Market segmentation. Connect better with your customer segments

Market segmentation helps you to solve one of the most common problems in marketing. If you try to appeal to all your customers with the same message, you may not be able to convince any of them at the end of the day. Therefore, instead of trying to reach all your customers with a single message, it is often much more effective to identify groups of consumers with similar characteristics, needs or behaviours. With good market segmentation, you can create targeted marketing strategies for each group.

Market research helps you identify the most effective segmentations to grow your brand. Today we tell you what kind of segmentations you can do and how to create the surveys you need to achieve them.

What is market segmentation?

Market segmentation is the process of dividing a large, heterogeneous market into smaller, homogeneous subgroups of consumers who share similar characteristics (such as needs, behaviours or demographic profiles).

Market segmentation brings you clear benefits:

• Better connect with your customers. Instead of designing your marketing strategy to appeal to all customers with the same offer, you can tailor products, prices, messages and channels according to what is best suited to satisfy each group.
• Increase marketing effectiveness. If the 4 P’s of marketing are designed to meet the needs of each segment, you will find it easier to attract and retain shoppers, and therefore less resources will have to be devoted to achieve the same results.
• Concentrate resources on the most profitable segments. When you have divided the market into segments, it is possible to calculate the sales potential and profitability of each segment. Whenever the company’s resources are limited, it is useful to focus efforts on the segments that will provide the greatest return in the short term. As the company grows and consolidates, the number of segments included in the marketing strategy can be expanded.

For market segmentation to be effective, it must meet a number of conditions.

• It must be measurable: it must be quantifiable in size, both in number of buyers and in value. Only if we know the size can we prioritise the best segments and avoid spending resources on segments that are too small or unprofitable.
• Segments must be sufficiently distinct. If they are not, there is no interest in creating distinct offers and communications.
• It must be actionable: the company must be able to develop specific strategies for each segment. Sometimes it may not be possible to connect with some segments – they do not have the purchasing power, it is uneconomical to serve them, there are legal restrictions or there is no way to connect with them. When a market segmentation includes segments that are impossible to activate, it needs to be rethought.

Types of market segmentation

All market segmentations have the same objective and that is to appeal more successfully to different groups of customers or consumers. But there are different ways to reach that goal.

Segmentation based on demographic data

Segmentation based on demographic criteria is one of the most classic market segmentations. The idea is that people who share personal characteristics, such as age or gender, will also more often share needs, habits or views. Analysing the results of a market survey cross-referenced by socio-demographic variables will allow us to see differences and detect opportunities. For example, if we see that there is a big difference between the consumption patterns of households with and without children, we can infer that there are different needs to satisfy and therefore it would make sense to create specific offers for both groups. All market surveys are designed in such a way that the results can be cross-referenced by the most common demographic variables.

Segmentation based on psychographic data

Segmentation based on psychographic criteria classifies consumers according to their values, lifestyle, interests, personality, attitudes and motivations. Unlike demographic targeting, which focuses on objective data such as age or gender, psychographic targeting focuses on more relative and emotional aspects that explain why a person chooses a brand or product. For example, two people of the same age and income level may have completely different lifestyles: one may be adventurous and seek extreme experiences, while another may be a homebody who values peace and security.

Limitaciones de la segmentación basada en datos sociodemográficos. Fuente Famous Campaigns LinkedIn Account

To implement this market segmentation, companies often use surveys in which participants are asked to indicate their level of agreement with lifestyle statements. These questions are used to classify consumers into different groups that are labelled with concepts, such as ‘innovators’, ‘explorers’ or ‘conservatives’, who may have different purchasing and consumption patterns.

Segmentation based on purchasing behaviour

Another way to segment consumers is according to their own buying behaviour:

• Buyers and non-buyers. Creating these two segments allows us to tailor recruitment and retention strategies that can be adapted to the characteristics of each group.
• Heavy, medium and light buyers. In this market segmentation, buyers are divided according to their volume and frequency of purchase. Perhaps someone who continuously buys a product or brand makes a different use than someone who buys the brand occasionally.
• RFM. RFM segmentation is frequently used in e-commerce and classifies customers according to three variables related to their buying behaviour: Recency (how long it has been since the last purchase), Frequency (how many times they have bought in a given period) and Monetary Value (how much they have spent in total). This customer segmentation helps to identify the most valuable and engaged customers.

Segmentation based on consumption behaviour

Sometimes some products are bought and consumed on the spot by the same person. A clear example is impulse products. But sometimes products are bought and consumed by different people and at different times. For this reason, segmentations on consumption behaviour offer complementary information to those on purchase behaviour.

• Consumers and non-consumers. For example, within the same household, the consumer of extruded snacks and the consumer of potato crisps may be different, even though the purchase is made by the same person.
• Demand spaces is an advanced form of market segmentation that combines multiple variables of consumer behaviour to understand who, when, where, why and how people consume a product or service. That is, instead of segmenting only by a single variable, distinct sets of consumption occasions are created by combining all variables at once.

Value-based segmentation

So far we have talked a lot about segmentation based on the buyer/consumer and their buying and consumption behaviour. But we have talked less about the needs that each one wants to cover. This is precisely the focus of value-based segmentation.

Proponents of this type of market segmentation argue that needs and purchase motivations are actually the most direct way to connect with customers. Their socio-demographics, for example, are merely a proxy variable that correlates with those needs. That consumers aged 25-34 have a different consumption pattern does not derive from age per se, but from the needs that individuals of that age want to meet, which are different perhaps from the needs that consumers of other ages have. Therefore, by focusing on needs, we go straight to what matters most.

To create a value-based segmentation, the first step is to find out, through qualitative research, what are the most frequent needs that customers want to meet with the product or service. Once the needs are well understood, they are prioritised through an online survey that helps quantify the volume of each segment.

Continuous measurement of customer segments

Once you have a good market segmentation, you can design a marketing plan based on it and take action. After sufficient time has passed, it will be interesting to understand whether we have managed to generate the desired progress in each of the segments. Have we grown through any particular segment? How has the size of each segment evolved? This visibility will allow us to define the corrective actions needed to further expand the brand’s ability to appeal to different customer segments.

This is why it is important to define, as we said at the beginning, market segmentations that are easy to measure. This will make it easier to conduct research on a regular basis to make decisions based on fresh data.

Market segmentation with We are testers

With We are testers you can conduct all kinds of surveys to understand the characteristics of your potential customers and their needs. Thanks to the panel of 130,000 consumers and users you can access the most suitable consumer profile, including current buyers of categories and brands. You can conduct both qualitative research – ideal for understanding needs – and quantitative surveys. Thanks to the latter, you can measure the size of different segments. Our team of research experts can answer any questions you may have about market segmentation criteria and can help you conduct the necessary surveys.

Contact our experts and improve the connection with your customers and the effectiveness of your marketing actions today.