What is market segmentation?

segmentation involves dividing a large homogenous market of potential customers

into clearly identifiable segments. Customers are divided based on meeting certain
criteria or having similar characteristics that lead to them having the same product
needs. Segments are made up of customers who will respond similarly to marketing
strategies. They share common interests, needs, wants and demands.
Market segmentation makes it easier for marketing teams to develop highly targeted
and effective marketing campaigns and plans.

Below we’ve outlined several benefits which exist with understanding and defining
market segments.

• Greater company focus

When a company has identified specific market segments, it helps them to focus on
what segments they want to target with specific products/ services/ content/ blogs
and campaigns. When a company has a focus on specific segments, they ensure
they are targeting the right segment with the right product which will see the greatest
ROI.

• Better serve a customer’s needs and wants

Having defined segments enables companies to satisfy a variety of customer needs
by offering different bundles and incentives. Different forms and promotional
activities will be used for different segments based on that segments needs/ wants
and characteristics.

• Market competitiveness
When a company is focusing on a specific segment, their market competitiveness
increases. Which in turn will lead to a higher ROI. The company is focused on
specific segments and learns everything they need to know about that segment, to
market their products to them.

• Market expansion
With geographic segmentation as discussed earlier, market expansion is possible
immediately. When a company understands their segments and how to market to a
segment in a particular location, they can expand immediately into another nearby
location. If segmentation is based on demographics, then once the company knows
their demographic segment they can expand in that segment with similar products.

• Targeted communication
Even when product features and benefits are the same, it is important for companies
to target segments with specific communication. For example, if your segment was
senior engineers, they may respond better to technical information about a product in
the form of white papers or infographics, but a project manager might respond better
to information regarding cost savings, efficiencies etc in the form of a blog, case
study or video. Messaging will be different for different segments. Platforms which
are used to target different segments will be different also. The key is to understand
your segments and target communication relevant to them on the relevant platforms.
Why market segmentation is important?
When marketers use market segmentation it makes planning campaigns easier, as it
helps to focus the company on certain customer groups instead of targeting the
mass market. Segmentation helps marketers to be more efficient in terms of time,
money and other resources. Market segmentation allows companies to learn about
their customers. They gain a better understanding of customer’s needs and wants
and therefore can tailor campaigns to customer segments most likely to purchase
products.

What types of market segments can a company have?

• Geographic – based on land, rural or metropolitan area.
• Demographic – based on age, gender, income, occupation, education,
nationality.
• Psychographic – based on social status, lifestyle-type, personality type.
• Behavioural – based on intensity of product use, brand loyalty, user
behaviours, price sensitivity, technology adoption.
Demographic segmentation
This is the most common type of segmentation. A target audience is divided based
on qualities such as, age, gender, occupation, education, income and nationality.

Demographic segmentation is the easiest way to divide a market. Mixing

demographic segmentation with another type of market segmentation can help to
narrow your market down even further.

The information required for demographic segmentation is easy to gather and

doesn’t cost a company too much to obtain.

For example, a common product which is segmented based on demographics is

body wash. Generally, you’ll see body wash for women and body wash for men.

Behavioural segmentation
A company can segment their market based on consumer’s behaviours. By dividing
your target audience based on their behaviours allows you to create specific
messaging that will accommodate to those behaviours.

Behaviours include;

• What actions were taken on a website?

• What are their online shopping habits?
• How loyal are they to the brand/ product?
• What is their usage rate of your product?
• What need is a consumer trying to satisfy?
This information is relevant because it’s directly related to how a consumer interacts
with your products. Therefore, marketers can market more effectively to customers
by knowing their behaviours.

Geographic segmentation
This involves splitting up a market based on location. Even though this is a basic
form of segmentation it is highly effective. By knowing where a customer is located
can help a company better understand the needs of their customers and companies
can then target customers with location-specific ads.

You can divide a segment based on their locations, such as town, county, zip code
or country. But you can also identify customers based on the climate they live in or
the population density of their location. Dividing a segment based on the
characteristics of their location, allows marketers to be even more specific with their
targeting and messaging.

When targeting different geographic segments, marketers need to take into

consideration elements such as language. Language may change depending on the
region you are targeting.

