Market Segmentation and Targeting: The Foundation of Effective Marketing
Introduction
Marketers face a challenge when selling to “everyone,” as they tend to end up selling to nobody from the resulting pluralism of choice among the global markets. The successful marketer has learned how each customer or group of customers has individual differences no matter when it comes to their respective needs/wants, motivation or purchasing habits. Therefore, as far as selling goes, market segmentation and target marketing become the essential components for achieving success in today’s crowded marketplace.
To successfully segment the overall large market into smaller markets that are clearly defined, marketers can concentrate their marketing efforts on the most promising market segments and, through the use of these smaller target markets, produce more relevant messages, enhance the customer experience and generate greater profit opportunities.
This article discusses what market segmentation and targeting are, why they matter and provides marketers with some practical suggestions, including sample and expert insights, regarding how they can successfully use both segmentation and targeting in order to maximize their success.
Here are some examples of types of market segmentation:
1.Demographics
are the most common form of market segmentation and are based on measurable characteristics, including (but not limited to) age, sex, income, education, occupation, and family size. For example, a luxury automotive company may target prospective buyers between the ages of 35 and 55 years of age who are highly successful in their occupations and desire both the prestige and performance that luxury vehicles provide.
2.Geographic Market Segmentation
segments the marketplace based on geographical regions (e.g., country, region, city), climate (i.e., cold season versus warm season) and rural or urban areas. For example, a clothing retailer would promote winter jackets in areas where there is a cold climate, but typically would not promote winter jackets to consumers who live in warm-weather climates.
3.Psychographic Segmentation segments
the marketplace by lifestyle, values, personality, and lifestyle interests. For example, many companies that manufacture outdoor sports/utility products typically target consumers that value adventure, sustainability, and live in a nature-oriented fashion.
4.Behavioral segmentation
The identification of customer segments by product/brand behaviour falls within the behavioural segmentation. Behavioural segmentation considers:
Frequency of purchase
Loyalty to a specific brand(s)
Specific benefit(s) sought
Involvement in purchasing behaviour
Streaming service providers will typically segment their users as either casual, binge, or premium subscribers.
Market segmentation is important to marketers for a number of reasons:
1.More efficient marketing spend
When organisations understand the target breakdowns of customers that they should be marketing to, they will minimise their overall expenditure on advertising.
According to McKinsey’s research, companies whose marketing segmentation is sophisticated will generally achieve a 10-20% improvement in marketing efficiency.
2.Better customer experience
Marketing messages that communicate examples relevant to individual customer behaviours lead to higher levels of customer engagement.
Experian research shows that when e-mail marketing campaigns are tailored to the behaviour of the customer, transactions will increase by six times on average.
3.Improved product improvement
Through segmentation, organisations can determine unmet needs across particular segments of the customer base. This can provide organisations with direction for product development and improvement.
Companies that have a strong understanding of the segments that make up their customer base will typically create products that will be successful in the marketplace.
The next step after segmentation has occurred is targeting, or identifying the segments that the marketers will focus their marketing efforts on.
Not all customer segments are created equal. Marketers will evaluate market segments based on the following criteria:
Size and growth of opportunities
Likelihood of being profitable
Level of competition
Alignment with strengths of the company
Three Types of Targeting Strategies
1.No Categorization (General) Marketing
Marketing towards the entire market with one message from one company.
Example:
Marketing of basic essentials like sugar and salt.
Pros: high reach
Cons: low personalisation
2.Categorized Marketing
Marketing to different market groups with different marketing strategies by the same company.
Example:
A smartphone manufacturer may make
Low-priced phones for students
Mid-range phones for working-class
High-end phones for techies
More marketing messages are produced in this type of strategy due to the larger number of target markets than No Categorization marketing, but necessitate more resources to be successful.
3.Specialty (Concentrated) Marketing
A company will only market to a specific market.
Example:
A vegan skin-care company markets directly to those customers who will buy only animal cruelty and plant-based products.
This particular method tends to be more successful for beginning and small companies since there tends to be fewer companies to compete against.
Case Study: Nike’s Segmentation Strategy in Real Life
Nike is seen for having a well-organized and sophisticated segmentation (targeting) strategy.
Nike does not create all of its products for everyone who wears shoes. Instead of creating one product to appeal to everyone Nike has broken up its market for its products using 3 different characteristics:
Sport (running, basketball, or football)
Level Of Athlete (Professional, Amateur, or beginning)
Lifestyle.
Let’s look at an example of how Nike segmented each of its characteristics. The Air Jordan line is targeted towards basketball players and sneaker collectors. The Nike Running category is marketed to both athletes and marathon runners.
Nike has created one of the largest brand communities in the world because of its segmentation strategy.
Steps Marketers Can Take
Marketers can take the following steps to create an effective segmentation:
1.Gather Customer Data
To gather customer data you can utilize the following tools:
Customer Surveys
CRM Systems
Web Analytics
Social Media
The data you gather, will also provide you with trends (patterns in how customers think and feel) on their wants and needs.
2.Identify Meaningful Segments
As you identify segments, look for the four factors of a meaningful segment:
There need to be enough people in the segment to make a profit
Segments must be distinguishable from others.
Segments must be reachable through marketing.
Keep your segments manageable or you will undermine your marketing focus.
3. Evaluate Segment Potential
When evaluating segment potential, ask yourself the following questions:
- Is the segment growing?
- Do I have the resources to serve this segment?
- Am I able to differentiate from my competitors?
4. Create Segment-Specific Messaging
The messaging you create for each of your segments should create value by addressing the unique needs of that particular segment.
For example:
A fitness brand can market to three distinctly different segments through:
- Marketing to the beginner by promoting weight loss benefits
- Marketing to the athlete by promoting performance improvements
5. Review and Refine Regularly
The way consumers behave can change very quickly. Therefore, you will want to be sure to review your data regularly in order to refine your segmentation and targeting strategies.
Expert Insight: Personalization is Key
As marketing strategist Seth Godin famously said:
“Not everyone is a customer.”
Successful marketing today is all about knowing who your target customers are and how to serve them better than anyone else.
Companies that are successful in segmenting and targeting will also tend to be more successful than their competition, because they provide customers with highly relevant experiences.
Conclusion
Market segmentation and targeting are not simply theories of marketing; these concepts represent powerful mechanisms that can help marketers achieve real results for their companies. By dividing a market into segments and building marketing campaigns that target only the most attractive segments of the market, marketers will increase the effectiveness of their marketing campaigns, strengthen relationships with customers and increase profitability.
In a world where consumers expect to receive personalized experiences from all companies; businesses who successfully use segmentation and targeting have a market advantage.
Call to Action
To improve your marketing strategy, begin by analyzing your current customers and identifying which segments are important to your business and where the greatest potential exists. Use that information in order to develop campaigns that target each segment’s needs and objectives. The more precise your understanding of your audience is, the more powerful your marketing will be.
