing messages relating to
performance and speed of a car model, whereas they would target another set of drivers with
marketing messages related to reliability and design of that car model.
7. Improve focus
Market segmentation helps an organisation to focus on exactly which
segments they want to target with specific products, services or
marketing campaigns. By doing so, the organisation can ensure they
are targeting the right segment with the right product or message
which will therefore enable the achievement of the greatest return on
investment.
Improve competitiveness
Market competitiveness can also be increased by focusing on specific
market segments, which again should lead to increased return on
investment. By focusing on specific segments and learning everything
they need to know about that segment means that correct targeting is
more likely and therefore customers will be more satisfied.
8. Improve marketing efficiency
By breaking down large customer groups into smaller groups makes it easier for
organisations to manage customers and their target audience and therefore can
design and tailor very specific marketing campaigns to the most relevant people,
through the most relevant marketing channels. Less time will be wasted on mass
marketing, which in most cases will be wasted on customers not interested in the
organisation’s marketing message.
Customer retention
Using customer segmentation, organisations can quickly identify those customers
which require extra attention, those that churn more frequently and those with will
a high potential value. By developing targeted marketing strategies that capture
specific customer groups attention and by creating positive experiences for each
specific group, then it is far more likely that an organisation can maintain a strong
relationship
