Segmentation
\Segmentation
Market segmentation is a marketing term that refers
to aggregating prospective buyers into groups or segments with common needs and
who respond similarly to a marketing action. Market segmentation enables
companies to target different categories of consumers who perceive the full
value of certain products and services differently from one another.
Market segmentation seeks to identify targeted groups
of consumers to tailor products and branding in a way that is attractive to the
group.
Markets can be segmented in several ways such as
geographically, demographically, or behaviorally.
Market segmentation helps companies minimize risk by
figuring out which products are the most likely to earn a share of a target
market and the best ways to market and deliver those products to the market.
With risk minimized and clarity about the marketing
and delivery of a product heightened, a company can then focus its resources on
efforts likely to be the most profitable.
Market segmentation can also increase a company's
demographic reach and may help the company discover products or services they
hadn't previously considered.
Demographic
Segmentation
Demographic segmentation is one of the simple,
common methods of market segmentation. It involves breaking the market into
customer demographics as age, income, gender, race, education, or occupation.
This market segmentation strategy assumes that individuals with similar
demographics will have similar needs.
Example: The market segmentation strategy for a new
video game console may reveal that most users are young males with disposable
income.
Geographic
Segmentation
Geographic segmentation is technically a subset of
demographic segmentation. This approach groups customers by physical location,
assuming that people within a given geographical area may have similar needs.
This strategy is more useful for larger companies seeking to expand into
different branches, offices, or locations.
Example: A clothing retailer may display more
raingear in their Pacific Northwest locations compared to their Southwest
locations.
Behavioural
Segmentation
Behavioural segmentation relies heavily on market
data, consumer actions, and decision-making patterns of customers. This
approach groups consumers based on how they have previously interacted with
markets and products. This approach assumes that consumers prior spending
habits are an indicator of what they may buy in the future, though spending
habits may change over time or in response to global events.
Example: Millennial consumers traditionally buy more
craft beer, while older generations are traditionally more likely to buy
national brands.
Psychographic
Segmentation
Often the most difficult market segmentation
approach, psychographic segmentation strives to classify consumers based on
their lifestyle, personality, opinions, and interests. This may be more
difficult to achieve, as these traits (1) may change easily and (2) may not
have readily available objective data. However, this approach may yield
strongest market segment results as it groups individuals based on intrinsic
motivators as opposed to external data points.
Example: A fitness apparel company may target individuals
based on their interest in playing or watching a variety of sports.
Importance of Audience Segmentation
Audience segmentation can bring many benefits for advertising
targeting, such as:
·
Increased Relevance
By delivering ads that match the interests,
preferences, pain points and motivations of each segment, marketers can
increase the relevance and appeal of their ads and make them more likely to be
noticed and clicked.
·
Increased Personalization
By tailoring ads to the specific needs and expectations
of each segment, marketers can increase the personalization and value of their
ads and make them more likely to resonate and convert.
·
Increased Efficiency
By focusing ads on the most profitable and
responsive segments of the audience, marketers and brands can optimize their
advertising budget and resources and reduce wasted impressions and clicks.
·
Increased Customer Acquisition
By creating more compelling and persuasive campaigns
that appeal to each segment’s motivations and pain points, marketers can
increase customer conversion and referrals.
·
Increased Customer Lifetime Value
By optimizing their marketing mix for each segment
based on their profitability and potential growth, marketers can increase
customer revenue and reduce customer churn.
·
Increased Competitive Advantage
By differentiating themselves from their competitors
who may use a one-size-fits-all approach, marketers can create a unique brand
identity and position themselves as experts in their niche.
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