Market Segmentation: Know your Audience

Segmentation Basics

There are a number of ways you can differentiate human beings for the purpose of marketing. Here are the big four:

1. Geographical Segmentation

You can group people by any level of geography from Planet Earth to a postcode and anything in-between.

The most obvious reason for determining the geography of a segment is to understand your catchment area, but there might be additional characteristics, for example, the climate in a given region, or its topology. You can’t sell umbrellas if it never rains.

2. Demographic Segmentation

Demographics are people descriptors, for example age, gender, ethnicity, or disposable income. Luxury products need to be targeted at those who can afford them. Some things are prescribed by certain belief systems. Young people rarely need zimmer-frames.

When you combine geographical targeting with demographic targeting you get something called geo-clustering, or as I prefer to put it, the right people in the right place.

3. Psychographic Segmentation

This is the warm and fuzzy stuff to do with personal values, lifestyle and aspirations. It is more about how consumers see themselves, rather than how rigid systems such as geography and demographics would have them be seen. Data like this is usually captured in the form of surveys and polls.

4. Behavioural Segmentation

This looks at the behavioural patterns of current and potential customers and seeks to identify common traits. For example, a hotel will target regular business travellers differently than a family that takes one major holiday a year. Same hotel but different segments based on behaviour.

What validates a segment

A valid segment will meet all of these criteria:

• Measurable – this means you can determine its size and composition and you will also be able to make intelligent predictions about the revenue and profit it can generate.
• Substantial – this refers to profitability not size. A segment might constitute only one customer, but if the profit is significant it may well be viable.
• Differentiable – different segments will react differently to the same marketing mix. If they don’t, they are not different segments.
• Actionable – you should be able to provide the value that this customer seeks. For example, a low-cost airline has little to offer the intercontinental business traveller.
• Accessible – You should be able to reach the segment at an appropriate time and place and in the right context.

If an identified segment does not meet any of these then it is not effective and is highly unlikely to succeed.

Know your segments, know your customer

After brainstorming your initial customer segments, you might have identified several segments to which you can deliver competitive value. Because the marketer is always conscious of budget, you have to decide which segments offer the most bang for your buck.

You also need to understand whether you would deliver the same product to different segments but perhaps with different packaging and messaging.

Holliday Inn offers the same rooms (product) but advertises using different marketing campaigns with different messages and focus (ie. Family Fun, Work / meeting spaces, group events, weddings, etc.). No matter which marketing campaign the user clicks on, and follows whichever path to purchase (customer journey), they all end up staying in the exact same room type (product).

BMW, on the other hand, builds a range of different cars (products) that meet the needs of different customer segments, all while maintaining a common branded marketing campaign in the form of its core value, the ultimate driving machine.

Holiday Inn advertises its singular product (a generic hotel room) to different market segments (families, travelling businessman, etc.) directing all traffic to the same endpoint (same type of hotel room).

BMW created multiple products (fast car for racing, spacious SUV for families, etc.) that it advertises to different market segments (racing enthusiasts or families), directing each targeted segment to a specific designed product that best relates to that segments desires and needs (fast car for racing, or spacious SUV for families).

In the real world

I love bragging that I am the king of fake knowledge! But in this case, do not use fake knowledge.  It never ceases to amaze me how many marketing peeps go to market on assumptions that are based on their own world view (fake knowledge) and not that of their actual customers.

To be fair, in the real world, there is a lot of intuition that goes into segmentation, (guestimatation aka fake knowledge) especially in the early stages and usually before there is a customer base that can even be polled.  But once you get your initial feedback from customers, that’s when you can start nailing down your market segmentation foundation.

For many products, the market(s) might be obvious, but for many companies, it is not so simple.

For example,  an new online sports retailer X:

• Geographically there may be no restrictions beyond variable shipping costs and customs duties over which they have no control.
• Demographically they may offer brands that range in price and appeal to different levels of disposable income. How can the new online sports retailer X promote themselves as competitors to let’s say; SportChek (Yes, I live in Canada) and Cleve’s Source for Sports ( Yes, I live in Atlantic Canada), at the same time?
• In terms of behaviour, sports is a loose term. It can mean anything from darts to hockey, snooker to skiing. How does the online sports retailer X position themselves and in which markets? How do they prioritize? There are many possible answers, none of which are necessarily wrong, but which will produce different outcomes in terms of profitability.

What can you do?

Segmentation is a highly complicated marketing aspect, however it plays a major role defining campaign success and paid advertising. Remember, your customer is the centre of your universe. Anything that helps you understand and connect with them is a good thing. One size does not fit all and rarely does one simple message hit the jackpot. Always A/B test the messaging for each segmentation to ensure high conversion rates.