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What is market segmentation?

Video and article explaining what market segmentation is.

Watch an introductory video about market segmentation that shows you different segmentation types and what characteristics fit each type.

If organisations have a broad customer base, what is the likelihood that you’re targeting the right market for a particular campaign?

Marketing and sales managers are responsible for identifying the product’s potential customers to target. Even though each customer is unique, there are often shared attributes that allow customers to be grouped in certain ways – this is called market segmentation.

Nintendo is a great proponent of effective market segmentation. After recognising that the casual gaming segment was neglected, they introduced the Wii console – a compelling new offer for families, children, and casual gamers [1]. Almost 15 years later, they repeated this successful strategy: they introduced the immersive augmented reality game Pokemon Go after again recognising a compelling market segment that would respond well to the unique product offering.

Effective segmentation:

  • allows a deeper understanding of customer behaviours
  • informs effective marketing and communication approaches.

Market segmentation bases

In completing market segmentation, it is crucial to articulate segments that can provide useful insight for decision-makers.

If you leave the segments too broad, you will find it difficult to deeply understand them and to use this segmentation to inform decisions. For example, in most cases, simply segmenting all customers into where they live is unlikely to be a helpful level of detail for decision-making. However, if your segments are too narrow and detailed, this can potentially create so many considerations that it is next to impossible to make decisions. For example, segmenting customers into different cities and towns and drilling further down into types of housing (apartment or house) may give you too much data to make a clear decision.

Segmentation bases

By understanding the various segmentation bases that can be utilised, product managers can create segmentation profiles that offer a meaningful level of detail.

Each base provides a particular category of insight, and that insight can be further broken down with variables. Let’s look at each of these.

Demographic

Describes: Aspects of the customer themselves.

Variables for consideration:

  • Age
  • Language they speak
  • Job
  • Income levels

Informs: What they may be looking for and what they may be able to benefit from.

Geographic

Describes: Where the customer is positioned in various aspects of their lives.

Variables for consideration:

  • Region in which they live / work
  • Country in which they live / work

Informs: Where they are located in various aspects of their lives and how easy or difficult it will be to reach them.

Psychographic

Describes: The customer’s affinities, likes and dislikes, and product sentiment.

Variables for consideration:

  • Personal values
  • Personal beliefs
  • Lifestyle

Informs: Things that matter to the customer, which likely influences their behaviour and decision-making.

Behavioural

Describes: The customer’s interaction or potential for interaction.

Variables for consideration:

  • Frequency of usage
  • Benefits sought
  • Potential for advocacy

Informs: What they are likely looking for in a solution and how they are likely to engage with that solution.

Technographic

Describes: Other technologies used by the customer or customer’s organisation.

Variables for consideration:

  • Apps they use
  • Software systems they use
  • Capabilities

Informs: What ability they will have to engage with a solution, as well as other activities they already engage with that may add/decrease value.

Customer profile

Describes: The customer’s relationship with the company.

Variables for consideration:

  • Existing status
  • Current stage of the customer journey
  • Purchase/spend levels
  • Date of renewal

Informs: The existing relationship and what you may or may not be likely to expect from the customer.

Firmographic

Describes: In a business to business (B2B) context, the organisation the customer works for.

Variables for consideration:

  • Revenue
  • Industry
  • Employee count
  • Business model

Informs: What practice can help guide marketing, advertising, and sales by providing deeper business insights and ultimately lead to more focused and effective campaign strategies.

References

  1. Evangelho, J. Why Is Nintendo’s Switch So Successful? It’s All About The Marketing. Forbes. 20 June, 2018. Available from: https://www.forbes.com/sites/jasonevangelho/2018/06/20/why-is-nintendos-switch-so-successful-its-all-about-the-marketing/?sh=75551a1b36c9
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