First, what is market segmentation? Simply put, segmentation is a way to rank the value of customers and prospects, separating those you want from those you don’t into targetable groups.
Why Use Market Segmentation
Market segmentation is arguably one of the most powerful tools in a company’s arsenal. There is no other singular tool that can parse and prioritize potential and existing customers into meaningful market segments based on their propensity to drive business growth. In its versatility, segmentation can not only rank the value of customers, but also provides critical guidance for investment decisions and prioritization of company-wide activities. Segmentation is the foundation a company needs in order to build a sustainable brand with ever-increasing shareholder value.
So why don’t all companies embrace market segmentation? It often comes down to whether the segmentation is actionable and usable. An actionable segmentation is one that predicts the growth outcomes the company cares about – revenue, profitability, market share, market penetration, share of wallet, just to name a few. A usable segmentation is one that can be applied to the multiple strategies generated to meet these growth outcomes including brand positioning, marketing and communications, new product development, operational effectiveness, and many others.
Choosing the Right Segmentation Methodology
Choosing the right segmentation methodology is critical to making it both actionable and usable for the organization. Many methodologies have very specific applications, so it’s important to approach segmentation with the end in mind, identifying the company’s growth objectives and determining how the results will be used before you begin. The table below shows a quick way to think about how to use the different approaches.
|Geographic/ Demographic||Media investment, go-to-market strategy|
|Psychographic||Messaging, core values|
|Needs/Attitudes/Behavior||Brand development, product development, emotional and functional benefits|
|Conjoint-based||Current product preference, near-term product development|
|Database||Customer relationship management, retention, loyalty|
With the rise of A.I., many companies are tempted to forgo traditional, survey-based segmentation because big data often feels more tangible. However, brands need to understand the motivations behind consumer behavior in order to truly serve their customers and prospects better. Survey-based segmentation still reins most powerful when it comes to identifying the most valuable target segments, especially when combined with geo-demographic and/or big data.
A Market Segmentation Case Study
One of our major hotelier clients approached us with the idea of launching a new brand to capture a group of consumers they weren’t able to reach with any of their existing brands. In order to do so, they needed to determine if there was a shared mindset with a strong propensity to choose the new, game-changing hotel concept.
Taking all of this into account, we developed and fielded a survey-based attitudinal segmentation study with purchased sample from a large sample provider. After creating the segments, we then used a third party to append the geodemographic segment for each respondent. With the combination of these two methodologies, we were able to determine the most valuable segments for this new brand and identify exactly how to target them.
Ultimately, this market segmentation was key in influencing everything from the final product design, to the unique guest experience, to on-property graphics and signage, to marketing and advertising, and so much more. Our client was also able to score their own database, via look-alike modeling, to optimize their email marketing and outreach.
The result? This hotel brand experienced record growth for this hotelier and became the fastest growing brand in the industry.
Segmentation can be an incredibly powerful tool in your company’s arsenal, as long as it’s built on precise research designed to be both actionable and usable to those throughout the organization. The right segmentation serves as a fundamental tool that can drive business growth on many levels, creating powerfully focused brands in the process.