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What is market segmentation

& why does it matter?

Market segmentation is an essential process in market research. It involves dividing a broad target market into smaller segments, based on specific characteristics. Our guide to market segmentation, highlights how you can segment a market, and the benefits and importance of audience targeting.

Dr Nick Baker Chief Research Officer 20/09/2023

Market segmentation is an essential process in market research. It involves dividing a broad target market into smaller segments, based on specific characteristics. It’s very difficult to market to everyone. But, by segmenting the market, organizations can tailor marketing strategies to specific customer groups. This results in more effective and targeted campaigns.

What ways can you segment a market?
This depends on the nature of the business and the available data. Some common segmentation variables include:

  • Demographics – age, gender, income
  • Psychographics – lifestyle, values, interests
  • Geographic location
  • Behavior – buying patterns, usage frequency
  • Product preferences.

Segmentation helps organizations identify and prioritize the most relevant customer groups. This makes it easier to tailor marketing messages, products, services, and communication channels to each segment.

An example of market segmentation might be a clothing retailer that targets:

  • A luxury audience of women in their 40s, with a premium range made with high quality materials sourced from Italy
  • An environmentally conscious unisex audience, with a collection made with sustainable and recycled fabrics
  • A price sensitive student audience, with a basic wardrobe staples range.

Why is targeting audiences important?
Targeting an audience is important because it allows businesses to be efficient, personalized, and relevant in their marketing. Understanding the diverse characteristics and needs of different audience segments means organizations can more effectively allocate resources, personalize messaging, and create products and services that resonate with target customers.

Targeting helps organizations understand customers better, differentiate themselves from competitors, optimize advertising spend, and discover new market opportunities. Ultimately, effective targeting leads to improved customer engagement, loyalty, and business success.

What are the benefits of targeting audiences?
Targeting an audience and addressing the unique needs of different segments means organizations can:

  1. Increase relevance: by targeting a specific audience, businesses can tailor their marketing messages, products, and services to meet the specific needs and preferences of that audience segment. This personalized approach increases the relevance of the offerings, making them more appealing and engaging to the target audience. Increased relevance means increased chances of success by building stronger relationships with customers.
  2. Improved marketing return on investment (ROI): targeting helps businesses optimize marketing efforts and resources. Broad, generic campaigns may reach a wide audience, but targeting allows organizations to focus on the segments most likely to convert. Concentration of resources leads to improved return on investment.
  3. Enhanced customer understanding: targeting an audience requires organizations to conduct market research and gain insights into their target audience’s demographics, needs, preferences, and behaviors. This deeper understanding helps businesses refine products, services, and marketing strategies to better meet customer expectations. It results in stronger customer relationships by addressing specific challenges and desires. And it also enables refinement of product offerings.
  4. Increased engagement and customer loyalty: targeting specific audiences through market segmentation makes it easier to create content and experiences that resonate with customers. By speaking directly to the needs, pain points, and aspirations of the target audience, businesses can capture their attention and engage them more effectively. This increased engagement leads to higher customer satisfaction, loyalty, and advocacy.
  5. More efficient advertising: targeting allows businesses to optimize advertising efforts and budget. Instead of reaching a broad audience with a generic message, targeting enables businesses to focus their advertising on segments that are most likely to convert. This reduces wastage and increases the efficiency and effectiveness of advertising campaigns.
  6. Competitive advantage: by targeting a specific audience segment, businesses can position themselves as experts in that area. This positioning aids differentiation. Focusing on the unique needs and preferences of a target audience creates a compelling competitive advantage.
  7. Market expansion opportunities: market segmentation helps organizations to serve existing customers better and opens opportunities for market expansion. By identifying and targeting new audience segments, businesses can tap into new market niches and attract customers with different needs or preferences. This expansion can lead to business growth, diversification, increased market share, and cost efficiencies.

Summary: why does segmentation matter?
Successful market segmentation involves research that breaks down an audience into smaller groups and then differentiating yourself from the competition within those groups.

Targeting an audience offers benefits such as increased relevance, improved marketing ROI, enhanced customer understanding, higher engagement and loyalty, efficient advertising, competitive advantage, and market expansion opportunities. It allows organizations to focus efforts, connect with the ideal customers, and drive success.

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