Marketing Segmentation: What It Is, Why You Should Care, and How to Do It Right

/ June 8, 2021 | 8 Mins Read

Marketing Segmentation: What It Is, Why You Should Care, and How to Do It Right

Looking to improve the effectiveness of your marketing? Market segmentation should be your first call. Understanding your customer’s needs better and to fulfill these better than your competition can bring a huge difference to your marketing strategy. Learn the most common types of market segmentation you shouldn't miss.

When you’re targeting everyone, you’re selling to nobody. That’s why you need marketing segmentation — dividing customers into groups with similar interests and desires. 

Brands like 1800Flowers.com and Gymshark have been using marketing segmentation for years and reap its benefits. 

In 2017, 1800Flowers.com used segmentation to identify consumers who recently abandoned their carts within the brand’s app. They then ran A/B testing to discover what promotional code that convinced more customers to complete checkout and sent the code to those abandoning their carts via push notifications. By applying this strategy, they achieved a 5% lift on abandoned cart conversions during Valentine’s Day promotions and drove more engagement to their mobile app.  

Gymshark, a multi-million sports apparel brand, has implemented customer segmentation from the first days of their existence. The brand defines their target market as young people aged 18-25 years olds whose lives revolve around fitness, fashion, and music. To win this market, they partner with influencers who are passionate about their products and have a strong connection with their target audience.   

Recommended: Data-Based Marketing: Top Use Cases and Tips for Adoption

So, how can other brands use marketing segmentation to replicate 1800Flowers.com and Gymshark’s success? If you’re looking for an answer, then this post is what you need. 

Ready? Let’s get to it! 

1. What is Marketing Segmentation?

Marketing segmentation is using certain criteria to form individuals or businesses along who share similar characteristics. The result of marketing segmentation is groups of customers called market segments. 

A market segment consists of customers who share the same needs and wants. For example:

  • Segment 1: Anyone who visited your online store but hasn’t made a purchase.
  • Segment 2: Customers who bought specific items.
  • Segment 3: Customers who bought from you several times but haven’t returned this year.  
  • Segment 4: Customers who bought from you only on Black Friday and Cyber Monday.
  • Segment 5: “Superfans” who shop with you all year round. 

Market segments can be any size, from one to millions of people. For each segment, you can develop an offering that is extremely relevant and appealing to those in that segment.  

2. Segmentation and Targeting Difference

The “segmentation, targeting, positioning” (STP) process is the essence of strategic marketing. It clearly shows customer segmentation analysis and targeting aren’t the same. 

  • Segmentation: Identify and profile groups of customers who differ in their needs and preferences.
  • Targeting: Select one or more market segments to focus on.
  • Positioning: Create and communicate the distinctive benefits you offer to each selected market segment. 

3. Segmentation and Personalization Difference 

Some people use segmentation and personalization interchangeably. But according to Deloitte, personalization goes further than customer segmentation. 

Segmentation creates customer groups based on shared characteristics. Meanwhile, personalization is about tailoring experience to an individual's needs and expectations based on deep insights into what that specific customer actually needs. 

Think about music recommendations you see whenever you open your Spotify app — that’s a typical example of a personalized experience.  

Spotify app — that’s a typical example of a personalized experience.

4. Five Types of Market Segmentation

1. Geographic Segmentation

Geographic segmentation means segmenting customers based on where they live. This segmentation can use geographical elements like nations, states, regions, cities, climate, cultural preferences, populations, and more.

Take KFC as a segment example. KFC in Japan reflects the local preference for dark meat over white meat and serves rice bowls and bento boxes familiar to Japanese consumers. Meanwhile, veg zinger, paneer zinger, or hot veg snacker are all over KFC in India since about half of Indian households are vegetarian. 

2. Demographic Segmentation

Demographic segmentation divides the market into groups based on variables, such as age, family size, gender, income, occupation, religion, generation, and social class. It’s considered the most widely used segmentation type as consumer needs, wants, and brand preferences are often associated with demographic variables.

