Welcome to segmentation
Segmentation is a big part of every effective and organised business. Companies that successfully conduct segmentation can narrow down and focus on specific audience groups. If you would like to achieve the same, learning about the most common types of segmentation might help you reach your goal.
Segmentation – the art of choosing the right piece of pie
Segmentation is a process of creating groups of users with the same goals and wishes. It’s important to create those groups to determine the most profitable segments that we must focus on.
There are four most common types of segmentation – demographic, geographic, psychographic, and product usage. But, before you start segmenting groups keep in mind the following parameters:
- Measurability – you need to be able to measure the size of the segment and the opportunity laying behind it.
- Availability – is the segment available, can you reach it with communication messages, and at what cost?
- Size – is the size of the segment big enough?
- Difference – are the segments different enough to be separated?
- Operationalisation – do you have enough internal resources (money, people) to operationalise that segment and communicate with it?
Segmentation – Who, Where, Why, and How?
Demographic segmentation
Demography is one of the most common ways we segment any audience. And it is the first thing we think of when we are separating people into groups. For market segmentation, this means we will consider: sex, age, income, phase of life, education. There are more variations, if you need you can use them.
Examples:
- Sex: Male, Female, non-binary
- Age: 10-20; 21-30; 31-40; 41-50; 50+
- A phase of life: single, young; young, married, no kids; older, single…
- Education: high school degree, bachelor’s degree, master’s degree…
Geographic segmentation
Geography is simple – you can segment by cities, countries, regions, population density, climate area. Usually, companies go for regional segmentation, so you end up with Western Europe, Central and Eastern Europe, Balkans. This will help you understand -for one how many languages you need to support, what is the general income in the region, how you can set up logistics, etc.
Examples:
- Country: Croatia, Germany, Ukraine, Moldova
- Region: CEE, WE, EMEA, APAC
- Population density: urban area, suburbs, countryside
Psychographic segmentation
Psychography is more focused on the internal values and behavior of our users. We are looking into their lifestyle, their personalities, what they value, life goals, beliefs.
This helps us understand what moves them internally and if our values coincide – if you proclaim integrity as your core business value, your customers should be users who appreciate that.
Examples:
- Lifestyle: focused on culture, sportsperson, nature lover
- Personality: ambitious, sociable, unpredictable
- Values: materialism, hardworking, hedonism, individuality, loyalty, integrity
Product usage
Product usage is the only example here for already existing products/solutions where you are launching new features or revamping the product. Tracking and measuring the product usage will help you find your most valuable segments – loyal users.
In general, you can divide them into few sections:
- Churned – users who stopped using the product.
- Early adopters – users who test all the new features and adopt them into their everyday usage.
- Followers – users who wait for new features to become widely used before going for them.
- Once-in-a-while users – users who use your solution every now and then, are not tightly connected to it and will easily change providers.
- Frequent users – users who need the solution, but their day-to-day job is not tightly knit to our solution.
- Superusers– these users are online every day; they use our solution frequently and depend on it. They will not easily change the vendor and represent the most loyal base.
Segmentation cheat sheet
Segmentation is a process. At first, you will identify a lot of segments where you want to go, you will see opportunities everywhere. And you will aim to cover everything. That is great! But, you do need to be realistic – not every segment is going to give you needed returns. You have limited resources, both money, and people-wise. You can read more details about B2B and B2C segmentation and how it works here.
How does this work then?
- Create segments based on the need – you can draw out as many as you wish. Keep in mind the notes from the chapter above. Focus on the groups of users who share common interests, needs, or have similar pain.
- Defining the segments – for each segment you need to define the specifics of its users: their demography, lifestyle, potential product usage – everything that makes that segment-specific.
- Assessing segment attractiveness – use specific metrics to measure the attractiveness of each segment. Focus on metrics such as market growth, competition coverage, market availability.
- Segment profitability – Based on the step before, try to determine segment profitability, how much money you need to invest and how much could be extracted.
- Positioning inside the segment – Based on the profitability criteria from the step before, discard the segments that are not profitable and ones that are barely profitable. This is the moment when your net will be cast in a narrower way. For every segment that is left and deemed profitable, shape a unique value proposition and positioning strategy based on pricing and quality, considering the unique needs of users in that specific segment.
- Testing – for each segment, pick few representative users and test your offer with them, see if it really makes sense, and do you have a product-market fit.
- Marketing mix – as the final stage, you will broaden your positioning strategy by including all other aspects of the marketing mix – product (service), price, positioning (distribution), and promotion.
At the end of this road, you should be set with a dedicated list of segments/markets you will attack.
Key takeaways
There are many ways to segment the market. To define your target audience, you need to set the right segmentation criteria.
To do that you need to recognise WHO your customers are, WHERE are they located, WHY they should pick you instead of someone else, and HOW they use your product/service. Here is an essential guide for more help through the process of segmentation.
By narrowing down the target market you will be able to focus on the customers that will gain the most value from your product/service and will provide you with the best ROI for your efforts.