Psychographic segmentation
This form of segmentation is very similar to demographic segmentation however, it
deals with characteristics that are related to mental and emotional attributes.
Psychographic segmentation divides a group of customers based on their
personality traits, values, interests, attitudes and lifestyles. Demographics as we
discussed earlier are much easier to observe than psychographics, however,
psychographics give marketers valuable insights into customers motives,
preferences and needs. By understanding psychographics, marketers can develop
content that is more relatable to their customer segments.

Demographic segmentation can merge very well with psychographic segmentation. If

you feel your messaging isn’t appealing to your demographic segment, you can try
including psychographic information. It is psychographic information that informs you
why people purchase or don’t purchase a product or service.

B2B Customer Segmentation Challenges

Business-to-business markets are characterized in a number of ways that makes
them very different to their consumer cousins. Below we summarize the main
differences between consumer and business-to-business markets, and set out the
implications for b2b market segmentation:

1) B2B markets have a more complex decision-making unit: In most households,

even the most complex and expensive of purchases are confined to the small family
unit, while the purchase of items such as food, clothes and personal items usually
involves just one person. Other than low-value, low-risk items such as paperclips,
the decision-making unit in businesses is far more complicated. The purchase of a
piece of plant equipment may involve technical experts, purchasing experts, board
members, production managers and health and safety experts, each of these
participants having their own set of (not always evident) priorities.

Segmenting a target audience that is at once multifaceted, complex, oblique and

ephemeral is an extremely demanding task. Do we segment the companies in which
these decision makers work, or do we segment the decision makers themselves? Do
we identify one key decision maker per company, and segment the key decision
makers. In short, who exactly is the target audience and who should we be focusing
on in b2b market segmentation?
2) B2B buyers are more “rational”: The view that b2b buyers are more rational
than consumer buyers is perhaps controversial, but we believe true. Would the
consumer who spends $3,000 on a leather jacket that is less warm and durable than
the $300 jacket next-door make a similar decision in the workplace? Consumers
tend to buy what they want; b2b buyers generally buy what they need.

It perhaps therefore follows that segmenting business markets based on needs

should be easier than segmenting a consumer audience. In business-to-business
markets it is critical to identify the drivers of customer needs. These often boil down
to relatively simple identifiers such as company size, volume purchased or job
function. These identifiers often enable needs and therefore segments to be quite
accurately predicted.

3) B2B products are often more complex: Just as the decision-making unit is
often complex in business-to-business markets, so too are b2b products themselves.
Even complex consumer purchases such as cars and stereos tend to be chosen on
the basis of fairly simple criteria. Conversely, even the simplest of b2b products
might have to be integrated into a larger system, making the involvement of a
qualified expert necessary. Whereas consumer products are usually standardized,
b2b purchases are frequently tailored.

This raises the question as to whether b2b market segmentation is even possible – if
every business customer has complex and completely different needs, it could be
argued that we have a separate segment for every single customer. In most
business-to-business markets, a small number of key customers are so important
that they “rise above” the segmentation and are regarded as segments in their own
right, with a dedicated account manager. Beneath these key customers, however,
lies an array of companies that have similar and modest enough requirements to be
grouped into segments.

4) B2B target audiences are smaller than consumer target audiences: Almost all
b2b markets exhibit a customer distribution that confirms the Pareto Principle or
80:20 rule. A small number of customers dominate the sales ledger. Nor are we
talking thousands and millions of customers. It is not unusual, even in the largest
business-to-business companies, to have 100 or fewer customers that really make a
difference to sales. One implication is that b2b markets generally have fewer needs-
based segments than consumer segments – the volume of data is such that
achieving enough granularity for more than 3 or 4 b2b segments is often impossible.

5) Personal relationships are more important in b2b markets: A small customer

base that buys regularly from the business-to-business supplier is relatively easy to
talk to. Sales and technical representatives visit the customers. People are on first-
name terms. Personal relationships and trust develop. It is not unusual for a b2b
vendor to have customers that have been loyal and committed for many years.
There are a number of b2b market segmentation implications here. First, while the
degree of relationship focus may vary from one segmentation to another, most
segments in most b2b markets demand a level of personal service. This raises an
issue at the core of customer value segmentation – everyone may want a personal
relationship, but who is willing to pay for it? This is where the supplier must make
firm choices, deciding to offer a relationship only to those who will pay the
appropriate premium for it. On a practical level, it also means that market research
must be conducted to provide a full understanding of exactly what “relationship”
comprises. To a premium segment, it may consist of regular face-to-face visits,
whilst to a price-conscious segment a quarterly phone call may be adequate.

