Blog / Market segmentation: the key to targeted marketing and customer proximity
Market segmentation: the key to targeted marketing and customer proximity
Maurice – November 15, 2023 – 10 min read
Market segmentation is like taking apart a jigsaw puzzle. Every part has its place and its function. You separate the overall market into manageable, homogeneous chunks so that you can better understand how to approach your customers. Let’s take a closer look at this process.
In this article, we explain the objectives and tasks of market segmentation, the characteristics used to divide the market and the prerequisites for successful market segmentation.
Market segmentation Definition
Market segmentation is based on the basic idea of dividing the overall market, which consists of a large number of potential and actual customers with different needs, into homogeneous submarkets. This helps to identify and address the target group more precisely. A separate marketing strategy can then be designed and implemented for each segment.
The segmentation process takes place in the following steps:
- Market survey: Who are your potential customers? What do they need?
- Market segmentation: Divide them according to characteristics such as age, location, interests.
- Market development: Develop special marketing strategies for each segment.
The first step, the market survey, is to find out which target groups are available on the market and how great their respective potential is. The market is then divided into different groups. Consumers are combined into homogeneous groups based on certain characteristics. This allows companies to focus on a specific segment and develop suitable strategies and marketing for individual segments. The better a company knows its customers, the better it can find and apply suitable measures. Companies can also focus on individual target groups that are particularly attractive as customers.
Tip: Segmentation is not just a tool for large companies. Start-ups and small companies can also benefit from a thorough market analysis.
Basic questions of market segmentation
First of all, companies should ensure that market segmentation is possible at all. After all, it is not always clear from the outset whether a target market can be divided into different segments. In principle, the following requirements must be met:
- There is valid data and information that enables high-quality segmentation.
- The overall market is determined by heterogeneous demand behavior.
- The market segments can be easily divided and clearly defined.
- The division and processing of the submarkets are associated with an acceptable level of effort.
- The individual market segments promise sufficient sales volumes.
Before you start, ask yourself the following questions:
- Is the overall market heterogeneous enough for segmentation to make sense?
- Can the market segments be clearly defined?
- Is segmentation economically feasible and justifiable?
If you can answer “yes” to these questions, then you are on the right track.
Each company must decide for itself whether and how customer segmentation should ultimately take place. At one end of the spectrum is the option of no segmentation, which requires a uniform market approach. At the other end is complete segmentation, which requires an individual approach to each individual customer. Depending on the company’s situation, the overall market can be divided up to varying degrees.
Possibilities of market segmentation:
- No segmentation: uniform strategy for the entire market.
- Partial segmentation: Some target groups are addressed individually.
- Complete segmentation: each customer receives individual attention
The goal is clear: companies need to find a balance that is both efficient and effective. The end goal should always be kept in mind – namely to serve the customer in the best possible way.
Market segmentation tasks
Market segmentation is an indispensable tool in the toolbox of every marketing and sales team. Often regarded as the “information side” of marketing, however, it goes far beyond mere data collection. It creates a detailed picture of the market, identifies different customer groups and provides transparency about current and potential customers. Especially in companies that have limited information about their market segments, a well thought-out segmentation can provide clarity and serve as a basis for creating customer personas.
Core tasks of market segmentation
- Defining the relevant market: determining the market area in which the company wishes to operate – focusing the corporate strategy.
- Identification of neglected submarkets: tracking down market segments that have been overlooked to date – tapping into new sources of income.
- Determining the company’s own market position: Where does the company stand in comparison to its competitors – self-assessment and strategy adjustment.
- Subdivision into homogeneous submarkets: Division of the heterogeneous overall market into manageable, similar segments – More efficient marketing measures.
- Determination of market potential: evaluation of growth potential for individual segments – Long-term planning and investment decisions.
- Market position compared to the competition: Where are the strengths and weaknesses in competition – differentiation and competitive advantages.
- Forecasts for future developments: Predicting market trends and consumer behavior – Adaptability and preparation for market changes.
Market segmentation is not just an information exercise, but a strategic process. It enables companies to make informed decisions, use resources efficiently and ultimately create added value for customers. In other words: Whoever does it right wins at the end of the day.
Objectives of market segmentation
The main aim of market segmentation is to divide the overall market into manageable target groups in order to deploy marketing measures in an astute and effective manner. This requires expertise and precision, so certain cornerstones must be adhered to.
The cornerstones of market segmentation:
- Clear demarcation of segments: Without clear boundaries, everything gets mixed up. Precision work is required here so that the marketing campaigns and their content can be targeted.
