What Are the Advantages of Segmentation?

When you talk to marketers about how to promote a business you will probably be told about the advantages of segmentation. It’s one of those marketing strategies that looks at winning the war, not just the immediate battle (or that’s how it should be handled).

By segmenting an audience you are looking at your current and prospective buyers and placing them into groups of people, who see your product or service differently from another group. These individual groups have common wants and habits and the people in them will respond in a similar way to your marketing campaigns.

Segmentation enables a business to find new opportunities too.

But to be effective, one segment has to be different to any other group or segment.

So don’t segment for segmentation’s sake and always consider what questions you’ll ask once you have the segments in place. In other words, why are you doing it… ?

 

In this article:

  1. Why Does Market Segmentation Exist?

  2. Advantages of Segmentation

  3. Some Super Simple Ways to Segment a Market or Audience

  4. Common Ways of Segmenting

  5. Final Thoughts

the advantages of segmentation

Why Does Market and Audience Segmentation Exist?

With segmentation you are looking for patterns among your audience that you can use to group them together and ultimately better serve them (and your business).

It means the right message, at the right time, to the right audience – your target customer.

Doing this allows you to build a strategy around your customers, or prospects that look like those in your customer base, and meet their needs more effectively. When you understand what you offer that your competitors don’t, and which of your audience can benefit from this, you can target properly.

Your marketing becomes more effective (and less expensive). Segmentation also boosts your customer retention levels because your marketing is more relevant. And in return your profits get a boost too.

Advantages of Segmentation

Proper segmentation relies on data, and so the better the data the better your audience insights will be. The better those insights the more effective your segmentation can be and therefore the way you market is more relevant and less costly. Your customers get increased levels of satisfaction and you get a stronger foothold in the general market mix. But sales and profits aren’t the only ways to use segmentation to your advantage:

  • Better More Relevant Marketing Campaigns

Segmenting markets helps you learn more about your audience. By improving the what and the where of adverts and marketing campaigns you can don’t spend money targeting people that aren’t interested and won’t convert.

Even a product that has widespread appeal can benefit from targeting. A laptop might make life easier for a teacher, but for a student that same laptop might be the ideal tool for completing college work.

  • New Products and Services

When you understand your customers needs you can create products and services that help fix their pain points. Without the research that segmentation brings you’re just guessing at what they want. Getting to know your customers in this way will increase their affinity with your brand too.

On a similar track you might also uncover areas in your business that need expanding. Customer segmentation can reveal areas in your business that are lacking or areas in entire industries where there is a gap in the market.

  • Segmentation Focuses Your Business Decisions and Direction

As businesses grow or just while they are trying to keep the wheels moving it can be easy to lose direction. Segmenting can help a business focus on where it should really be positioning itself (for the record, you won’t stand out from the competition by being everything to everyone).

Segmenting your audiences can help identify where you fit in and give you a better target to aim for. You might find that customers come to you for a certain reason that you hadn’t thought of before.

It can also help in areas like pricing, highlighting any problems customers have or might have with current pricing strategies. For example, do customers in a certain location have a price expectation?

… And These

Another of the advantages of segmentation is identifying seasonal trends and spotting seasonal niches that you perhaps hadn’t spotted or developed to their fullest.

If you’re a small business, audience segmentation allows you to compete. For example you could become a leader in your industry for a particular niche, allowing you to compete with bigger more established but generic brands. The risk is that too much specialisation could be a problem if those customer groups change their purchasing habits or technology changes things.

But there are some things to consider when you’re segmenting your audience:

  • If you’re manufacturing multiple products or developing multiple new services costs would increase.
  • Promotional costs would rise too as you need different media space to effectively target a segment of your audience.

Of course, the return should cover the costs of targeting a specific market. And that’s true of any marketing activity.

… and Don’t Overlook These ‘Advantages’ of Segmentation

Technology has changed the way people buy products and services. Many things can be bought and sold online. Many services operate in a digital only environment.

So, yes you have to be where your customers are.

And that might be social media, websites, email

But technology also made talk cheap, or made communication cheap.

At any point in the 24-hour a customer can purchase, can give your business their opinion, their complaints and their praise. At any point a customer can talk about your business to their friends or other potential customers.

