Market segmentation analysis involves understanding your customers based on specific characteristics, both physical and behavioral.
Customers aren’t buying as often? Not enough people are engaging with your promotional posts on social media? Finding it difficult to retain new customers or keep current ones?
You may have a market segmentation issue. Specifically, your customers aren’t feeling compelled to buy or interact with your offerings because their needs aren’t being met.
The best way to understand what your customers want requires market segmentation analysis.
In this article you’ll learn:
- What market segmentation analysis is
- The most popular and common market segmentation types
- Why any of this matters, and
- How to conduct market segmentation analysis yourself
Let’s begin with...
What is market segmentation analysis?
Market segmentation analysis is the study of customers, divided into smaller groups, to understand their specific characteristics like behavior, age, income, and personality. It’s easier for companies to advertise when they’re marketing a smaller segment of customers; this way, each campaign can be highly targeted and precise to the characteristics of each group. How a company should showcase a product or service depends on which group they’re targeting.
Why do businesses use market segmentation?
Leverage. It’s the main reason any company will use market segmentation when offering promotions, sales, and new products. When the company can hyper-focus on the details of segmented groups (rather than customers at mass), leveraging the benefits is easier than ever.
Market segmentation creates the perfect environment for engagement, customer retention, and acquisition. Because, when a company creates a campaign and sends to the masses, the responses will be hit or miss — with a higher chance of missing than hitting. This is because people want specific things at specific times, but only if the product, service, or promo ticks the right boxes.
Common types of market segmentation in the analysis?
There are actually many ways company’s can segment customer characteristics. But some are more popular (and common) than others. Here are five of the more viable options to consider for your market segmentation analysis.
Geographic segmentation. Segmenting customers by geography means understanding the environment where the customer lives. Needs change based on your physical environment; someone living in Japan may buy items to survive natural disasters like typhoons, tsunamis, and earthquakes. But people living inland, not surrounded by water or have ever experienced an earthquake, are less likely to worry about such dilemmas.
Understanding a customer’s surroundings allows companies to create new products based on location, but it can also shine a light on whether a company wishes to expand in the location too.
Demographic segmentation. Usually combined with geographic segmentation, demographic segmentation is one of the most popular segmentation types used by companies. This segmentation focuses on characteristics like age, gender, income, education, race, and more. It is arguably the most simple segmentation applicable in market segmentation analysis and determines how and what we buy, based on who we are as people. Although there are many segmentation variations, demographic (often combined with geographic) is often the first one conducted.
Psychographic segmentation. Psychographic segmentation focuses on the behavioral traits influencing customer buying habits. In this case, variables like personality, opinions, lifestyle, and values are tracked and measured. Compared to the other two segmentations on the list, psychographic traits can be harder to pin down. But it’s necessary for most industries, especially health and fitness. For instance, some people are gym-lovers and others aren’t; why? This is exactly the type of information psychographic segmentation uncovers.
Price segmentation. Price segmentation is another common segmentation used in market segmentation analysis. Although segmentation by demographic also mentions household income, price segmentation dives deeper. Personal income greatly impacts what people buy; someone with higher personal income can afford to splurge on luxury products, while someone who is working class is more likely to save extra income for a rainy day. This segmentation is popular for luxury brands, particularly automotive companies like BMW and Tesla.
Time segmentation. Less common than other segmentation types, time segmentation can still be effective. Physical stores have an open and close time, and their hours can impact sales. Some stay open all year round, while others choose “dead” days, like Sunday and Monday, to close because of slower sales traffic. Time segmentation also pertains to holiday sales and promotions, like Black Friday and Cyber Monday. These happen only once a year, and customers spend more since they expect the time-gated deals and sales.
How to conduct your own market segmentation analysis
Despite the many segmentation types, market segmentation analysis can be effective without being confusing. When getting started, make sure you have these four components:
1. Preliminary research
2. Segment your list
3. Create your study
4. Now, test!
I’ll explain more about each section below:
Preliminary research
This may be one of the longer points of your analysis, so be prepared. Preliminary research will require getting to know your customers in-depth. Talking with them directly is the best way to achieve this. You can talk in-person, on the phone, or (more commonly) through online surveys. The more information you have, the easier it’ll be to segment your audience.
Segment
Now that you have data about your customers, it’s time to segment them. You can choose based on the above segmentation types (price, time, psychographic, demographic, and geographic). I’d advise not to segment your customers into all of these segments; that’s when it gets messy and confusing. How can you do this effectively? By following the next step.
Create your study
When you’re creating your survey, be sure to ask a variety of questions related to the above segments. Then, take the answers and determine the best ways to segment your customers. For example, if the majority of your customers have high personal income, segmenting by price may be smart. If most are thrifty shoppers, the time segment may be optimal because of (holiday) discounts. If your customers seem to belong in more than one segment, that’s perfectly normal.
Now, test!
Now that you have your data and your customers segmented, it’s time to make sure the segmentation is useful. You can send out brief campaigns, discounts, or other marketing materials to see if it resonates with the customers in your segments. If it doesn’t, you may need to go through your data again and re-segment your customers.
Final Thoughts
Market segmentation analysis involves understanding your customers based on specific characteristics, both physical and behavioral. Companies use this analysis to create hyper-focused sales and promotions. By focusing on the smaller segments (and what they value most), it’ll be much easier to resonate with them. Customers are more likely to pay attention when an offering is tailored to their needs at the moment, rather than showcasing an abundance of benefits that don’t particularly matter to each individual. This analysis pairs well with descriptive research analysis for a greater understanding of customers.
