What is market segmentation in business?

Whether you’re looking to improve your marketing or your sales pipeline, a common method is to use market segmentation to pinpoint specific audiences for your business. This article will discuss the following areas to help you understand what market segmentation means in business:

• What is market segmentation?
• Why is marketing segmentation important in business?
• How to segment an audience

Market segmentation is the process of dividing up your target audience into groups (commonly referred to as segments) that have similar needs or wants. By doing this you can tailor your marketing activities accordingly to those specific groups to get better results (eg, more sales, better brand awareness).

For example, a cake maker who takes orders online could have a variety of audiences. They might find that their existing website audience is predominantly women, and so to match their bakes with different customers they segment their target audience into groups. By doing this they are able to adjust their marketing (eg, social media posts or blog content) to cater to each group. Example segments here might include brides-to-be, for wedding cakes, or mums, if they are looking to sell children’s themed cupcakes or party cakes. 

This makes the marketing activities more likely to be successful as they will be relevant for each group. In this example, a mum looking for party cakes wouldn’t necessarily be drawn in by a company using wedding cakes as their marketing imagery. But if they saw examples of the cakes they wanted, the baker has a better chance of gaining them as a customer.

Marketing segmentation can be very important for companies in competitive markets, such as e-commerce or retail businesses. This is because when you have a lot of competition, ‘speaking’ directly to specific customers instead of using more general communications will make your business stand out more in the mind of that individual.

There are many ways that market segmentation can be impactful for your business, therefore it could well be worth focusing time and resources on this method of marketing. Here are just a few reasons:

The most obvious reason for carrying out market segmentation activities is to contribute to better marketing results. By identifying the different needs of groups within your target audience, you can create more effective tactics to reach those customers and bring them to your website or store. 

Because of the more personalised marketing they are receiving, you are improving the interactions a customer has with your business before they buy. This could continue after they buy from you, too, if you continue to use the segments in other communications. Doing so may create trust as you are ‘speaking their language’ and resonating with the customer more.

By using more specific marketing strategies for your segmented audiences, you will be setting yourself up for a better return on your investment in marketing. That’s because you won’t be wasting money on marketing that reaches the wrong audiences, or the right audience with the wrong message.

All your marketing spend therefore is focused on giving your audience what they need. As a result, your business becomes trusted by them, creating business in the short term (immediate sales from personalised marketing) and long-term advocacy for your company (repeat purchases after building trust).

By personalising your marketing to specific audiences, you will be reaching more of the right people. By reaching the right customers, you may find that your sales pipeline improves because the audience is starting to recognise your company and because they are already ‘qualified’. You can find out more about sales pipelines and how having qualified customers will improve your pipeline in our dedicated articles.

By adapting how you ‘talk’ to specific audiences, you are able to create marketing that appeals to these groups. This could be anything from creating offers for certain products to using appropriate imagery and text for different audiences. All this creates trust because it shows you know what they are looking for and improves your chances of having them purchase from you again. 

It’s been proven that it’s far cheaper and more worthwhile for a business to retain customers than find new ones, so speaking the same language as your target customers is crucial.

By identifying different groups within your target audience, it might also highlight groups that are missing or that you haven’t chosen to target yet. This could also lead to developing new products or services to potentially fill lucrative gaps in the market.

Before you segment your audience, you need the full picture so start by identifying who your current audience is made up of. To do this, you can use the Audience tab of Google Analytics to find out demographic data and related interests of the users on your website. 

If you use a CRM (customer relationship management) tool to store your email contacts, you can also use the features on this to find out information on your subscribers. 

Make note of the groups in a document that you can refer to when you are planning any marketing activity. 

You can create groups based on lots of factors, here are a few to start with:

1. Common needs but different purposes – for example, a shoe company might have running shoes, but also trainers for casual wear. This requires two audiences even though both types of customer may be looking for ‘trainers’.
2. Geographical location.
3. Demographic factors, such as age, gender, family size, income or life stage (like a university student, or retired).
4. Socio-economic factors, such as social class, lifestyle or personality.
5. Behavioural factors, based on how a customer will use a product, or the benefit it may have, as the same products could be used by customers in different ways.

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Countingup is the business current account and accounting app that offers instant invoicing and automated bookkeeping features. It is saving business owners hours of time-consuming work and helping thousands keep on top of their finances. 

Find out more here to save yourself hours of accounting and financial admin while you focus on segmenting customers for more successful marketing.