Understanding Segmentation

Reading Segmentation online can be overwhelming but spend 10 minutes here and we will make you an expert.

Segmentation Is, At Its Core, Generalization. It’s a way to group your customers so your business can benefit by reaching and converting your ideal customers into a sale. Customer segmentation is a process of classifying your customer database into small groups with customers having similar requirements. For example, a database can be classified by tags such as age, gender, profession, locality, etc.

Here are some simple examples as a result of segmentation:

  • Segment people based on the fact that they bought a specific product
  • Segment people based on the fact that they selected “real estate” when filling in your lead generation form
  • Segment people based on the fact that they live in Canada (and your marketing automation software can see their location).
  • Segment people based on the fact that they haven’t purchased anything or opened a sent email in more than six months.

Using different ways of grouping, or segmentation your customers, allows you to target your customers based on unique characteristics, create more effective marketing campaigns, and find opportunities in your market.

The importance of segmentation is that it makes it easier to focus marketing efforts (money) and resources (and, money) on reaching the most valuable customers and enabling your organization to achieve business goals.

Problem Small Businesses Have - Yet, most businesses, especially without a dedicated marketing department do not segment their customers, let alone have a single system to maintain their customer contact records.


Customer Segmentation vs. Market Segmentation

Now, you will hear across the internet customer segment

  1. Customer Segmentation is the practice of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, or spending habits. For example, the customer segment includes a specific grouping like age, gender, interests, lifestyle, etc.

    Question: Do you see your market benefit from any such grouping? Male vs. Female? Or, younger vs. older generation?
  2. Market Segmentation is part of the marketing strategy which involves dividing a broad target market into subsets of consumers, businesses, or countries who have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them. An example of market segmentation is grouping customers by the products or services they purchase. A company may perform market segmentation based on distinct lines of business such as product sales, professional services, training or after-sales support.
    Question: Do you have different revenue channels? Can you target particular customers for one critical service better than others? Can you be specific to them and their benefit?


Strong Segment Vs Poor Segmentation

Ensuring effective segmentation is your number one goal. After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests.

  1. Relevant Segmentation - Serving Relevant Segmented Customers. Segments must be structured such that the knowledge effectively attracts your customers and aids your business’ marketing goals. For example, there’s no point in segmenting your technology companies by dress color, as the information is useless to you. Equally, there’s no point in segmenting your hair salon’s customers by the size of their business.
  2. Uniquely Segmented Customers - Each Of Your Segments Must Be Different And Unique. Segments must be easily distinguished from each other. Your business needs to be able to implement a distinctive marketing mix for each market segment which is only possible if your segments are uniquely independent. Your market segment must produce a differential response when exposed to the market offering. For example: if you have customers who love outdoor activities and people who care about the environment and have the same purchasing habits. Rather than have two separate segments, you should consider grouping both together in a single segment.
  3. Measurable Segmentation - Design Your Segment For Potential Earnings so that your segmentation variables are directly related to purchasing a product. For example, one of your segments maybe those who are more likely to shop during a promotion, sale, or seasonal holiday. You should be able to estimate how much your segment will spend on your product or services.
  4. Substantial Segmentation - Be Focused But Have A Significant Collection Of Customers. There’s no point in segmenting so specifically that creating a tailored marketing program for that segment would yield a negative ROI. Your segment should be “the largest possible homogeneous group worth going after.”
  5. Accessible And Actionable - The Market Segment Must Have The Ability To Purchase. Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment.

Each of your market segments should respond better to a distinct marketing mix, rather than a generic offering. Make sure an identified segment is not just interested in you but can be expected to purchase from you. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but really can’t afford them. Or, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, successful entrepreneurs who want to show off their wealth, and leisurely retirees who can afford your goods. Your firm should have the capabilities to market to each segment on various access channels.

  1. Responsive & Stable Segment - Your Segment can be nurtured over time and multiple impressions. Your audience needs to be nurtured a few times before they can be turned into paying customers. Your marketing effort is more likely to succeed than if that segment is stable, rather if the segment composition is continuously changed. More importantly, you are able to measure the response of your Various merchandising techniques used to promote and reach each of these segments.

    And, if the segment will not be more responsive to a distinct offering, then the segment can probably be combined with another similar segment. This does not mean that you just shouldn’t change - be flexible. Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.

Now, The Poooooor Segmentation is something that is not incorporating any of the above strategies. If you are just starting with segmentation, then take it slow and steady initially till you learn how to specialize in your niche. Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to get automated from the beginning.