What Is Market Segmentation and How Can It Increase Sales?
Who are you targeting with your advertising campaigns?
If you’re producing general promotions and placing them in front of a general population, known as mass marketing, the ROI generated from your advertising dollars is likely falling short of its potential. Here’s how to use market segmentation to drive more sales.
What Is Market Segmentation?
Switching from a mass marketing approach to market segmentation could have a big payoff. Instead of seeing your customers as a homogeneous group, identify groups, or segments, of your customer base that are interested in various parts of your business for different reasons.
Take a company like Nike, for example. Nike designs and manufactures sporting goods and apparel ranging from golf balls to running shoes. If the company were simply to run marketing campaigns that appealed to its entire customer base, its efforts would likely fall short, because it can’t communicate the important points of every product in one 30-second television spot or single-panel internet ad. Instead, Nike frequently segments its customers by creating campaigns for a single product, product line, or sport, which it runs on related specialty websites, magazines, and television networks (while major races, games, or tournaments are airing).
You probably do not have such a large range of products, but it’s likely that you offer more than one product or service. Even if you don’t, you probably offer it to different types of customers. For instance, an electrician may work with both residential and commercial customers, and a clothing retailer may have products for various ages and body sizes.
Types of Customer Segments
Each of your segments should consist of customers who are very closely aligned with one another yet clearly differ from customers in other segments. Each segment should be:
- Identifiable — Can your group be measured and studied?
- Accessible — Can you communicate with the segment? (If one of your segments is international, do customers speak your language and live in an area where your marketing efforts will reach them?)
- Substantial — Is the segment large enough to warrant the investment of time and resources?
- Unique — Does the segment have distinct needs?
You can identify potential segments by considering the following factors:
- Geographic — Climate, urban vs. rural, population density
- Demographic — Age, ethnicity, occupation, gender, income, and family status
- Psychographic — Moral values, attitudes, and lifestyle choices.
If you’re a personal trainer, you might segment your market into three groups: customers who are training to reach a goal; people who are looking to build muscle mass; and older clients who want to remain active to prevent injury. There could be geographic and other demographic segments in as well.
How to Segment Your Customers
Corporations spend large sums of money segmenting their customer base — something that most small businesses lack the time, experience, and resources to do. But there are low-cost and easy-to-understand methods, too.
- Customer data — You’ve likely collected a lot of information about your customers, including where they live, how they prefer to pay, and what they purchase. The more information you collect going forward, the better you’ll be able to segment your market.
- Industry research — Trade groups collect consumer data on behalf of their members. If you’re a member of your industry’s trade group, it likely has demographic data available that will help you to produce campaigns that target specific groups (perhaps those you hadn’t thought of).
- Giveaways — Set up a booth at a community event or advertise a promotion that entices customers to provide you with marketing data. This could be a coupon, a contest, or something else specific to your business. Create an online form that allows people to download a coupon in exchange for their information. Advertise on social networks and other websites to promote the coupon. (Mass marketing is OK for this task.)
- Outsourcing — Your business may be large enough that segmenting your market and conducting further research may be best accomplished by hiring a freelancer or agency to assist you.
Once you have identified your market segments, design campaigns specific to each segment. As with any marketing effort, keep track of which campaigns attract customers. You can do this by asking them directly or, if you’re an online business, including a survey in the checkout process.
Tim Parker is a business writer for Intuit and is passionate about solving small business problems.