6) B2B buyers are longer-term buyers: Whilst consumers do buy items such as
houses and cars which are long-term purchases, these incidences are relatively rare.
Long-term purchases – or at least purchases which are expected to be repeated
over a long period of time – are more common in business-to-business markets,
where capital machinery, components and continually used consumables are
prevalent. In addition, the long-term products and services required by businesses
are more likely to require service back-up from the supplier than is the case in
consumer markets. A computer network, a new item of machinery, an HVAC unit or
a fleet of vehicles usually require far more extensive aftersales service than a house
or the single vehicle purchased by a consumer. Businesses’ repeat purchases
(machine parts, office consumables, for example) will also require ongoing expertise
and services in terms of delivery, implementation/installation advice, etc that are less
likely to be demanded by consumers.

In one sense this makes life easier in terms of b2b segmentation. Segments tend to
be less subject to whim or rapid change, meaning that once an accurate
segmentation has been established, it evolves relatively slowly and is therefore a
durable strategic tool. The risk of this, and something which is evident in many
industrial companies, is that business-to-business marketers can be complacent and
pay inadequate attention to the changing needs and characteristics of customers
over time. This can have grave consequences in terms of the profitability of a b2b
market segment, as customers are faced with out-of-date messages or benefits that
they are not paying for.

7) B2B markets drive innovation less than consumer markets: B2B companies
that innovate usually do so as a response to an innovation that has happened further
upstream. In contrast with FMCG companies, they have the comparative luxury of
responding to trends rather than having to predict or even drive them. In other words,
B2B companies have the time to continually re-evaluate their segments and CVPs
and respond promptly to the evolving needs of their clients.

8) B2B markets have fewer behavioral and needs-based segments: The small
number of segments typical to b2b markets is in itself a key distinguishing factor of
business-to-business markets. Our experience of over 2,500 business-to-business
studies shows that B2B markets typically have far fewer behavioral or needs-based
segments than is the case with consumer markets. Whereas it is not uncommon for
an FMCG market to boast 10, 12 or more segments, the average business-to-
business study typically produces 3 or 4.

Part of the reason for this is the smaller target audience in business-to-business
markets. In a consumer market with tens of thousands of potential customers, it is
practical and economical to divide the market into 10 or 12 distinguishable
segments, even if several of the segments are only separated by small nuances of
behavior or need. This is patently not the case when the target audience consists of
a couple of hundred business buyers.

The main reason for the smaller number of segments, however, is simply that a
business audience’s behavior or needs vary less than that of a (less rational)
consumer audience. Whims, insecurities, indulgences and so on are far less likely to
come to the buyer’s mind when the purchase is for a place of work rather than for
oneself or a close family member. And the numerous colleagues that get involved in
a B2B buying decision, and the workplace norms established over time, filter out
many of the extremes of behavior that may otherwise manifest themselves if the
decision were left to one person with no accountability to others.

Targeting in marketing involves breaking the target audience into segments and
then designing marketing activities that will reach the segments most likely to be
responsive to your efforts. Target marketing can greatly increase the success you
have in reaching potential customers.
There are three different target market strategies you can implement:

• Differentiated marketing
• Concentrated marketing
• Undifferentiated marketing
Knowing which one of these strategies to implement for your business is the first
step in building an effective, long-term marketing strategy.

Differentiated marketing

Differentiated marketing occurs when a company creates campaigns that appeal to

two or more different target audiences, demographics, or marketing segments. By
targeting multiple well-defined customer profiles, a brand can build its customer
base, master its niche, and begin to organically build brand awareness.
Say a local coffee shop has been in business for six months, and things are going
great. The owner has identified the shop’s ideal customer base as young
professionals, ages 25–35, with lower- to middle-class income. Now that the shop
is generating steady revenue, the owner decides to expand its reach into new
market segments as a way to fill the slower sales hours between the morning and
afternoon rush.

The shop decides to run a $1.99 special for the following month and segment its
campaign by budget-conscious and quality-focused prospects. It sends a
promotion to college students, offering a quick and affordable alternative to
Starbucks, as well as a short video to older, higher-income prospects, showcasing
the shop’s high-quality beans and ingredients.
Both advertisements are vastly different, but are part of the same $1.99 special.
These segmented campaigns provide an example of differentiating marketing for
distinct audiences, and are a great way for small businesses to maximize their
efforts.

