Segmentation Questions

May 28, 2008 at 11:06 pm Leave a comment

We received two complementary questions around market segmentation yesterday. We thought it would be helpful to address them in one blog post.

Question 1: How does a marketing segmentation strategy help in market targeting?

Answer: A segmentation strategy improves overall target marketing in almost every situation. We’ve seen success in a wide variety of industries, marketing many different categories of products and services. Segmentation is effective for both B2B and B2C marketers.

The idea, of course, is to identify unique customer niches within an overall customer base and then tailor your message, offer and creative specifically to that niche group. When done right, the fact that you’ve essentially spoken to each customer with the offer they’ll be most open to and in a language that they can understand, ultimately boosts campaign performance. You’ll see higher response rates combined with higher conversion rates. It’s the same concept as personalization–the more personalized the creative, typically, the higher the response rate.

You asked specifically how segmentation contributes to market targeting. We believe that segmentation is a fine-tuning process, or a secondary phase done after the initial target marketing work. In other words, you first need to understand your market, overall. You’ll need to perform research (such as profiling, surveys or focus groups) to understand what your customers (or future customers) look like, in general. Once you have a good picture of your customers overall, then it’s time to fine-tune your targeting strategy by applying segmentation techniques.

Question 2: In what different ways may a market be segmented?

Answer: Segmentation strategies vary widely. We’ve listed below some of the more common ways a market may be segmented:

  • Geographically: Many times regions of the country (or perhaps city-dwellers vs rural folks) behave quite differently. Price points may need to be modified, for example, to reflect the reality of each region. Messages and creative, too, can be tailored to best resonate with each geographic region you’ve isolated.
  • Demographically: As a basic example, think about this–the way you’d speak to your 20ish friend is certainly different than the way you’d speak to your 60ish grandmother, isn’t it? These concepts apply in segmentation as well. You need to consider the demographic differences that exist within your customer base and then tailor your communications accordingly.
  • By Product: Here’s an example. Imagine that you head up marketing for Nike. You’d definitely create a much different message for your customers who have purchased walking shoes than those basketball players who bought your court shoes, right? This seems to be a ‘no-brainer’ example, but we’re often surprised when we see offerings that aren’t tailored based on the products we’ve already purchased from a specific company. As consumers, we like to be recognized and treated as if our vendor knows us and understands our needs. Amazon does a spectacular job of understanding and serving their customers based on the products they’ve purchased in the past.
  • By Lifetime Value: If you can get a handle on the overall profitability of a customer segment, you can then tailor your marketing (retention, in particular) efforts intelligently. For example, you’ll want to make sure that your highest profit segment is treated to your best offers. You’ll want to do all you can to retain that valued customer. Those lower in the profitability food chain can be ignored, or perhaps they receive the less expensive campaign (perhaps an email instead of the fancy direct mail package, for example).

Hopefully, these answers have helped you round out your understanding of Segmentation.

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