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To compete in today’s hyper-competitive digital environment, you must create the experiences, communications, advertisements, and products that resonate with your customers—so how do you develop the customer focus needed to win?
Since customers are not homogeneous in their needs, attitudes, criteria for brand choice, or responsiveness to different communication approaches, it can be extremely challenging for a company to prioritize strategies and initiatives. Market segmentation offers one of the most effective techniques of “bringing order to chaos” to initiate the plans that will provide the most leverage for a company trying to become more customer-centric and improve customer satisfaction.
To do this right requires a sound market segmentation strategy—essentially how you’ll use customer data to define key groups (or buyer personas) so your brand can serve its target audience better.
Benefits of Market Segmentation
Whether your business goal is achieving more relevance in your marketing efforts, creating better products, or driving innovation, customer service transformation, or digital activation, you’ve got to focus your energy, creativity, and resources on your greatest opportunity with the right customers—or the customer segments that drive growth. “Unless you can dominate your category, you need to pick a lane and stick to it,” says Hilary DeCamp, Chief Methodologist, Material.
An effective segmentation study helps you identify the most valuable groups of customers and prospects, prioritized by their receptivity to your brand’s offering, their accessibility in the market, alignment with your strategy and brand purpose, and the size of their economic opportunity. It “helps focus your marketing and product development efforts against a portion of the market where you have a greater chance of succeeding, rather than trying to be all things to all people,” says DeCamp.
A segmentation’s lifespan is normally about five years, but that length of time can be shortened if there is disruptive change within the category or the company itself. If the rules governing a category—or a company’s approach to its competitors—change drastically, then it’s probably time to refresh or entirely replace an outdated segmentation, since it will no longer meet your business needs, such as developing a successful customer-driven marketing strategy or increasing customer loyalty.
The Market Segmentation Process
Before launching a segmentation study, your internal stakeholders—like your sales team, support team, and marketing team—must collectively determine what kinds of decisions you plan to make as a result of your market research:
- Will you adapt your ad strategy or rebalance your marketing plan? What about your marketing approach? Will you adjust your content marketing or digital marketing efforts?
- Are you looking to maximize the reach and minimize the amount of internal competition within your brand portfolio?
- Maybe you’ll prioritize a product line extension to capture an emerging group of high-quality potential customers or new customers—customer acquisition might be the goal.
Further still, there may be implications for your value proposition, competitive advantage, and differentiators in your target market.
Whatever the case, you need to decide whether you’ll segment the market by attitudes, needs, behaviors, or occasions. These are the main types of market segmentations. Person-based segmentations often leverage demographics and psychographics to define individual groups. Person-based segmentations can include the following:
Attitude segmentation involves grouping audiences into target groups based on specific attitudes held. Different attitudes may result in the same behavior, so it’s important to understand the emotional and attitudinal reasons behind behaviors to inspire loyal customers.
Behavior segmentation involves segmenting people into groups who have similar behavioral patterns. This can allow you to understand the reasons behind behaviors and provide incentives for increasing spend from your ideal customer.
Needs segmentation involves dividing the market by specific needs, which allows insight into the emotional and functional benefits of a product to an individual. This assures you can continue to meet customer needs and customer expectations to provide a positive experience for your best customer.
Occasion segmentation involves organizing your market based on events during a particular time—that is, the time or event when a person is in need of a product or service. Understanding the occasions for purchases allows you to leverage the context of a decision and how your product or service has become an integral part of that journey.
Each of these segmentation study types maintains several common stages. In the ramp-up phase, it’s important to consider some initial qualitative research to hypothesize different segments that might exist, and to ensure that you have all of the right inputs (and consumer-facing language) for the survey questionnaire, which will form the foundation of your study. In addition to using more traditional types of qualitative research methods, tapping into blogs, social media, and other online customer feedback sources can provide valuable insights into your customer base.
As you write the questionnaire—which must be shorter than ever and mobile-compatible—begin with the end in mind and consider again what decisions you plan to enable. Both survey development and segmentation analysis phases are iterative processes that can take several weeks, and plan on a collaborative process to align on the best segments for your particular needs. Note that there is no data-driven way to determine the “correct” number of segments to support a business strategy; DeCamp says most clients choose 5-7 segments, “since they provide enough granularity to be actionable, while being few enough to “keep straight” and yield a large enough target to meet revenue goals.
The output stage involves the delivery of deep segmentation profiling that combines visuals, descriptions, and key facts and figures. These profiles are the meat of your deliverable and will provide you with a wealth of knowledge to inform your marketing, communications, and innovation strategy.
Segments need to be able to drive your business for years to come, so they must be easily reproducible in future research. That’s why you need an efficient typing tool (an abbreviated set of questions from your larger initial survey) that enables you to quickly and easily categorize prospects or clients into their appropriate segment. This critical tool allows you to more easily recruit or classify key segment members for future research studies, message tests, innovation activities, brand tracking, and more.
Takeaways: Activating Your Customer Segmentation Study
Even the most sophisticated segmentation study is doomed to sit on the shelf without a plan to activate it. At its most basic level, actionability has always relied on good data and smart survey design (garbage in, garbage out).
The next step: socializing your new segments within your organization to create understanding and empathy for the consumer through personas, brand books, and immersive experiences like Actionability Workshops designed to facilitate action planning for stakeholders.
Increasingly, however, segmentation activation has expanded to include activation through CRM, database scoring, and digital ad targeting, all of which create a more direct-line marketing impact on the business. There’s no doubt that extrapolating your segments to the entire digital world can be a game-changer for brands committed to programmatic and other advertising programs.
You’ve got competing priorities and strategies, and having a time-tested approach for understanding your target customers helps you set priorities, maximize ROI, inspire brand loyalty, build trust, and grow your business.
Whether it’s marketing communications, customer service transformation, product development, or digital activation, a well-designed market segmentation study will become a tool you rely on for a wide variety of customer-centric marketing decisions for years to come. The effort is worth the results in customer engagement, customer retention, and customer value.
Learn more about our approach to market segmentation, and when you’re ready to partner, contact Material by filling out this form.