Market Segmentation – Types, Benefits, Mistakes & ExamplesJune 11, 2022
So, you’ve created a fantastic marketing campaign with a compelling copy, an excellent headline, and an enticing value proposition. Now ask yourself the question: who are the best people to send this proposal to?
With billions of dollars being spent in marketing worldwide and its steady rise, it becomes necessary to produce ROI from your campaigns to justify the resource allocation. It comes down to identifying the people that are more likely to respond to a given proposition.
And this is what market segmentation research is all about.
It helps you to identify your target audience for your products and services.
But wait, it also lets you work your way backward, i.e., identify what different customer types want and design new products personalized to each segment.
This is also supported by a Mailchimp study which shows that segmented campaigns produce a 100.95% higher click-through rate than non-segmented campaigns.
That’s why we have compiled this blog to get you started on market segmentation research for your business. After reading it, you’ll have a clear idea of what market segmentation is, its types, why it matters. and how to create a segmentation analysis strategy while avoiding some dangerous mistakes
Let’s crush this.
What is Market Segmentation?
Market segmentation divides the customer base or market into smaller groups called segments based on similar characteristics.
These characteristics can be customer actions, needs, desires, personal traits, professional attributes, or other variables.
The segments are subsets of the larger target market, making it easier for businesses to understand customers’ behavior, pain points, and motivations to deliver the best possible experience.
Proper customer segmentation makes it possible to identify the highest and lowest yielding segments, enabling you to make better marketing and product development decisions.
What’s more, it helps to identify the new target market with high growth potential so you can funnel your efforts into acquiring these new customers.
All-in-all, market segmentation is necessary at every step of the customer journey and product cycle to align customers’ interests and business goals together.
A Curious Case of Happiness Machines – Understanding the Psychology of Marketing
How one man leveraged the power of behavioral & psychographic targeting to acquire new market segments
There’s one name that comes to mind for designing ingeniously targeted campaigns that struck a chord with people’s subconscious desires and dreams. It’s Edward Bernays, nephew of famous neurologist Sigmund Freud and inventor of the field of Public Relations.
He is the prime example of targeting your customers’ behavioral, demographic, and psychographic attributes to bring desired results. As we’ll learn in the following sections, these are essential categories in today’s market segmentation research.
From his numerous campaigns, we have listed our favorite three (because the whiteboard isn’t big enough to list all of them) to give you an insight into the power of segmented campaigns.
a. Torches of Freedom
In 1929, when smoking in public was taboo for women in the US, Lucky Strike cigarettes hired Edward Bernays to break through into this new demographic. He came up with campaigns & advertisements linking cigarettes to the women’s liberation movement and promoting them as a fashion choice.
He also hired fashionable young women to stage a demonstration at the 1929 Easter parade while smoking their ‘torches of freedom.’ The success of Lucky Strike’s campaigns targeted towards women made it a leading brand in the U.S. during the 1930s. The targeting of women that began with this campaign led to a rise in cigarette sales from 5% in 1923 to 33.3% in 1965.
b. Classic all-American breakfast – Bacon & eggs
Ever wondered where the phrase all-American breakfast comes from? The Beech-Nut Packing Company approached Bernays to increase the consumer demand for one of their primary products, bacon.
So, Bernays asked a well-known New York physician whether a light breakfast or heavy breakfast would be better. He then acquired signatures from 5000 doctors that a heavy breakfast (bacon & eggs) is scientifically better.
The study was published in all the major newspapers & magazines of the time, and within six months of its publication, the bacon sales witnessed a massive spike in sales. By targeting consumer lifestyle and habits (psychographic traits), the campaign led to massive success.
c. Ivory Soap
In 1923, P&G (Procter & Gamble) hired Edward Bernays to promote their Ivory soap. At that time, it was the only soap in the market that was plain, white, and non-perfumed. To get started, Bernays surveyed consumers and found out that most people preferred such a soap. The survey results were published in the newspapers to attract more customers and provide free publicity to the brand.
To further increase the customer base for the Ivory soap, he designed special events to target children. These included soap sculpture carving contests, soap yacht races in Central Park, and others. The campaigns made Ivory soap a household name and P&G a leading personal care brand for years.
This case is another example of leveraging customer feedback and segmented campaigns to drive results.
Importance of Market Segmentation
Market segmentation derives its need from the fact that it lets you see visible trends among the heterogeneous population, making it possible for different teams to focus on individual segments.
So, rather than producing mass marketing campaigns and hoping they appeal to all the customers, you can create smaller, more refined crusades that target a specific segment and are more effective.
