A Step-by-Step Guide to Market Segmentation

Imagine this.

You’ve just won a big contract from your local council. They want you to come up with a marketing campaign to reduce instances of underage drinking within the local community. There is going to be a whole raft of people who need to change their behaviour to make this objective a reality.

There will be the underage drinkers: teenagers with little regard to authority. There will be people that have to deal with the aftermath of underage drinking in the past, like police, teachers, and medical staff. Parents in the local community might even be another audience. And every single one of these audiences’ is going to require a targeted, tailored message.

Are you in a similar position, with multiple audiences, requiring multiple messages, and you’re not sure where or how to begin?

Then look no further; begin with our step-by-step guide to market segmentation.

What is Market Segmentation?

Market segmentation is not as technical as it sounds. It is really just the process of dividing, and then subdividing, a large homogenous target market into smaller segments. Each of these segments should be easily, clearly identifiable, and should be comprised of people that have similar wants, needs, or characteristics.

The whole objective of market segmentation is to be able to design a marketing strategy, program or mix that matches, and is as effective as possible, for each specific segment. It should help you spending your marketing and advertising budgets much more wisely.

Market segmentation also enables companies to refine their product and service offerings, tailoring features and benefits for specific segments. In reality, there are very few companies that are large enough to meet the blanket needs of an entire market. Companies are much more likely to be able to meet the needs of a smaller, targeted segment, and therefore be much more successful.

A market segment should be:

Measurable: you should be able to easily measure sales figures, leads, and engagement rates for any single market segmentation. If you can’t, then it probably overlaps too much with other segments.
Clearly identifiable: if any one segment overlaps too much with another, then chances are, it shouldn’t be a segment in its own right. Every segment should be substantially different.
Accessible through communication and promotional channels: you should be able to easily communicate with each and every segment. It does not matter whether this communication or promotion occurs via advertising, social media, e-marketing or telemarketing. As long as you can reach the consumers within it, it is a market segment.
Appropriate to the resources of your company: it is no good identifying a segment that you simply do not have the resources to service. For instance, if you are a small, boutique baby-clothing store in South Yarra, a segment should not be All Australian Mothers. This segment would simply be too big. You could never hope to serve or communicate with all members of this segment.
Durable: market segments should not be fluid. They should be durable. How can you possibly expect to meet the needs, and communicate with, a segment that is constantly changing and shifting? It would be next to impossible and would require infinite resources. Instead, ensure your market segments are stable and durable.
Responding differently: if all of your market segments are likely to respond in the same way to the same marketing mix, then it is unlikely that they are actually different segments.

The Five Market Segmentation Strategies

There are also five basic market segmentation strategies that are regularly implemented, including: behavioural, demographic, psychographic, benefit, and geographic segmentation.

Behavioural Segmentation

This type segmentation is based on differences in how consumers behave, and consume different products and services. Elements such as lifestyle, buying patterns, brand loyalty, usage patterns, and even how consumers spend their time and money are all taken into account when performing behavioural segmentation. For instance, you might decide to segment users into those that use your product daily, those that use it weekly, and those that use it only monthly.

Demographic Segmentation

Demographic segmentation involves classification of consumers based on a number of socioeconomic characteristics including age, gender, level of education, income, occupation, religion, marital status, and average family size. It takes into consideration all the factors that would usually be assessed within a census.

If you choose to focus on income, then you might opt to offer two product lines: a premium, expensive product line for high-income earners; and a cheap and cheerful product line for low-income earners. That way, you can optimise product saturation across a number of market segments simultaneously.

Psychographic Segmentation

This type of segmentation is usually undertaken through market research analysis. Market researchers will ask potential customers to either agree or disagree with a whole raft of opinion statements, interests, activities, values. Then, the results of these questions can be combined with other segmentation processes (particularly demographic and geographic) to create a more real, rounded view of the most appropriate target segment.

Often, market researchers will use psychographic segmentation to classify people based on their interests and activities, in lieu of demographics. For instance, hikers might be identified as a market segment for specially designed, sweat wicking, outdoor socks. Camping enthusiasts might be used as another segment. And Fishermen as another. All in lieu of men, over the age of 45.

Benefit Segmentation

This form of market segmentation classifies consumers according to the benefits that they most prefer to see in a product or service. It can often be most helpful in determining specific niches that require custom promotion, as well as identifying product improvements, upgrades and extensions.

Geographical Segmentation

Probably the most straightforward of all the segmentation processes, geographical segmentation involving collecting and evaluating data based on the geographical location of the consumer. Geographical segmentation is often very useful, demonstrating the most effective areas for marketing and sales activities. Large, global organisations often partake of geographical segmentation to determine whether to maintain a universal marketing message, or to tailor specific marketing programs for each country, and even each major city.

Once you have your market segments, you can then create meaningful profiles for each segment. Based on these profiles, you can accurately assess the attractiveness of each segment to your business, and the select preferred segments for targeted marketing campaigns.

If you’re looking for professional assistance with market segmentation, it’s definitely worth getting in touch with a reputable market research agency to discuss your needs. We’ve made it super easy for you to find one with our handy Market Research Agencies Directory.

About
Latest Posts

Sally Wood

Editor at Marketing.com.au

Sally has worked in marketing, communications, and PR for over 15 years. She is the Chief Wordsmith at Wordly: a copywriting and content marketing agency that works predominantly with WordPress powered websites.