What is market segmentation and why do brands need it? Those are just two of the questions I'll answer in my new series for AYTM, Using Market Segmentation for Better Brand Messaging. Market segmentation has grown to be incredibly complex in recent decades, and there are more ways to research and segment markets and audiences than ever before. This series will make sense of all of the steps brands should follow to effectively segment their audiences. Let's get started!
What is Market Segmentation?
By definition, market segmentation is the process of dividing the total market of consumers into smaller groups of people with similar characteristics. Ultimately, the people within each segment should be as homogeneous as possible, but they also must be distinct from other segments. The goal is to create market segments that purchase similar products for similar reasons, respond to brand messages similarly, have similar abilities to purchase products, and so on.Market segments are typically developed using a variety of characteristics that will be discussed in more detail in Part 2 of this series. These characteristics include demographic, psychographic, and behavioral characteristics as well as many more.
Why is Market Segmentation Necessary?
By segmenting the consumer audience, a company can better position its brand with messaging, distribution points, packaging, ads, products, and so on that appeal to those specific audience groups. Rather than creating a global message for all audiences, messages targeted to specific market segments have a much higher chance of success. In other words, the primary goal of market segmentation is gaining better measures of demand, which varies from one segment to the next, and developing the right marketing mix to meet that demand.Once you know what those measures of demand are for a specific market segment, you can create marketing initiatives and messages that the segment is most likely to respond to. If those measures of demand exceed marketing costs, then return on investment should go up. Here's the formula:
MEASURES OF DEMAND > MARKETING COSTS = + ROI
If your segments are too broad, you'll need to use multiple marketing efforts and messages to appeal to the members of that audience segment. If your segments are too narrow, then creating individual marketing initiatives and messages to reach those customers will be too expensive. The trick is finding the right balance in your market segmentation to boost overall ROI.Think of it this way:I'm a 41-year old woman. I'm married and have children. I have a college degree and own my own business. Based on these demographic characteristics, it could be assumed that I like parenting magazines and products. I watch television shows like The View, and on weekends I go to soccer games. I'm always looking for the next great idea for dinner, to clean my house, or to save money on shopping. The reality is quite different, and the truth is that I don't do any of those things or like any of those things despite what my demographic profile would have you believe. In fact, that list is filled with activities that I do everything in my power to avoid. However, many brands would market to me based on those stereotypical (and outdated) demographic characteristics.In other words, demographic segmentation stinks. Don't believe me? Here's a great story by Mark Ritson that was originally published on Branding Strategy Insider several years ago, but it still applies (and is still a problem):
"I started to feel it in late 2006. An inchoate sensation in my knees that gradually moved up my spine as the weeks progressed until it finally started to influence my thought processes.
"Looking back on my actions it is clear that my behavior patterns had begun to radically change long before I actually realized anything was different.
"My growing interest in plants and sudden attraction to gardening implements should have tipped me off. Then there were the protracted conversations with colleagues about superannuation and pension plans that were genuinely exciting.
"Most telling of all was my increased predilection for real-estate agents' windows. Even when in Tokyo visiting friends last month, I found it impossible not to stop and scan the properties on display, despite the fact that the words and numbers that accompanied each picture were as indecipherable to me as they were irrelevant.
"Consumers, you see, don't age. Instead, we leap from one demographic segment to the next. Rather than following the gradual chronology of life, marketers have always clustered us into classic sub-groups.
"I have been aging all the time, but as far as marketers are concerned, whether I am 18 years and two days old or 34 years and 300 days, I am the same man. Until, of course, I cross the threshold into the next market segment, then I change completely.
"I turned 35 on December 20, 2006. While it is not a milestone for most cultures, we marketers realize its significance. I left behind the 18- to 34-year-old segment that accounts for 64% of lager consumption, 68% of football attendance and 79% of soft-core pornography. I became a card-carrying member of the 35- to 55- year-old segment that dominates market sectors such as barbecues and erectile dysfunction.
"It is the brutality and immediacy of the shift from one segment to another that have always been my criticism of demographic segmentation.
"This clumsy configuration of demographic segments, which assumes everyone of a certain age has the same preferences and then, as soon as they pass a certain birthday, that these preferences universally change, is clearly nonsense."
- Mark Ritson
While demographic segmentation will never die, it shouldn't be the only factor used to segment an audience. Demographic data alone simply isn't adequate to identify who a brand should target, what words to use to communicate with them, where and how to communicate with them, and how to forecast and measure the potential value of each audience segment.Stay tuned for Part 2 of the Using Market Segmentation for Better Brand Messaging series where I'll discuss the specific types of market segmentation in more detail.Image: Sanja Gjenero