Here are few other pointers that exemplify the need for market segmentation:
1. Identify Different Audience Types
The primary purpose of market segmentation is to understand different groups among the target population. It lets the marketing team, product team, UI/UX team, and any other team that deals directly with the customers understand each of these groups’ pain points and delights.
As you learn how each group is different from others, you can come up with solutions that cater to each one of them.
Case Study – Udemy uses customer segmentation to allocate marketing resources and innovate its platform.
Udemy, one of the biggest e-learning platforms, uses user feedback to segment the visitors on its website according to the traffic source. The teams need to know how people land on its pages to allocate the advertising budget accordingly.
Udemy also uses targeted surveys to understand the effectiveness of the advertisement campaigns for different locations. Doing this helps the platform understand how different geographic segments react to different ads.
What’s more, survey feedback helps to understand the pain points of different segments across various locations.
For example, it was observed that people outside English-speaking countries were opting for courses taught in English. Then Udemy’s team launched automatic captioning in the course videos to improve user engagement and content accessibility.
2. Personalize Your Campaigns
There is no one-size-fits-all approach in a business because every customer has different preferences and interests. With market segmentation data comes the power to design a personalized experience for each segment.
Personalization is possible only when you understand the behavior and actions of the people who interact with your business.
In fact, 90% of customers are willing to share behavioral data for an easier and more personalized experience. So, personalization also promotes lead generation.
In a 2018 survey of 455 advertisers, publishers, and tech developers by Winterberry Group, 62% of respondents identified that improving audience segmentation to support more precise ad targeting was the top campaign management priority.
Here are few scenarios where businesses use market segmentation for personalization:
- Designing landing pages to target different customer types. Some landing pages target new visitors, like lead capture pages or click-through pages to collect information. Others, such as long-form sales pages, target customers at the end of the conversion funnel to persuade them to buy the product.
- Creating new product packages for different customer types like silver, gold, and platinum club membership.
- Designing different email campaigns with custom headlines, content copy, and CTAs aiming at different customer types to improve response and click-through rates. According to Experian, personalized emails produce six times more transaction rates.
- Using the previous search and watch history to show personalized recommendations like on YouTube & Netflix.
- Using cookies and data from other apps to show highly relevant ads to different user types like Facebook and Instagram.
Case Study – How AWA Digital helped Canon with product adoption using geographic segmentation.
AWA Digital decided to collect customer feedback across different geographies using Qualaroo surveys to understand the product demand for their client, Canon. Their customer research found that people had doubts about spending money on a Canon camera in some regions as they weren’t sure that it was a global industry leader. In other regions, authority was not that critical factor.
With the segmented data, AWA Digital optimized the product messaging to include important buying factors across different locations and ran A/B tests to confirm their hypotheses.
By personalizing the product messaging for each region to resonate with the experience customers wanted, AWA Digital generated an ROI of 700% for Canon.
Watch: Advanced Targeting
3. Explore New Product Adoption & Market Acquisition Opportunities
Another important use of market segmentation is introducing your product to the right people and researching how upcoming products can capture new market segments.
It provides the data to fuel your R&D process and helps allocate resources at the proper places.
Suppose you run the following survey to collect feedback on a newly released product.
- What is your age?
- Please specify your gender.
- What is your current employment status?
- What do you use the product for?
- According to you, what should be the ideal price for this product?
- Does this product have all the features and functionalities you expected?
- How would you improve this product?
You can group responses based on the same age, employment status, product usage, or any other combination of variables.
Once done, optimization strategies can be drawn for the same segments, like customers with the highest LTV (lifetime value) or the criticality of the issue.
Case Study – Infiniti Research leverages market segmentation to explore growth opportunities for its client dealing in Neuromonitoring devices
A client of Infinity Research was looking to create new products and acquire new market segments. The biggest challenge they were facing was to gain data from different markets and introduce their products effectively.
Infiniti Research decided to use market segmentation strategies to identify various customer segments, address their demands, and find new ways to reach them.
The research provided the following benefits to the client:
- It helped find niche market segments to position the products.
- Identify the competitors and design effective marketing campaigns.
- Seamlessly develop products and services to reach niche market segments.
4. Plot & Compare the Journey of Each Audience Segment
A customer journey map outlines the path a customer takes as they move from one stage to another during their buying journey, as shown in the image below:
Discover how to create a customer journey map and download the template here.
Interestingly, the map denotes the journey of a customer persona, which is an imaginary identity representing a group of people that takes the same path.
Here is an example of customer persona:
So, to create journey maps for different customers, you need to understand how different people behave and act along their journey.
And this is where you need market segmentation to know your audience types.
Market Segmentation is needed to create a customer persona, which helps to design customer journey maps.