3. Psychographic Segmentation

In psychographic segmentation, customers are divided into groups based on personality traits, lifestyle, and values. For example, young adults may buy products because of the value of money. But others at the same ages may pay much attention to how a brand handles their corporate social responsibilities. “Lifestyle match” is also a key for many people when choosing a brand to shop with.  

4. Behavioral Segmentation

Behavioral segmentation groups customers based on their needs, knowledge, attitudes, consumption habits, loyal status, and bias. 

Buyer readiness stages are another important behavior variable. Some people don’t know about your product, some are aware, some are informed, some are interested, some desire to have it, and some are sure to make a purchase. These differences determine how you should design your marketing programs, from creating the message to deciding the offering. 

For example, Burger King launched 11 onsite ‘banner’ campaigns, targeting users based on their behaviors. These segmented and conversion push campaigns drove their engagement across web and mobile web, resulting in a CTR of 10.04% while the industry average is only 6.7%.

Burger King launched 11 onsite ‘banner’ campaigns, targeting users based on their behaviors.

Burger King launched 11 onsite ‘banner’ campaigns, targeting users based on their behaviors.

5. Firmographic Segmentation

Firmographic segmentation refers to segmenting business-to-business (B2B) customers based on the following variables:  

  • Industry: Ecommerce, manufacturing, logistics, finance, legal service firms, etc.
  • Company size: Startup, small business, medium business, enterprise. 
  • Total sales and revenue: Quarterly and annual data is important. 
  • Current location: Where is the company headquarters located? Is the company an international brand? How many offices and branches do they have?
  • Ownership framework: Is the company a public organization, private enterprise, partnership, subsidiary of a larger organization, LLC, or non-profit? Each comes with its own unique market approach.
  • Growth trends: Is the company growing, downsizing, or maintaining its current market position? Are they at the early stage of growth? Is their growth trend the same in all their markets? 

So, now that you understand what marketing segmentation is, the next question becomes: “Why should you care?”

5. Why Is Marketing Segmentation Important?

A one-size-fits-all approach no longer works. Here’s the proof:

In the book Principles of Marketing published in 2014, marketing gurus Philipp Kotler and Gary Amstrong wrote, “companies today ‘cannot appeal to all buyers in the marketplace,’ and ‘must design customer-driven marketing strategies that build the right relationships with the right customers and the main steps in designing a customer-driven strategy include segmentation, targeting, differentiation, and positioning.” 

Fast forward today, their statement couldn’t be any more true. Today’s customers expect personalized experiences in every interaction with a brand, from the website to emails to customer service. 

Accenture Interactive’s The Art of Knowing Me report found that “65% of consumers are more likely to buy from a retailer if they’re recognized, remembered, and receive relevant recommendations.” Gartner added that about 34% of marketing leaders pursue better segmentation to improve their marketing strategies and get closer to their customers. 

So, marketing segmentation is no longer a “nice” way to try but a must-have tactic in any marketing plan. It’s the foundation of a successful campaign — email marketing, social paid ads, content marketing, you name it.

Once you segment your customers, you avoid the risk of sending irrelevant messages. You know exactly what, how, and when to say something to a specific group of people. The more you create meaningful conversations with them, the more satisfied they feel and the higher chance they want to stick with you longer. 

There are many ways to apply segmentation to your business. Let’s take a look at two of its real-life applications, and you’ll see the true power of marketing segmentation. 

1. Improve Email Marketing Campaigns 

You can segment your subscribers and customers by content interest, purchase history, locations, engagement, or VIP customers (who spend a lot with your brand). 

Depending on each segment, you can send them emails with useful tips to use your products, unique incentives for holidays, or personalized recommendations. Doing email segmentation is one of the most effective ways to keep loyal customers engaged and increase repeated purchases.  

According to MailChimp, segmented email campaigns performed markedly better than non-segmented campaigns, with a 14.31% higher open, a 100.95% higher click-rate, and a 4.65% lower bounce rate. 

