The importance of market segmentation and targeting

All marketers understand the importance of reaching the right customers, with the right messages, at the right time. This means abandoning the one-size-fits-all marketing approach that may have worked for brands in days gone by and adopting something more bespoke and meaningful.

Utilising every chance to reach, interact with, engage, and convert customers should be at the forefront of any brand’s marketing plan. As such, organisations are aware of the growing importance of market segmentation and targeting specific groups of consumers as part of wider marketing management objectives.

What is market segmentation?

Shopify define market segmentation as ‘the process of dividing a target market into groups or subgroups. These smaller segments of consumers will share similar needs, similar interests, and similar characteristics.’ Once a broad consumer base has been divided into distinct groups, it’s far easier to tailor marketing messages and efforts to their specific needs and criteria.

There are many benefits of market segmentation, and each serves to increase a brand’s overall competitive advantage:

• A deeper understanding of customer groups and personas – which facilitates the ability to target customers who are more likely to pay for products and services that appeal directly to them
• Informed differentiation of marketing mix, strategies, and tactics
• Increased customer satisfaction and customer experience – and therefore retention
• Better return on investment (ROI) and profitability of marketing efforts and campaigns
• More efficient resource allocation
• Optimised pricing strategies
• Enhanced forecasting and decision-making across all areas of marketing
• Access to insights that support product development

Better market positioning, value proposition, and increased market opportunities

For a closer look at how effective segmentation is in practice, we only need look at the learnings from email segmentation. HubSpot’s State of Marketing Report 2023 found that segmented emails drive 30% more opens and 50% more click-throughs than unsegmented ones.

The terms market segmentation and customer segmentation are often confused with one another. The key difference is that while market segmentation is focused on dividing the entire market into different segments, customer segmentation is concerned with dividing an organisation’s existing customer base.

What are the different types of market segmentation?

Understanding the various ways in which a market can be segmented supports targeted marketing efforts and campaign efficiency.

The different types of market segmentation:

• Demographic segmentation, which divides the market based on variables including gender, age, family size, income, level of education, ethnicity, occupation, nationality, and religion. Information on these variables is generally readily available and easy to measure, making it a common and attractive option for many brands.
• Behavioural segmentation, which divides the market based on consumer behaviour in relation to products and services. This includes aspects such as brand loyalty, usage rate, user status, purchasing frequency, and benefits sought. It’s a valuable way to understand more about how customers interact with both products and brands.
• Psychographic segmentation, which divides the market based on psychological aspects of consumer behaviour – from personality, values, and lifestyle to opinions, social status, and interests. Psychographics are useful in terms of figuring out the motivations behind certain decisions.
• Geographic segmentation, which divides the market based on geographic location and data, including climate, region, population density, city, country, and urban/rural environments. It can be particularly helpful when marketers are devising regional, national, and multinational strategies.

There are also further types: firmographic segmentation, technographic segmentation, occasion-based segmentation, and needs-based segmentation.

As a marketer, the market segmentation strategy you adopt will depend on various factors that are specific to your brand or business. You’ll need to consider the overarching business goals, your market and customers, your products and services, data insights, and the broader business landscape. Tracking key performance indicators (KPIs) such as Net Promoter Score (NPS), customer satisfaction levels, market share, and Customer Lifetime Value (CLV) will enable you to analyse how well segmentation strategies are working and identify areas for improvement.

How does market segmentation inform marketing strategy?

Adopting the STP marketing model (Segmentation, Targeting, Positioning) is efficient, streamlined, and strategic.

As well as enabling the development of targeted marketing campaigns, informing product development and product positioning, providing highly personalised customer experiences, and supporting the efficient allocation of resources, market segmentation is critical to a host of other strategic marketing decisions.

Segmentation provides marketers, service providers, and retailers with insights that help them develop pricing strategies that maximise revenue. By understanding the value perception and purchasing power among different target segments, they can pitch products and services at optimal prices that factor in price sensitivity. For example, certain groups of people will be more than willing to pay a premium for what a product they perceive as superior quality or possessing additional features, and others will not.

It also supports marketing channel selection and planning. As specific segments may prefer different communication channels, knowing which ones – such as television, email, print, or social media – will give your brand the best chance of reaching each group is highly valuable. Taking social media as an example, Sprout Social state that: 18–29-year-olds are most likely to be on Snapchat; 30-39-year-olds on LinkedIn; 40-49-year-olds also on LinkedIn; and 50-59-year-olds on Facebook.

When you have an in-depth understanding of a specific group’s pain points, sensitivities, values, and aspirations, message customisation becomes a whole lot easier – not to mention impactful. By using messaging that strongly resonates with potential customers, the likelihood of capturing their attention – and driving tangible action – is greatly increased.

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