Once the maps are drawn, you can visualize how different customers behave at different stages, such as finding your website on the internet or using different channels to contact customer services.
It helps to broaden your optimization process to create an effortless buying experience for every segment.
Types of Market Segmentation With Examples
Numerous variables separate one customer from another, so it’s necessary to have some broader categories to simplify the segmentation process.
That’s why there are six major market segmentation types. Within each type, there are multiple sub-categories to segment the customers, as discussed below:
1. Demographic Segmentation
Demographic segmentation breaks down the population into different groups based on their personal characteristics such as:
- Family Structure
- Level of Education
- Marital Status
Examples of demographic segmentation:
- Google AdWords’ demographic targeting dashboard to help you personalize the ads further.
- Gender-targeted ads from Nike.
- Abbott Nutrition’s age-based product targeting.
a. Firmographic Segmentation
While B2C brands usually use the above traits to segment and target users, firmographic segmentation is used to group B2B customers based on organizational characteristics such as:
- Experience (in years)
- Company Size
- Executive Title
- Sales Cycle Stage
It helps to create unique value propositions for each organizational segment and improve marketing campaigns.
Examples of firmographic targeting:
- The value proposition for Microsoft POS software targeting different industry types.
- Mastercard using focused messaging on its website to entice companies based on their size.
b. Generational Segmentation
Another sub-categorization of demographics is generational segmentation which divides people based on the period they are born. So, instead of age as an exact number, it groups people into different generations.
There are 5 generation groups:
- Baby Boomers: born 1946 to 1964
- Generation X: born 1965 to 1980
- Millennials: born 1981 to 1996
- Generation Z: born 1997 or after
- Generation Alpha: born 2010 or after
Different generations have different life experiences based on the changes around them and technological advancements. So segmenting your customers according to age groups can help you find the right target audience for your campaigns and ads.
For example, millennials and GenZ are generally more receptive towards Facebook ads than the generations before them. Or healthcare products appeal more to senior citizens.
Examples of generational segmentation:
- La Croix used the Instagram influencer campaign to promote its zero-sugar carbonated drinks over unhealthy soda to health-conscious millennials. By encouraging young followers to use hashtags like #LiveLaCroix and #LaCroixlove and sharing their product experiences on Instagram, the brand increased its sales by 45% in a single year.
- British Army’s witty recruitment campaigns targeting millennials’ idiosyncrasies.
2. Geographic Segmentation
Geographic segmentation ties the audience with their physical location and area. It includes grouping the market based on the following traits:
- Postal code
- Population density (urban, rural, or suburban)
- Economic status
- Regional climate
Geographic factors affect people’s behavior, habits, and interests. Different locations have different climates and topography that give rise to individual needs and preferences.
So, geographic segmentation let’s you pitch the right product to the right people, such as mountaineering boots for hilly regions or raincoats for places with heavy rainfalls.
Examples of geographic segmentation:
- Clothing ads based on regional climate.
- Location-based ad targeting on Facebook and other platforms.
3. Behavioral Segmentation
As the name implies, behavioral segmentation groups your target market according to their behavioral patterns as they interact with your business. It helps to map their motivations, actions, and preferences for creating an immersive experience along the customer journey.
There are different sub-categories for behavioral market segmentation that focus on different customer attributes, as discussed below:
a. Segmentation Based on Purchase Behavior
This type of segmentation examines and categorizes the users based on how they act while making purchasing decisions. Purchasing behavior depends on several factors such as prices, surroundings, income, and available channels, among others.
- Some customers may purchase from brands only when they have a discount coupon.
- Other users may compare extensive features before purchasing.
- Some prefer bulk purchases to save money and time.
Understanding how users decide to make purchases can help you deliver the correct messaging through the proper channels to increase engagement.
According to a consumer research study by McKinsey on changes in behavioral patterns due to COVID-19, 75% of consumers adopted a new shopping behavior like delivery app or curbside pickup during Covid and now intend to continue it beyond the crisis.
The same report also shows the shift towards online shopping during the COVID crisis, which means businesses also had to come up with platforms or ideas to sell their products online or risk losing revenue.
That’s why it’s imperative to track your customers’ purchase patterns so you can also spot the shift and make the necessary changes.
b. Seasonal or Time-Based Segmentation
Another sub-category of behavioral market segmentation is the grouping of customers who make purchases at specific times of the year, such as holidays or special occasions (weddings).
Many brands leverage time-based shopping to improve customer engagement and sales, like happy hours in a bar or a clearance sale on Black Friday.
How to use shopping season and market segmentation to boost sales:
Here is another 2020 report from McKinsey on holiday shopping behavior that categorizes the consumers based on their primary concerns
We can see that:
- 46% of people get confused about what to buy on holidays.
