Why Market Segmentation Is Key to Growing Your Brand

You may think of your target market as a monolith, but market segmentation will show it’s actually a mosaic. The market segmentation process identifies the myriad subsets that make up the overall target audience. By understanding these different sectors — and the needs, attitudes, behaviors and purchase drivers of each — a brand can create products, experiences and messages that resonate with each group.

No business can be all things to all people. Market segmentation analysis enables businesses to discover which groups of people within a target audience to address, and how to do so most effectively.

The Benefits of Market Segmentation

Effective market segmentation analysis helps an organization identify the most valuable cohorts of customers and prospects, prioritized by their receptivity to the brand’s offering, their accessibility in the market, their alignment with the brand’s strategy and purpose and the size of the economic opportunity they represent. The benefits are manifold across multiple aspects of an organization.

• More effective marketing and personalization. One segment of an athletic footwear company’s audience might be competitive runners focused on performance. Another segment might be Gen Xers who prioritize comfort, while a third might be young adults who find the footwear stylish. Rather than addressing each cohort the same way, the brand could use its market segmentation strategy to create different messaging for each, generating better response. The company could also reach out to each audience via different media and channels for improved ROI.

• Discovery of new potential audiences. Without market segmentation, the above footwear brand might not even have known that comfort-loving Gen Xers made up a significant portion of its audience. This knowledge would enable it to intentionally grow that sector.

• Improved product development. Market segmentation can reveal unmet needs of specific audience subsets, leading an organization to create products and services that fill a profit-making gap in the sector.

• Pricing optimization. Certain cohorts of an audience might be willing to pay more for some offerings; other sectors might buy more if the offerings had a lower price. Market segmentation analysis can reveal whether a brand is leaving money on the table or missing out on a growth opportunity as a result of its pricing.

Common Types of Market Segmentation Analysis

Just as there are numerous cohorts within your target market, there are numerous types of market segmentation analysis. The segmentation strategy that’s best for your organization depends largely on the use case and the market sector. To obtain a well-rounded view of the audience, brands often implement multiple types of market segmentation analysis.

Demographic or firmographic segmentation

A demographic segmentation strategy groups members of a consumer market by age, gender, geographic location and other defined attributes. The B2B equivalent of demographics, firmographics includes industry type, number of employees, annual revenue and other company traits. Both types of market segmentation are relatively straightforward to perform. It’s also simple to target audience sectors by demographics or firmographics. In and of itself, however, demographic or firmographic segmentation does not profile an audience’s category needs, attitudes and behaviors. As a result, while it can be useful for commodified products, it does not provide the necessary nuances to help predict brand choices and purchase drivers, though it helps fine-tune marketing and media strategies, among other uses.

Attitudinal segmentation

A more in-depth, person-based approach, attitudinal market segmentation organizes audience members by their beliefs and wants. This enables a brand to position and promote its offering to various market cohorts most effectively, appealing to the emotional, instinctive and motivational triggers most likely to resonate with each.

Needs-based segmentation

Sometimes called occasion-based segmentation, this tactic identifies specific situations with unique customer needs and allows the same customer to exist in different need states on different occasions. For instance, the same consumer might buy a sports drink on the way to work to help reinvigorate them after a late night out, then again on a weekend after a softball game: same customer, different needs. This market segmentation approach is especially useful for organizations with a portfolio of brands and products.

Behavioral segmentation

Grouping people by shopping and purchasing behavior can help brands predict future interactions based on past actions. It’s useful when audience members lack strong feelings about a category or a product, particularly commodities, and when layered atop other types of market segmentation strategies such as attitudinal segmentation.

Market Segmentation Errors to Avoid

A thoughtful, actionable marketing segmentation strategy is a thing of beauty, though not a joy forever: The useful life of a segmentation varies, and disruptive change within your category or your company can shorten its lifespan. Holding on to an obsolete market segmentation is only one possible pitfall. The ones below can result in the segmentation being a waste of resources at best, and damaging to an organization’s business at worst.

• Poor design. A well-designed market segmentation analysis is based on understanding the business outcomes an organization is trying to improve and the tactics and activations necessary to do so. For instance, if a brand wants to drive more sales through its online channels rather than via its costlier-to-operate stores, it would seek to segment its market by different criteria than if it were trying to increase customer loyalty.

• Unusable solutions. A segmentation that generates too many subsets, leading to a marketing plan too complex to implement, is one example. Cohorts that are too broadly defined are another. In short, the results of a market segmentation must be practical for the initiative to have any value.

• Lack of acceptance. In this scenario, stakeholders might feel the results of market segmentation do not accurately reflect the consumer landscape or adequately address their business needs or goals. For this reason, all stakeholders should be involved in the process from the beginning.

• Failure to implement. This occurs when an organization lacks the resources to act on the market segmentation: It might not have a digital platform to support segmented marketing, for instance, or perhaps the cohorts within the market segmentation do not align with the audiences available to the media buyers. Considering the activation of your segmentation strategy from the beginning of the process is key to avoiding this pitfall.

How Material can Help with Your Market Segmentation

At Material, we have decades of experience creating and implementing market segmentation strategies so that organizations can enjoy a higher ROI through personalized marketing, product development, marketplace expansion and other business-building activations. Contact us today to learn more about how our market segmentation expertise can make an impact for your business.

FAQ

What tools and techniques are available for market segmentation analysis?

Demographic, firmographic, attitudinal and needs-based segmentation are among the most effective techniques. The tools used to perform these types of market segmentation include database enhancements, surveys and analytics programs.

How do we measure the success of our market segmentation strategy?

How you gauge the effectiveness of your market segmentation strategy depends largely on your goals. Tracking sales, ROAS and consumer sentiment over a period of months are a few ways to determine whether your strategy is working.

How can market segmentation be integrated with other business strategies such as product development or pricing?

Understanding the cohorts that make up your target market can reveal underserved audiences that you can grow by developing products and services that address their unmet needs. Likewise, market segmentation analysis can reveal whether sectors of your audience would be willing to pay more for a premium product or buy more of a less-expensive offering.

How can market segmentation improve our marketing efforts and overall business performance?

In today’s hyper-competitive marketplace, brands must create experiences, communications and products that resonate with consumers. Market segmentation enables an organization to identify sets of consumers that share important attributes such as needs, lifestyles and purchase drivers so that it can tailor its messages and offerings to them in a more personalized, and therefore more effective, manner.