Technology has created conversations. And marketing opportunities. The old-fashioned way of creating an and trying to persuade as many people as possible to buy into it is gone.

But it means as a business you can track that data, and the potential to understand your audience has never been greater.

And over time this understanding will only get better. You may have to (and should) revise your segments over time. But it will likely be tweaks you’re making.

audience segmentation with coloured chairs

Some Super Simple Ways to Segment

What you’re trying to achieve with segmentation and what factors you use to segment your audience depends on your business goals. It could be an increased market share or sales, sales, sales.

At the most basic level a simple segmentation is often split like this:

  • buyers – those who have bought or used a service from your company
  • non-buyers – those who haven’t bought from or used a service by your company (they might have signed up or shown an interest in some way)

It’s a start and is better than sending everyone the same message. You can see how those audiences would have a clearly different message – for example a buyer might be sent a piece of relevant content or relevant related products. A non-buyer might be sent an introductory offer or discount off a particular product or service.

Recency, Frequency, Monetary Value

The RFM model looks at how recently someone has purchased, how often they purchase and how much they spend with you. Looking at these areas is the search for your best customers; who spends the most, most often:

Recency: how recently the person placed an order/opened or clicked through an email/other action based on your business goals.

Frequency: How often they buy or use your services/open or click an email/other action based on your business goals.

Monetary Value: How much they spend. This could be lifetime spend or average basket value.

You could score each customer looking for the best/worst and match your marketing and marketing spend accordingly to your goals with each segment (i.e you could try to entice the lowest scoring customers or leave them out of certain marketing efforts altogether, to make ad spend more efficient).

Analysis over time can identify audience segments that are at risk of going to a competitor or those who you can offer a premium service because the increased return is proven.

There are other benefits of marketing segmentation with these areas too:

  • You could use the Recency segment to improve your marketing response KPIs.
  • The Frequency segment could be targeted if you want to increase conversions.
  • The Monetary Value segment can be used to cross sell, or increase your average order value.

common ways of segmenting - escalator image

Common Ways of Segmenting Markets and Audiences

When it comes to segmenting a market what you are looking for are patterns. By uncovering common patterns of behaviour or location or lifestyle decisions you can target your customers and prospects more efficiently and uncover knowledge about them. This knowledge can boost your sales.

These are the popular ways of segmenting an audience:

Demographic Segmentation

Simple and perhaps the most used of all segmentation types, demographics are used to understand why people buy the products they buy, how they use them, and how much people are willing to spend on them.

Demographic segmentation includes:

  • Age groups
  • Education level
  • Job
  • Household income
  • Family setup
  • Nationality

Behavioural Segmentation

This is based on decision making patterns and common behaviours including:

  • Purchase types
  • Consumption frequency
  • Lifestyle choices
  • Product use

An example of this might be that younger age groups might prefer to stream films daily while older age groups tend to buy a DVD once a week.

Psychographic Segmentation

Other types of segmentation sort out the what and who, while Psychographic segmentation sorts out the why. It looks at an audience’s personal values and aims to understand the reasons why they make the choices they make.

This might include:

  • Lifestyle
  • Personality traits
  • Personal values and opinions
  • Interests (beyond hobbies)

Deeply understanding the ‘why?’ of your audience reaps huge benefits.

Geographic Segmentation

People living in different areas have different needs and interests. Understanding this can be used to segment your audience and, for example, help you target marketing campaigns, such as where and where not to advertise and where to launch new products, or even expand your business.

Geographic boundaries might include:

  • Postcode
  • Region
  • Town
  • City
  • Country

single tree segmented from land

Final Thoughts

You may think you know your audience, but if there’s anything in marketing that a ‘fact’ it’s that when you look at the data and when you test things you’ll always be surprised by an outcome.

Yes, it’s always better when we’re together… and by creating segments you can bring together large groups of people that like the same things, or behave in the same way allowing you to understand what they need from you and how you can let them know you have what they need. You’re possibly discovering new types of market.

Done properly you’ll save money on marketing by making it more efficient, and in return those customers will engage more with your business because their level of satisfaction goes up. Sounds like a no-brainer to us here at Revive.

Think how your business would benefit from better or any segmentation of your audience?