- Another 44% try to budget their purchases to control expenses.
Say you want to target these two segments. You can start by personalizing their experience by showing relevant product recommendations using the purchase and search history. Then, push them towards conversions with custom discounts,
memberships, and other saving options.
To successfully promote holiday and seasonal campaigns and get your brand out there, you can use popup tools such as Picreel. It lets you cash in on seasonal advertising and drive more conversions quickly to boost sales.
c. Value or Transactional Segmentation
Value or transactional segmentation groups customers based on their engagement with the business. This type of market segmentation takes into account the number of purchases, purchase frequency, and average order value to estimate the revenue potential and loyalty of the customer.
The customers can then be segmented based on different transactional traits.
- Regular customers who haven’t made a purchase in the last three months carry a high risk of churn.
- Customers with LTV above $15000 are high-value and loyal customers. So you can retarget with personalized services and offers.
d. Segmentation Based on Usage Status
This type of segmentation places customers in groups according to their current spot in the conversion funnel. It helps you find the challenges customers face at different stages of their journey and offer them unique solutions.
Usage-status based segmentation includes the following groups:
- Ex-users: Who used the product in the past but don’t use it anymore.
- Current users: Who are currently using the product.
- Non-user: Who has never used the product.
- First-time buyers: Who are using the product for the first time.
- Prospects: Potential customers who have shown interest in the product.
Example of user status based segmentation:
- Reaching out to the ex-users via surveys to learn about product issues and their reasons for discontinuing the product.
- Adding a smooth onboarding process for first-time users to improve product adoption.
- Designing landing pages and ads to attract non-users and prospects.
4. Psychographic Segmentation
Psychographic segmentation explores more nuanced traits of customers’ personalities, perceptions, interests, and beliefs. It separates people based on their way of living and values.
This segmentation includes grouping people based on the following variables:
- Social life
- Social status
- Involvement in the community
This makes it easy to position your products and services in the market when you know how your target audience thinks. It also lets you explore what kind of things your customers like and spend on, so you can explore new products and market opportunities.
Examples of psychographic segmentation:
- Johnie Walker’s White Walker Scotch Whisky, introduced during the final season of the Game of Thrones TV series to entice fans.;
- Baseball is more popular in America than in India, where cricket is more attuned to lifestyle. So it makes more sense to use cricket players in your advertisements than baseball stars.
- Harley Davidson’s messaging has always positioned itself among the rebellious, thrill-seeking bike lovers of America.
5. Price Segmentation
According to the 2017 Global Online Consumer Report by KPMG, price ranks at the top among the attributes that influence consumers’ purchasing decisions.
Consumers always ask this question to themselves – is the product price worth it?
That’s why it’s profitable to provide options to different customer types to implement your product at their ends.
With price segmentation, you can offer the same or similar product at different prices to different customers. There are different ways to differentiate the product price:
a. Customer Segmented Pricing
In this method, the company decides the product prices based on customer segments such as age, family type, region, etc.
A typical example of this type of pricing is an offer based on age, like a student or elderly discount.
b. Product Tier Pricing
In product tier pricing, the prices are set according to the different versions of the same product.
- Creating product tiers like standard, enterprise, and individual.
- Setting prices based on specific times, like holidays or weekends.
6. Technographic Segmentation
Finally, technographic segmentation lets you group people based on the usage and ownership of technology in their life. It’s a powerful market segmentation technique for businesses dealing in technological solutions like Saas, IT, research, CRM, etc.
Here are few cases of technographic segmentation:
- By grouping customers based on technology, you can visualize which prospects are shifting towards the solutions offered by your company.
- You can stay updated when a customer leaves your competitor so you can reach out to them at the precise moment.
- You can create a list of prospects using older technologies than what you’re offering and create value propositions to target them.
Watch: Supercharge Your Revenue With Data-Driven Pricing
Examples of Market Segmentation Survey Questions
1. Demographic Survey Questions
- Please specify your age
- Please specify your gender
- Select your highest level of education
- What is your current occupation?
- What is your monthly household income?
- What is your current marital status?
2. Firmographic Survey Questions
- What is the name of your company?
- Where is your company’s headquarters located?
- Please specify the number of employees that work in your company.
- What is your job title?
- In which location do you work?
3. Psychographic Survey Questions
- Which activity do you prefer in your free time?
- Which other physical activities do you take part in?
- Where is your dream holiday destination?
- Please rate the following as per their priority in your life? Family, work, or your social life?
- Are you happy with your current work-life balance?
- Do you describe yourself as an optimist or a pessimist?
- Have you ever boycotted a brand? If so, which brand and why?
