Implement Smart Market Segmentation into Digital Marketing Plans

October 10, 2016  |   | 

According to Kahuna, more than 35 percent of U.S. business-to-consumer marketers say that building a comprehensive single view of each customer across all sales and marketing channels is an extreme challenge. I’m surprised this number isn’t much higher. Maybe we marketers aren’t being entirely honest with ourselves.

In his blog post, The Struggle for Smart Segmentation, Jesse Noyes said that Kahuna tracks 500 million actions that consumers take online or on mobile every day, “The issue isn’t data. It’s finding the story in the data.”

And, while we are busy running around passionately collecting data, understanding and segmenting based on customer affinity is truly the holy grail. But first, let’s understand exactly what market segmentation is.

What Is Market Segmentation?

Jerry W. Thomas, president and CEO of Decision Analyst, provides a simple definition: “‘market segmentation’ refers to subdividing a market along some commonality, similarity, or kinship.”

Customers appreciate marketing that is directed at them, designed for them, and presents exactly the information they need to make their purchase decisions. Why? Because we are hopelessly distracted nearly all of the time.

Think about your Monday. You go to your office, start up your computer, and open up a web page that you had started to proofread last Friday, but first you are bombarded by ads and headlines. They all seem important, so you click a few links. After a bit, you feel overwhelmed and divert your attention to your email account, where you are again bombarded by messages. You trash many email messages, answer one or two, until you finally recall that web page you wanted to finish proofreading which is why you started working on your computer in the first place. So, you decide to skip the commotion altogether, wander down to the nearest barista, and get a lovely latte. Maybe this distraction will help you get back on track. You use your phone to order your latte, where you are further distracted this time by pop-ups and text messages. While you are at the coffee shop picking up your latte, you notice the delicious fall treats, and you order a pumpkin spice muffin. You go back to your office and your computer, with your latte and your yummy muffin, and you finally open up that web page that had started your day in the first place. Three hours have gone by.

Sound familiar? With days like these plaguing all of us, a company that makes it easy for us to make a decision will be our best friend for life.

By knowing your market segments you can focus your energy on specific segments and gain competitive advantage within each segment in your digital marketing plans.

How to Determine Market Segmentation

Your method for determining market segmentation will depend on whether you fall into one of the following categories: 1) You already have extensive market research at your fingertips; 2) You are willing to take the time needed and have the funds to pay for extensive market research to learn what you need to appropriately segment your audience; or 3) You have existing, but limiting, market research and no funds so you will have figure out how to work with what you have.

If you believe that you already have extensive market research at your fingertips, you’re set! Well…maybe you’re set. You need to first dig into your market research and determine if you have all the details you need to effectively create market segments.

By first determining your goals, you can then determine what is needed to achieve those goals. Hence, the best role to be in is that you are willing to take the time needed and have the funds to pay for extensive market research in order to achieve your goals.

Having existing market research but no funds is limiting if your current market research is limited or dated. I hate to disappoint you, but, to be honest, your current market research most likely is either limiting, or dated, or both. However, sometimes the funds simply aren’t there for more in-depth research. We’ll next discuss several methods that will give you a start on market segmentation no matter your budget or resources.

Ways to Segment Your Customer Audience

Lets first look at the various ways you can segment your audience. The simplest and most common form of market segmentation is to base it on geography. If you have no funds for further research, this may be a way to start using market segmentation so that you can prove results and hopefully then obtain the funds you need for further research. Geographic segmentation can take many forms, such as: urban versus rural, wealthy neighborhood versus poor neighborhood, seacoasts versus interior, warm areas versus cold, and so on. These examples also reveal that geographic segmentation is sometimes a means to reach other types of segmentation.

Another way to segment your customer audience is through distribution. For example, a luxury hair shampoo might be sold only through upscale beauty salons. A clothing brand may have multiple versions of the same product such as an upscale version sold through expensive department stores and a downscale version sold at factory outlet stores.

Demographic segmentation nearly always plays some role in market segmentation. Demographic characteristics include age, city of residence, gender, race and ethnicity, and household size. For example, music streaming services and devices are targeted toward the young while hearing aids are targeted toward the elderly.

Price segmentation is a roundabout way to also achieve segmentation based on household income. For example, automotive brands frequently have a range of automobiles priced for various segments, from economy to luxury, such as General Motors brands Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac.

Psychographic segmentation, also called lifestyle segmentation, is based upon multivariate analyses of consumer attitudes, values, behaviors, emotions, perceptions, beliefs, and interests.

If all you have right now is existing research and no additional funds for further research, the first four forms of segmentation listed here are all possibilities depending on your product and your goals. These characteristics are generally easily available and can function as a foundation to help you develop more specific segmentation. If you would like to delve into psychographic research, however, you will most likely need to develop a specific market research project in order to obtain all of the elements required.

Market Segmentation Based on Customer Affinity

A more refined method of determining market segmentation is customer affinity. This method involves combining various levels of segmentation. According to Gigi DeVault, the first step is to consider your customers based on two tiers of characteristics. The elements in these tiers require knowing a great deal about your customers, so if you would like to base market segmentation on customer affinity, this means you must either already have extensive research, or be willing to pay for extensive research.

The first tier focuses on demographic and socioeconomic characteristics, as well as product usage. We’ve already discussed demographic characteristics, so lets discuss socioeconomic and product usage characteristics next.

Socioeconomic characteristics relate to household income, education, and occupation. These characteristics can help you further refine segmentation because they can lead to a better understanding of customers’ lifestyle, brand preference, and price sensitivity.

Product usage, or brand affinity, can be one of the strongest categories for developing market segments, however, this requires knowing things about your customer that you may not know yet. If you don’t already have this research, this characteristic can give you a picture of one of the areas where further research can truly aid you.

The second tier involves deeper research to help you better understand the psychographics of your customers, the generational cohorts within your customer audience, and the geodemographics that the residences and demographics of your customer audience can be divided into.

Refine Market Segmentation for Digital Marketing

How does all this marketing analysis and marketing research specifically aid digital marketing plans? Customers expect personalized, tailored messaging no matter which channel or electronic device they may be using. And, in spite of our history of knowledge about market segmentation, we are still challenged delivering on these customer expectations. Understanding and studying the infographic below, from Kahuna, will help you further refine your market segmentation, find the story in your data, and determine how to implement digital marketing to promote your brand.

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Customers expect personalized, tailored messaging no matter which channel or electronic device they may be using.

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