What do Tesla showrooms, shampoo adverts and loyalty cards have in common? They each rely on market segmentation to achieve their varied goals.
Whether it’s pricing cars, distinguishing your hair care products from the rest, or building brand loyalty through reward schemes, market segmentation has a vital role to play in ensuring you make wise business choices that reflect the myriad wants and needs of real consumers.
If you’re already of the persuasion that market segmentation is a valuable exercise, then you probably see the benefits it can grant a team of marketers. Understand your different customers, then you can specifically market to this customer versus that one. But this is only the tip of the iceberg.
While market segmentation has long been thought of as a stalwart of marketing teams, in truth, the benefits of dividing your consumer base runs deep into the core of the business. In fact, there isn’t a business function that doesn’t benefit from better understanding the consumers you’re all working to win.
The uses for market segmentation - achieved by understanding the factors that unite and divide your customer base into distinct segments - seep into new product development, business strategy, plans for expansion and beyond.
Here we’ve listed 10 valuable uses for market segmentation, categorised by business function, starting with the most familiar use cases, within the marketing team.
Marketing:1. Personalise your marketing
Consider this: there is, really, very little difference between men and women’s hair. Men’s is often cut shorter, so it’s easy to think that a man’s hair has less shine or more volume. In reality the lighter weight of having short hair keeps it from going limp and if it were longer, you’d see the shine.
Which may make you wonder: why are so few shampoo products, and their accompanying adverts, aimed at both men and women? If both men and women could buy your brand of shampoo, why not advertise to both, in one simple advert?
Because men and women, and many many further subgroups, buy for different reasons. Just within women’s hair care alone, any one person might buy shampoo to tame frizziness, reduce split ends, hydrate, curl, maintain colour, the list goes on. And so, they notice the advert that claims to solve the issue they have with their own hair. They pay decidedly less attention to the ‘male’ shampoo which claims to save men time and effort in the shower by combining shampoo and conditioner, or reduce dandruff, or make their hair softer.
Clearly, then, your marketing team need to be aware of the benefits your consumers care about, and play up those strengths. Use market segmentation to understand each subgroup of your market, and create more personalised marketing that speaks directly to their needs.
The more specific and personal your advert feels to one segment of the market, the more likely that group is to identify with the product and notice it amongst the crowd of your competitors.
2. Reduce waste
Just as creating one advert to appeal to all of your potential consumers is misplaced, so is placing your tailored adverts in front of all consumers.
Most digital marketers are well aware of the need for segmentation already. Paid social media advertising, for one, requires segmentation because, realistically, only a small percentage of Facebook’s 2.2 billion users will be interested in your product. Segmentation thus avoids paying for consumers to see your advert, who have no intention or ability to buy your product.
The same principle applies to above the line advertising, too. Use market segmentation to quiz your consumer groups on the media and advertising they interact with on a daily basis.
Your marketing team can then enjoy more dynamic media planning, save their budget for the media channels they know key consumers groups pay attention to, and avoid spending money on those channels that they’re not.
3. Reduce mistakes
As previously noted, consumers can be drawn towards adverts that speak to them personally. They can, by that same token, also be turned off by adverts that repel them. Understanding the things your consumers may find offensive or distasteful is almost as important as knowing what will appeal to them.
One ‘marmite’ advertising development of the moment is personalisation in adverts - everything from commenting on the weather in the region, to including first names in digital adverts, à la Channel 4.
For many consumers, this personalisation is an eye-catching new feature in the adverts they see.
For other consumers though, personalised adverts can scare them away from a brand. Data gathered by the Harvard Business Review reveals that Purchase Intent drops when consumers feel that third parties are sharing their data in order to surface personalised adverts.
When we surveyed 1000 people, 76% of the overall population found personalisation ‘helpful’ rather than ‘creepy,’ but this proportion dropped dramatically to under 50%, when looking at those aged over 55.
Just where on the spectrum do your consumer segments fall? Are some of your demographics open to and excited by personalisation, while some are more likely put off by it? If you can’t confidently answer this question, then investing in personalised adverts is a risky strategy that might draw new customers in, but might also drive some of your key consumers away.
And looking beyond personalisation, are you confident your target consumers will not find fault with your ads? It’s very easy to go from edgy and cool, to missing the mark. Just ask Pepsi, Dove, Brewdog and countless other much-loved brands that got it wrong in the last few years.
You should, then, aim to know what your consumer segments both like and dislike, in order to optimally market to those groups.
4. Price yourself right
Arriving at a Tesla showroom, you’d expect some models to fit more neatly into your budget than others. You’d also need to factor in any additional specifications you’d want to invest in, then you’d be able to find the perfect car for you.
Even amongst the relatively narrow pool of potential Tesla consumers, who need to be interested in electric vehicles, have the budget for a luxury car and identify as somewhat of an early adopter, the budget they have will vary dramatically.
To reflect this variation, Tesla’s are available to buy for around $35,000, with the most expensive models costing more like $135,000.