- What influences your purchase decision more – price or quality of the item?
- How often do you give to charity?
- How do you travel to work?
- How many hours do you spend on social media like Facebook, Instagram, etc.?
- How do you do your monthly grocery shopping – online or through outlets?
4. Behavioral Survey Questions
- Have you heard of [product name or category] before?
- How would you feel if [product name] was no longer available?
- How often do you use [product name]?
- How long have you been using [product name] for?
- When was the last time you used [product name]?
- How do you search for the products you want to buy?
- According to you, what should be the ideal price of the [product name]?
- Please rate the following product features according to their importance to you.
- Describe [brand name] in one sentence.
- How do you do your Holiday shopping?
Benefits of Market Segmentation
With what and why out of the way, let’s quickly look at some of the benefits market segmentation provides for marketers, advertisers, and other teams:
1. Create Buyer Personas
As mentioned before, one of the most significant advantages of customer segmentation is creating different user personas. By collecting data about your customers’ preferences, behavior, and issues, you can divide users into groups with the same traits and problems.
Combining this data with each segment’s spending potential and acquisition cost, you can create buyer personas that depict the behavior of your highest-paid clients and the ones with significant purchase potentials.
How does building a buyer persona benefit you?
a. By Optimizing User Experience
Let’s take an example. Suppose you run a demographic survey on your website to know your audience.
Then you use value segmentation to divide customers based on their lifetime value (LTV).
Combining the data from both sources, you create a customer persona of your highest paying clients as:
- Individuals between the age of 25-35 years
- New Yorker
- Average LTV over $2000
You can now map their journey to optimize the experience and improve conversions and retention. Since this is your highest paying segment, prioritizing their issues can bring in notable gains.
b. By Running Pricing Analysis
Now let’s turn the tables. By combining the demographic survey and exit intent survey data, you find that most visitors bouncing off your flagship product page comprise students who think that the current price is costly.
With the data, you can now develop hypotheses of creating separate pricing tiers for individuals and companies and test them with A/B testing to find the combination that works for you and your clients.
Case Study – How Metlife used custom segmentation to redefine its target customer personas
In 2015, Metlife started segmenting its customer base to improve competitive targeting and provide better services.
Traditionally, age was a significant demographic factor that helped insurance companies to target clients with relevant services and products.
But Metlife decided to move from demographic and lifestyle segmentation to other market segmentation types. They used target surveys to collect in-depth data on the combination of demographic, firmographic, attitudinal, and need-type variables.
The company then started to segment these customers based on their responses to create different customer groups.
The results were astounding. The exercise produced a more refined picture of who Metlife’s customers were.
Here is an example of five distinctly identified customer segments:
With these results, Metlife committed to a data-driven approach to create differentiated value propositions for each customer type. They further educated their corporate customers to think about the clients through a combination of demographics and psychographic data.
Watch: What comes first – Persona research or market segmentation research?
2. Create Products Tailored for Different Segments
Another key benefit of market segmentation is a data-driven and customer-focused approach to developing new products and services.
Instead of developing a product and finding the right audience, it helps to understand the needs of different customers and develop the right products.
- Geographic segmentation makes it possible for a clothing line to understand the cultural backgrounds of different locations and release outfits that appeal to the population.
- Regarding psychographic segmentation, restaurants use different menus for people who eat only a plant-based diet and others who eat meat.
Here is a suitable example of geographic and cultural segmentation from McDonald’s – Big Mac in America with beef and a slightly different branding without beef in India, i.e., the Maharaja Mac.
By collecting richer high-quality insights from your customers, using product opportunity and customer persona surveys, you can distinguish target segments among the mass population to create tailored products and value propositions that entice them.
3. Allocate Resources and Market Budget Properly
Identifying key customer segments in your business also provides the opportunities to allocate resources at the right places for maximizing ROI.
Whether you want to retarget customers with your ads, improve the effectiveness of your emails campaigns, or find new market opportunities, market segmentation research does it all.
Once you know who your customers are, their fears and motivations are, and how they act along their buying journey, you can use these data points to streamline your marketing efforts.
Here are a few ways in which segmentation can help with resource allocation:
a. By Developing Targeted Marketing Programs
With marketing segmentation, you can find the most efficient marketing strategies to reach out to different audiences.
- Designing email campaigns to retarget verified customers with product updates and new offers to explore upselling and cross-selling opportunities.
- Targeting specific segments like athletes or gym goers with discounts, specially crafted products, limited-time sales popups, and discounted prices.