So, how can you segment your email subscribers?

The quickest and easiest way to do that is using your email popup. For example, Death Wish Coffee includes a multiple-choice question into their opt-in form as shown below:

 Death Wish Coffee includes a multiple-choice question into their opt-in form as shown below:

By asking what type of coffee a visitor buys, Death Wish Coffee knows the visitor’s favorite taste and designs their email messages to meet that expectation. After all, no one wants to receive a special discount for all K-cup coffee while they’re fans of the whole bean — the brand understands that really well. 

2. Build a Customer-Centric Loyalty Program

Brands often treat all loyal customers the same. But the truth is different loyal customers have different expectations from your brand. 

Some may look to get special offers. Some may want to receive product tips and tricks. Others may want to get updates about what your brand is doing. 

Because of that, you should segment your loyal customers to better understand their desires and create a loyal program that keeps them happy and coming back for more. 

Sephora did an excellent job of using marketing segmentation to build their Beauty Insider loyalty program. When you sign up for their program, you’ll receive a set of three welcome emails (i.e., “intro,” “our picks,” and “trending picks”). The first email informs you of the benefits of shopping with Sephora and joining Beauty Insider.  

The second emails include the first recommendations Sephora picks for you. If you’re not satisfied with those suggested products, Sephora gives you a link where you can update your preferences to receive more personalized recommendations. 

Sephora market segmentation strategy

Click Fill Us In, and you’re directed to the page below, where you’re asked a lot of questions about your skin, hair, eyes, color IQ, birthday, and privacy. Sephora will then use your answers to design offers that match your preferences. 

Sephora examples

Note that all questions are multiple choice, making it quick for customers to answer. The easier it is for your customers to communicate with you, the more likely they’re to follow through and give you personal data that they’ll not reveal anywhere else. 

In a talk with a Forbes writer, Allegra Stanley, Sephora VP of Loyalty, shares that, “The way we think about loyalty is that our clients are the core of everything we do. […] We are driven by what our customers love and want more of. So it’s not about what their loyalty demonstrates to us, but what we can deliver to our clients that creates the most meaningful and connected experience with our brands.”

6. How to Get Marketing Segmentation Right

Marketing segmentation is beneficial in many ways. But you need to capitalize on it the right way. 

First, clarify why you need to segment customers and what you want to get from doing it. This determines the types of segmentation and variables you should use as well as how many segments you should create. 

Second, do comprehensive research on your market. The more you know about them, the more accurate your segments will be. This no longer means simple data like age, sex, income, and location but rather calls for a deeper level of understanding about customers’ personality traits, expectations, consumption patterns, purchase history, and more. 

You can collect all that data inside your organization. For example, check analytics tools you’re using and talk with customer service, sales, and marketing teams. You may also need to collect external data by sending surveys, focus groups, and polls to your customers.

Third, build your customer segments. Gretchen Gavett, a senior editor at Harvard Business Review, recommends a useful segmentation strategy should include these six characteristics: 

  • Identifiable: You should use specific variables to segment your customers.
  • Substantial: Each segment must be large enough to be potentially profitable.
  • Accessible: You can reach segments via communication and distribution channels.
  • Stable: A segment should be stable enough for a long enough period of time to ensure marketing effectiveness. 
  • Differentiable: Individuals or businesses in a segment should have similar needs that are clearly different from the needs of other people or businesses in other segments.
  • Actionable: You can provide products or services to your segments. 

Get Started With Marketing Segmentation Strategy

Doing marketing segmentation means you filter your audience into groups of people who share common characteristics. From that, you can create targeted marketing campaigns that help increase engagement, improve customer satisfaction, recover abandoned carts, drive sales, and more. 

Try to segment your customers today, and you’ll see how it makes your marketing campaigns different.  

This post was submitted by a TNS experts. Check out our Contributor page for details about how you can share your ideas on digital marketing, SEO, social media, growth hacking and content marketing with our audience.

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