Benefits of a differentiated marketing strategy

The goal of differentiated marketing is to deliver a more personalized message and

tailored experience to each segment of your audience. By creating unique
approaches for each segment, your offer is more likely to resonate with a given
audience member’s needs, which makes it easier for people to connect with your
brand, become loyal, and eventually share with their friends.

If you want to take things a step further, you can research behavioral
segmentation to focus on how your audience reacts to your actions.
Disadvantages of differentiated marketing

More segments mean more ad teams and more ad spend. Creating and running
multiple campaigns usually has a higher price tag. Your business has to use unique
messaging and campaigns for each segment, and the required resources can add
up fast.

Concentrated marketing

Concentrated marketing occurs when a company creates a single marketing

message for a specific, narrow demographic. This marketing strategy typically
works best for startups, and is a natural step for any business looking to find their
ideal prospect or niche.

Take our previous coffee shop example. Say the shop was newly opened and
identified its target audience as 25–35 years old, lower- to middle-class income,
young professionals.

Even before it decided to use differentiated marketing, the shop started with a
much simpler concentrated marketing strategy. The shop tailored its brand voice
and campaigns to connect with the initial narrow demographic. Opting for a
concentrated marketing strategy fit well with the shop’s starting resources and
helped build a loyal customer base.

Benefits of a concentrated marketing strategy

Concentrated marketing is the most cost-effective marketing strategy for small

businesses. It’s great for finding targeting your audience segment. By focusing on
meeting the needs of a very narrow user base, your brand can build authority and
dominate its niche. Plus, concentrated marketing can help pave the way for later
differentiated marketing strategies, when it’s time to find expand your market.
 Disadvantages of concentrated marketing

The downside to concentrated marketing is that it will only resonate with a small
target segment. Because small businesses and startups are used to sticking with a
single value proposition and brand voice, they may find themselves in a tricky
situation when the time comes to expand.

Product Specialisation: it focuses on providing different products for different types

of segments. The focus of an organisation is more on products rather than
segments. The firm earns substantial reputation in producing those specific
products.

Market specialisation: here the firm concentrates on the wants and need of
customers belonging to a specific market. It also involves some risks as the
organisation caters to only a specific market.

What is Positioning in Marketing: Types, Benefits, and Applications

Positioning in marketing aims at creating brand awareness, identifying target

customers, and improving the company image. Market positioning indicates the
ability of a company to positively influence the perception of its consumers about its
products and services.
Understanding Customer Needs

Effective product positioning requires a clear understanding of customer needs so

that the right communication channels are selected and key messages will
resonate with customers.

Clearly Identifying and Understanding the Target Audience

1. A critical marketing communication concept is having a very clear and thorough

understanding of the desired target audience. It is not enough to define the
audience in general terms, such as women age 25 to 55. Instead, marketers should
attempt to further refine the market definition to provide them with a focus for their
communication efforts. For instance: college-educated women, living in XYZ area,
single, making an average income of $100,000 per year who are interested in fine
food and wine. The more specific marketers can be, the better they will be able to
develop appropriate messages that will be delivered through appropriate
communication channels.

Differentiating from the Competition

1. It is important for marketing communicators to understand who the competition is,

what they have to offer and how they can position what they're offering in ways to
attract buyers. Competition may be both direct and indirect. Target is a direct
competitor of Walmart, for instance. But Target's indirect competitors could include
 the entire broad range of retail stores that sell the same types of products they sell.
To position themselves effectively against the competition, marketers will draw both
upon their understanding of the competition and their understanding of their target
market and its desires and preferences.

Developing Key Messages

1. To effectively connect with target audiences, marketing communicators must

develop key messages designed to emphasize the main points about their products
and services that will meet audience needs and position them against the
competition. Key messages should be direct, benefit-oriented and limited to no
more than three to five. The more specific and impactful, the marketing
communicator can be, the more likely he or she will be able to get their points
across in an increasingly cluttered communication environment.

Selecting Communication Channels

1. Today's marketing communicators have a wide range of communication channels

to choose from, which can be a good thing. It can also present challenges in terms
of narrowing the options and selecting those most likely to connect with the target
audience at the right time. Again, the marketer must consider his own unique target
market segments and select the tools he is most likely to engage with. For
instance, while many marketers have embraced social media, social media may
not be the best tool to reach certain audiences. Marketers must select
communication channels because they are the right channels and not simply
because they are trendy.