Here are two ads from Starbucks for regular coffee drinkers and non-drinkers based on psychographic targeting:
b. By Promoting the Efficient Use of Resources
With limited availability of resources and time, a business can’t invest the same time and commitment into every customer. But if you know the most important customer types that can provide high returns, you can prioritize these segments first. This is possible with proper customer segmentation.
c. By Providing Better Service Points
Mapping key touchpoints and interactions that different segments use can help you install better service points to design an effortless customer journey.
- Adding a language translation option in your HelpDesk or Knowledge base section.
- Provide free consultation to verified customers with lifetime spends above a certain amount.
Case study – Lego Group used market segmentation to creating customer personas to run successful social media marketing
Lego faced a massive challenge to market the products over social media. So, they decided to use customer behavior analysis to build better relationships with customers and generate new product ideas.
Lego used six distinct user personas to segment its customer based on purchase and usage rates:
- Lead Users: People Lego actively engages with on product design
- 1:1 Community: People whose names and addresses they know
- Connected Community: People who have bought Lego products and [have] also been to either a LEGO shop or a Lego park
- Active Households: People who have bought Lego products in the last 12 months
- Covered Households: People who have bought Lego products once
- All Households: Those who have never bought Lego products
These personas helped Lego distinguish customers between those who regularly interact with the brand and those who have no experience.
Lego found that the first three segments are the ideal targets to initiate social media interactions for encouraging them to become promoters.
The result: With constant social media campaigns and leveraging customer insights into their product development, Lego is now the biggest toy manufacturer in the world.
4. Generate More Leads
Using market segmentation, you can target different customer types with personalized messaging and offers specific to their needs and expectations.
It helps to entice potential customers to leave their contact information, thereby generating more leads.
How to use customer segmentation to generate more leads:
a. By Streamlining Distribution Channels
Segmenting customers based on preferences and interests lets you recognize the best distribution channels according to their convenience. You can develop a multi-channel approach to reach out to each segment in the most effective way.
Let’s understand this by an example.
A thesis published in the Lab University of Applied Sciences Ltd. explored the impact of customer segmentation on distribution channels to produce a maximum valuation for a furniture company’s products.
The respondents were asked the following question: Where do you buy the product?
- Furniture store
- Convenience Store
- DIY shop
Here are some results from the survey:
- It shows that opening a furniture store is more rewarding in Asian & European markets than in the USA.
- Among the three regions, the European market is more responsive towards online shopping options.
In the same way, you can create more granular segments based on psychographic and demographic variables to find other channels to increase customer engagement and leads.
Case study – BustedTees used customer segmentation to personalize email send times and increase revenue by 8%
For BustedTees, email campaigns have always been a top revenue channel, so it wanted to optimize the channel further for returns. The challenge was to find the optimal times for sending the emails to its international customers.
The team started by segmenting the subscriber list by time zones to produce consistent mail delivery for each local market.
The next step was to A/B test the duration and start-times for personalized email blasts to maximize the open rates for each geographical segment.
To further enhance personalization, the team calculated the best send times for limited sales campaigns. The aim was to give maximum exposure time towards the sale to each customer segment located at a different time zone.
Combining this data with the subscribers’ open times across all the time zones, they implemented personalized send time for each segment.
This personalization campaign produced an 8% lift in email revenue, 11% higher click-through rate, and 11% increase in response rate.
It’s far easier and less expensive to retain existing customers than to acquire new ones, which is why customer retention is a primary goal for every business.
Market segmentation techniques give you more refined insights into different customer segments. Instead of looking at the customer base as a whole, you can understand the problems and issues of each customer type and provide relevant solutions to retain them.
How to use market segmentation to improve customer retention
- Segment users based on their purchase behavior to see which segments are more prone to churn and reach out to them. For example, customers who haven’t used the app in the last 30-60 days.
- Use the RFM (Recency, Frequency, and Monetary value) analysis to differentiate between the customer segments loyal to your business, have the potential to upscale, and those likely to churn.
- Use demographic and geographic segmentation to determine which groups are and aren’t satisfied with your product. Then, use surveys to find the reasons behind their behavior to come up with relevant solutions.
Case study 1 – How Quantzig helped its client to improve retention by 67.5%% using customer success segmentation
One of Quantzig’s clients who dealt in sustainable packaging materials was looking to maximize the results of its global marketing campaigns by identifying the most and least profitable customer segments.
By deploying a customer success framework, Quantzig helped the client gain a deeper understanding of the most valuable customers. It helped the client enhance customer relationships, develop effective pricing strategies, and design targeted marketing campaigns.
The result was an increase of 67.5% in the retention rate.
Case Study 2 – How Gumtree used feedback to improve satisfaction for all audience segments
Gumtree, a leading classified ads website, hosts products that attract various customer types interested in products like cars, real estate, goods, hiring jobs, services for hire, and more.
