Segmentation gives marketers the advantage of identifying niche populations to effectively sell a product, idea or message. It is a better strategy in marketing to break up diverse groups of people, rather than treat them as all the same.
Customer segmentation is a strategy that businesses use to target specific groups of customers, where they are highly comparable in each segment. It is advantageous to follow this methodology because segmenting customers by defined criteria supports understanding of their specific wants and needs. Instead of focusing on the needs of the entire market, companies use customer segmentation to break down the needs of everyone, specifically focusing on target niches. This makes it easier to manage and deploy the right strategy which will create the most positive response. The segmentation method better understands consumers, because it refrains from treating them as all the same. Therefore, it makes sense why marketing strategy should identify those differences. By targeting specific traits and characteristics, the more likely the customer will pay attention to the message, relate to it, and subsequently buy into that product or idea.
Customer segmentation is based on many different identifying characteristics. They can be broken down into the following categories of Geographic, Demographic, Attitudinal, Behavioural, and Priori segmentation. The first is based on Geographic location and segments the market into different regions, countries, states or provinces, for example. Demographic segmentation identifies things like gender, education, ethnicity, and religion.
Attitudinal segmentation can only be achieved by primary research using survey tools. It provides researchers with levels of agreement to specific attitudinal statements. Typically, this is done using a traditional Likert scale, or a cluster analysis. This way, researchers can easily identify which segments hold similar views, and how they vary from group to group. These commonalities can be things such as interests and values for example.
Behavioral segmentation describes questions marketers ask about their feelings towards brands. Customers are divided into different segments and are measured by using primary or secondary research. Methods of segmentation include a Parteo Split, deciles, or terciles. Other questions related to this type of customer segmentation could include their eagerness to buy something, potential benefits of a product, use rate, or their inclination to buy one brand over another.
Needs segmentation is what consumers are looking for in a product. This method is implemented using likert scale ratings, maxdiff exercise or a conjoint exercise. Cluster analysis statistical techniques also are used to segment respondents.
Priori segmentation is used in already-deduced segmentation, and is probably the most common method. Much the same as behavioral segmentation, Priori segmentation can also be achieved by using primary or secondary data.
More known ways to segment:
1. Demographics-Breakdown by any combination: age, gender, income, education, ethnicity, marital status, education, household (or business), size, length of residence, type of residence or even profession/Occupation.
2. Psychographics-This refers to ‘personality and emotions’ based on behavior, linked to purchase choices, including attitudes, lifestyle, hobbies, risk aversion, personality and leadership traits. magazines read and TV.
3. Lifestyle-This refers to Hobbies, recreational pursuits, entertainment, vacations, and other non-work time pursuits.
4. Belief and Values-Refers to Religious, political, nationalistic and cultural beliefs and values.
5. Life Stages-Life Stages is the Chronological benchmarking of people’s lives at different stages.
8. Benefit-Benefit is the use and satisfaction gained by the consumer.
Best steps to customer segmentation: THE Segment, Target & Position.
The STP Model consists of three steps that help you analyze your offering and the way you communicate its benefits and value to specific groups.
STP stands for:
Step 1: Segment your markets.
Step 2: Target your best customers.
Step 3: Position your offerings.
This model is useful because it helps you identify your most valuable types of customer, and then develop products and marketing messages that ideally suit them. This allows you to engage with each group better, personalize your messages, and sell much more of your product.
Applying the STP Model: Follow the steps below to apply the STP Model in your organization.
Step 1: Segment Your Market
Your organization, product or brand can’t be all things to all people. This is why you need to use market segmentation to divide your customers into groups of people with common characteristics and needs. This allows you to tailor your approach to meet each group’s needs cost-effectively, and this gives you a huge advantage over competitors who use a “one size fits all” approach.
There are many different ways to segment your target markets. For example, you can use the following approaches:
Demographic – By personal attributes such as age, marital status, gender, ethnicity, sexuality, education, or occupation.
Geographic – By country, region, state, city, or neighborhood.
Psychographic – By personality, risk aversion, values, or lifestyle.
Behavioral – By how people use the product, how loyal they are, or the benefits that they are looking for.
The Adventure Travel Company is an online travel agency that organizes worldwide adventure vacations. It has split its customers into three segments, because it’s too costly to create different packages for more groups than this.
Segment A is made up of young married couples, who are primarily interested in affordable, eco-friendly vacations in exotic locations.
Segment B consists of middle-class families, who want safe, family-friendly vacation packages that make it easy and fun to travel with children.
Segment C comprises upscale retirees, who are looking for stylish and luxurious vacations in well-known locations such as Paris and Rome.
Step 2: Target Your Best Customers
Next, you decide which segments to target by finding the most attractive ones. There are several factors to consider here.
First, look at the profitability of each segment. Which customer groups contribute most to your bottom line?
Next, analyze the size and potential growth of each customer group. Is it large enough to be worth addressing? Is steady growth possible? And how does it compare with the other segments? (Make sure that you won’t be reducing revenue by shifting your focus to a niche market that’s too small.)
Last, think carefully about how well your organization can service this market. For example, are there any legal, technological or social barriers that could have an impact?
The Adventure Travel Company analyzes the profits, revenue and market size of each of its segments. Segment A has profits of $8million, Segment B has profits of $4 million, and Segment C has profits of $3 million. So, it decides to focus on Segment A, after confirming that the segment size is big enough (it’s estimated to be worth $220 million/year.)
Step 3: Position Your Offering
In this last step, your goal is to identify how you want to position your product to target the most valuable customer segments. Then, you can select the marketing mix that will be most effective for each of them.
First, consider why customers should purchase your product rather than those of your competitors. Do this by identifying your unique selling proposition , and draw a positioning map to understand how each segment perceives your product, brand or service. This will help you determine how best to position your offering.
Next, look at the wants and needs of each segment, or the problem that your product solves for these people. Create a value proposition that clearly explains how your offering will meet this requirement better than any of your competitors’ products, and then develop a marketing campaign that presents this value proposition in a way that your audience will appreciate.
The Adventure Travel Company markets itself as the “best eco-vacation service for young married couples” (Segment A).
It hosts a competition on social media to reach its desired market, because these are the channels that these people prefer. It asks customers to send in interesting pictures of past eco-vacations, and the best one wins an all-inclusive trip.
The campaign goes viral and thousands of people send in their photos, which helps build the Adventure Travel Company mailing list. The company then creates a monthly e-newsletter full of eco-vacation destination profiles.