- Selecting the right criteria: Whether demographic, geographic or behavioral – the choice of criteria determines success or failure and the ability to precisely address target groups.
- Self-assessment on the market: Where do we stand? Segmentation provides information so that your own standing in the competitive field becomes known.
- Competitor monitoring: Who are our main competitors in each segment? This is crucial for a better strategic positioning.
- Innovative marketing strategies: With the knowledge gained from segmentation, new, customized strategies can be developed in conjunction with market research in order to always be one step ahead.
There is more to market segmentation than just dividing customers into stereotypes or personas. It is an art that consists of data, analysis and careful strategy planning. And like any art form, it requires expertise, commitment and, above all, the will to keep improving.
Criteria for market segmentation
In order to carry out market segmentation, a selection of criteria must first be identified on the basis of which segments can be formed. The definition of the segmentation criteria should always be made dependent on the respective situation of the company. The following characteristics can be applied to segmentation criteria:
- Measurability: You should be able to quantify the segments.
- Relevance: The segments should be relevant to purchasing behavior.
- Reachability: You should be able to reach the segments with the existing marketing instruments.
- Economic efficiency: Does it make economic sense to process the segment?
- Ability to act: You should be able to develop specific marketing strategies for each segment.
- Stability over time: The segments should always remain stable and not change.
The choice of segmentation criteria is not a one-size-fits-all approach, but must be based on the corporate context. The criteria should be measurable, relevant, achievable, economically viable and stable over time in order to enable effective marketing strategies.
Types of market segmentation
The sub-segments into which the overall market is divided on the basis of market segmentation are always defined according to various criteria. Examples include demographic characteristics, specific customer needs or even the interests of the customer group.
A distinction is made between the following types of market segmentation:
In many cases, demographic segmentation is used. This works on the basis of the following features:
- Marital status,
This type of breakdown is usually used because most products and services are strongly influenced by such demographic factors. A company that sells diapers, for example, mainly targets parents and families – regardless of age and gender. Singles and households without children, on the other hand, are hardly relevant. Accordingly, the marketing should be adapted to the desired group of people.
Another important type of market segmentation is geographical segmentation. The market is differentiated according to the following segmentation criteria:
- Location-dependent needs,
- location-dependent interests,
Such a distinction is recommended for products that have to meet location-dependent requirements. A customer by the sea, for example, has different needs than a person in the city.
A distinction according to psychographic criteria can also be useful. These include, for example, the following criteria:
- The lifestyle,
- the personality,
- your own values,
- the interests,
- own opinions and views.
In most cases, people’s purchasing behavior is strongly influenced by the criteria mentioned above. Depending on how important your health is to you, you will choose different foods. If environmental protection is important to a customer, they will opt for sustainable products. Any marketing contributions should always be optimally adapted to the customer’s needs.
Another option is behavior-based segmentation. This can be recognized by how customers interact with a specific service or product. The marketing strategy should be designed according to whether the product is a daily necessity or a luxury product that is rarely used. Depending on the situation, appropriate solutions should be found and marketing instruments used to suit the respective market segments.
The market is analyzed for the following factors:
- Decision patterns,
- and price awareness.
The aim of this market segment should be to group customers according to their purchasing behavior. The following questions can help:
- How often is a product purchased?
- What price is appropriate?
- What criteria influence the purchase decision?
This often reveals interesting habits. This data can then be used as a helpful tool in advertising and marketing.
Finally, market segmentation offers a multi-layered toolbox for understanding target groups more precisely and aligning marketing precisely. Whether demographic, geographic, psychographic or behavior-based – each method has its own relevance and application, depending on the product and market. Through careful segmentation, companies can use their resources more efficiently and reach more customers who are really interested.
Market segmentation can help to divide a heterogeneous overall market into individual homogeneous components. This is extremely useful for designing suitable marketing and addressing the respective target group precisely. However, segmenting a market is not always that easy, as personality traits, values and opinions are difficult to measure and record. Market segmentation can therefore be very time-consuming and resource-intensive under certain circumstances.
This is why companies should always ask themselves whether segmentation is worthwhile at all before entering the market. Segmentation can be enormously helpful when it comes to quickly identifiable criteria such as age, purchasing behavior or customer preferences and when it is clearly foreseeable that segmentation is economically worthwhile. Because if this framework of prerequisites is in place, maximum customization of marketing can be achieved, enabling a better approach to the respective target group.