The Gumtree team wanted to understand how advertisers and users behaved to streamline the website optimization process. They used the feedback software Qualaroo to implement targeted surveys and segment users based on different aspects like location, interests, and product category.
With real-time customer satisfaction feedback from users and advertisers, the team could benchmark and compare the numbers for different user types. It helped to act on their feedback quickly to build a better product. It also helped the team correlate the feedback with the quantitative metrics to gain more nuanced insights about their customers.
Let’s get down to the ultimate prize of market segmentation – more conversions. By dividing your customer base into smaller groups, you can design highly focused strategies to target different segments.
This makes it easier to map the journey of each segment, personalize the interactions, and optimize the transactional and overall experience.
Here’s how you can increase conversions with market segmentation:
a. By Finding the Appropriate Timing to Increase Engagement
Customer segmentation can help leverage the purchase behavior and events based on cultural aspects, geographical opportunities, or demographic distribution to increase conversions.
- Running sales promotion on Black Friday in America, Chinese New Year in China, and Diwali in India to maximize sales.
- Creating ads that appeal to seasonal or climate characteristics.
- Offering personalized prices and offers based on special occasions (demographic segmentation) like anniversaries, birthdays, etc.
b. By Identifying the Suitable Price Tiers
As mentioned in the previous sections, segmenting users make it possible to fix the prices of the products & services to suit various audience types according to their budget, income, employment status, and customer type (B2C or B2B).
You can design appropriate pricing tiers for different segments to motivate them to convert.
- Offering a basic free plan or first-time discount for startups and a higher price with advanced product features for bigger businesses. Here is an ad from Avocode that appeals to students.
- Providing one-time prices for individual users and subscription-based pricing for enterprises.
- Creating different product models with different features for user types like professionals, gamers, and office-goers.
Four Easy Steps to Conduct Market Segmentation Research
With so many approaches, market segmentation research can be tricky, so we have presented four easy steps to get you started.
1. Analyze the Existing Customers
Start by analyzing the behaviors, interests, actions, and needs of your existing customers and visitors. It will help you gather the data for segmentation.
Here are few ways you can collect the required information:
a. Conducting Surveys
Surveys are excellent tools for collecting user insights at different stages of their journey. How?
- You can collect segmentation data from different customer types.
- Analyze customer behavior using exit-intent surveys, product opportunity surveys, and market research surveys.
- Get feedback on your products and services using NPS surveys to identify the risk of churn and customer loyalty.
- Conduct pricing analysis to gain insights into how customers view your current pricing structure.
- Deploy customer satisfaction surveys after purchase to gauge the shopping experience.
Here are few data points you can collect using surveys:
- Date of birth
- Family status
b. Analyzing the Analytical Data
Next, look into your analytical data to find how customers behave on your website, mobile app, or product. It will help you find the most interacted web pages, most active traffic sources, goal completion rates, bounce rates on various pages, and other metrics.
c. Consolidating Data From the Sales & Service Teams
Sales teams and service executives are the richest information sources of value segmentation for your audience since they are the closest ones to the customers. You can gather the following data from these teams:
- Lifetime Value
- Last purchase (risk of churn)
- Current product usage status
- Purchase potential
- Acquisition cost
2. Group the Customers Into Segments
Now that you’ve all the required information in one place, start creating customer segments for different variables.
Here is an example of different segmentation types
|Segmentation type||Variable||Identified segments|
|Geographic||Country||Canada, North America, England|
|City||Quebec, Seattle, Los Angeles, London, Liverpool, Manchester|
|Population density||Urban, suburban, rural|
|Demographic||Age||Boomer, Millennials, GenZ |
|Level of Education||Grade school, high school graduate, university graduate|
|Gender||Male, female, non-binary|
|Marital Status||Single, Married, Divorced, separated, widowed|
|Income||Under $10,000;10,000- 24,999;25,000- 39,999;40,000- 59,999;55,000+|
|Experience (in years)||Less than 1 year,1-3 years4-5years5-8 years8+ years|
|Industry||IT, automobile, marketing, Manufacturing|
|Psychographic||Lifestyle||Student, athlete, office-goer,|
|Behavioural||Lifetime Value||Less than $299,$300-$499;$500-$1000;$1000+|
|Current status||User, ex-user, prospect, first-time visitor, repeat visitor,|
|Risk of churn||High, medium, low|
|Usage rate||Regular user, light user, rare user|
3. Identify the Target Segments
Here we are trying to group customers into more granular segments according to the right product fit. Different products or activities will attract different customer types.
Let’s take an example. Suppose you see that for New York, the customers with the highest LTV of $5000 comprises people between the ages of 35-45 years working in the software industry with an annual income of above $40000.