And while Tesla is pioneering in many respects, the idea of market segmentation to inform pricing comes from Alfred P. Sloan, who’s ladder of success helped General Motors better position their range of cars, way back in the 1920s.
Market segmentation allows you to offer tiered prices, based on varying features or services, that match the budgets of the different segments of your consumer group. By making yourself financially available to each interested segment, you pave the way for broader appeal and bigger revenues as a result.
Customer services:5. Build rapport and reputation
Loyalty schemes work best when the rewards offered suit the preferences of the customer; they prove to the customer that your brand understands their changing needs over time and, as such, they return to your brand.
Building a loyalty scheme that achieves this requires market segmentation that goes deeper than demographics; they’re not a consumer any longer, now they’re a customer. By combining behavioural and usage data with attitudinal and qualitative research, you can create a scheme for current customers that’s tailored in both messaging and offering.
Over time you can build up knowledge of customers as distinct from your knowledge of the wider consumer market, and build loyalty programmes that appeal to both (yielding more value for existing customers, while helping to acquire new ones).
6. Improve service
Using market segmentation, your brand can also tailor their customer service channels to suit the needs of customers. For instance, if you know that some of your key segments spend more than an hour a day on Facebook, you should open up communications between consumers and your brand in this channel.
Easing access to support will hopefully dissipate some frustrations which often lead to customer service enquiries, and build loyalty over time through the reception of great, accessible service.
The importance of understanding the ways different consumer groups prefer to receive help is referenced by NatWest, in their recent Ways to Bank advert; they offer multiple touchpoints which suit the changing needs of one of their key market segments, the working dad.
Strategy teams7. Competitor intelligence
Lots of brands are very good at making noise in the media. Apple’s highly anticipated launch events, and Nike’s controversial 2018 campaign both racked up plenty of column inches, but neither brand saw a corresponding spike in purchase intent in either our Technology or Sports Brand Indexes: Nike suffered a dip in purchase intent from Q3 to Q4 of 2018 and Apple experienced an increase of less than 3%.
As such, it’s important to understand which brands your key consumer segments are paying attention to, not just the ones being reported about most frequently in trade news. This includes their level of purchase intent towards those brands, and knowing the influencers they’re most likely to listen to. For global teams this is of added importance, so that you can have your ear to the ground in every market.
By listening to consumers, and segmenting them appropriately, you can avoid over or under-reacting to news in your market. For example, you may find that price-sensitive consumers are the only ones that love the new campaign from your competitor. If you’re going after the premium-end of the market, then you could save a lot of time and energy from trying to respond directly.
8. Discover new opportunities
Say you discover that one quarter of your sales are to females, aged 25-35 with one to two children, living in cities, and who walk to work. As it turns out, there is a significant population of consumers fitting that demographic in Newcastle, yet your brand only has stores in Birmingham and Edinburgh. Suddenly you’ve discovered an opportunity for expansion, through the help of market segmentation.
And of course it could be more than geographical expansion. By running careful market segmentation, you could discover areas of weakness in your competitor’s offering amongst certain groups, which you can then use to position your product or service as a better alternative. Smart segmentation can deliver very real gains in market share, without huge budgets, by offering a laser-focused approach.
9. Improve UX
With an easy way to access a pool of your potential and current customers, you can gather feedback on your brand’s processes. What are the blockers they face? Do they require more education about your product before deciding to buy? Did they find your website to be helpful or confusing?
Market segments can serve as, essentially, bespoke focus groups, for any team looking to improve current processes and campaigns, especially if they’re looking to customise elements for each consumer group.
By running market segmentation you can bring the consumers that matter most into the conversation and help build your brand and processes with the spectrum of their needs in mind.
This in turns helps you to prioritise improvements. For example, you might find one segment cares deeply about accessing your service as an app on their mobile; while another wants to you to better support the browser experience in Windows 8. If you know that the former segment is 80% more valuable to you, or more likely to buy, then you know which UX improvement to focus on first.
New product development10. Establish the Jobs to be Done
By understanding and reaching out to your market segments, your product can grow and develop in ways that match the changing demands of consumers, by aligning with their jobs to be done.
Understand which consumer groups are most likely to purchase, and why, so that your product development is rooted in genuine, rather than assumed, needs. This way, product developments will be suited to the end user from the very outset.
With up to 95% of new product launches failing because of poor market segmentation, this fully informed process, from core product all the way to final marketing strategy, can help alleviate the risk of you also suffering this fate.
We’ve outlined above use cases that fall under four separate teams, though this still isn’t the full extent of the iceberg. Every function within the business can benefit by understanding the customers they’re working for. And understanding that consumers’ reasons for purchasing are varied but can be synthesised into distinct segments is the first step towards tailoring your offering for those needs.
To discover how to begin segmenting your market, or to begin surveying your ready-segmented sectors, get in touch with Attest today. You, and all your colleagues, could be running surveys to support any of the above use cases in no time at all.