In this case, you can explore options to pitch new products to this particular segment to increase conversions since these particular people already provide better returns.
One of the most effective methods to select your target segments is the BMC (Business Model Canvas) module. It sketches key activities or products, primary distribution channels, main customer segments, and potential revenue stream, among other areas. Here is an example of BMC for a bike courier service business:
Group your customer into small groups to find the right product-market fit.
4. Design Marketing Plans to Reach the Desired Audience Segments
Once you know your target market, you can start designing promotional and marketing strategies to entice each segment.
You can create landing pages, email campaigns, door-to-door product demonstrations, targeted online ads, and other mediums to reach out to these segments to increase product adoption and conversions.
5 Common Market Segmentation Mistakes to Avoid
Market segmentation is a long process, and sometimes common mistakes can skew results for an entire campaign. It affects your ability to create clear segments making it harder to identify the correct targets.
Here are some common mistakes you can avoid to get the best results:
1. Creating Segments That Are Too Small
One of the biggest mistakes while doing market segmentation is creating hypergranulated segments. It happens when you try to group customers on every little detail. The truth is each customer is essentially different, and if the segmented group is too small, it may lose its potential.
That’s why it’s crucial to identify which variables can contribute towards achieving desired goals like conversions. In this way, you can take only critical variables to form meaningful segments while ignoring the others.
For example, if you’re trying to improve conversions, begin by segmenting buyers based on their LTV. Then, identify the potential channels that bring the maximum revenue. From there, you can move towards adding demographics or geographical variables to find the correct segment.
2. Not Gathering Sufficient Data
If gathering too much data is a crime, not gathering enough data is a sin.
If you don’t have enough data, you may miss out on previously unidentified customer segments that have the potential to be your niche target audience.
Suppose you observe that your highest paying customers for a product or service belong to the age of 20-35 years and earn between $18000 – $30000 a year.
So should this be your target audience?
Wait, let’s look at the analytical data. By analyzing Google Analytics data and using survey feedback, you find the highest bounce rate is observed for the people from the income group below $8000 as they cannot afford the product price.
Now, calculate if this low-income group has the purchase potential in the vicinity of the revenue generated by the other group or not.
Let’s say it does; you can now run price analysis surveys to develop more flexible pricing tiers to increase conversions.
If you hadn’t looked into the data, you would have lost this opportunity to acquire this new customer segment. So, collect every data point to look for distinguishable patterns.
3. Not Taking Time Into Account
Another big mistake in market segmentation analysis is leaving time out of the equation. Time has a huge impact on your customers’ behavior and actions.
For example, some customer segments may be more receptive to email campaigns during the weekend, while others may provide a better response rate in the weekday afternoon.
In the same way, people who come under the lower-income group are more likely to use the discount coupon from your sales ads campaign during the festive season than other times of the year.
That’s why it’s essential to note the time of engagement while segmenting your customer base.
4. Relying on Old Segments for New Campaigns
The consumer market is ever-changing with new technological advancements, and it influences both the buying patterns and behavior of the customers.
So using old segment data and methods for market segmentation is a big mistake.
For example, new engagement channels offer opportunities to acquire new markets. In this case, you need to reassess the audience type using this channel and compare the data with other channels to evaluate which has a higher potential of producing ROI. It’s also possible that some customer types may have abandoned other interaction channels and are now using the new one.
That’s why it’s necessary to take new market trends into account while creating customer segments.
5. Focusing on Segments Instead of Revenue Potential
As expressed in the first point, concentrating solely on segments can result in wrong conclusions. Keep in mind that the ultimate goal of the entire market segmentation exercise is to increase conversions.
For example, a specific audience type may be generating a considerable number of leads through your campaigns. Still, it does not mean it’s your target audience. Look further into the data to gauge the effectiveness of the efforts by calculating the lead to conversion ratio and cost per conversion.
That’s why, after you’ve identified the customer segments, the next step is to calculate the purchasing power to identify the actual target market before you start designing your marketing campaigns.
Start the Hunt for High Yielding Customer Segments
Market segmentation is not a straightforward process. It requires time and effort to bring fruitful results. The target segments will change with the product type, market shift, industry, and time. But the benefits outweigh the risks to make it necessary for every business.
The best way is to start small and then gradually scale up the process. User feedback tools like Qualaroo can help you ask the right questions to gather data about your customers’ interests and preferences. Combine this with the data from market research surveys, and you can easily create nuanced customer segments to identify your target audience.
Now that you know all about segment types and how to build them at your end, start implementing the strategies to give a more personalized touch to the customer journey for improved conversions.
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