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All Media Insights June 4, 2024

Market Segmentation and Targeting: What you Should know

Writen by Lawrence Peter

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Market Segmentation and Targeting: What you Should know

Market segmentation and targeting are defined as the processes of identifying a business’s potential customers, selecting which customers to target, and creating value for those customers. This value is achieved through a process known as STP, which in full represents segmentation, targeting, and positioning. Market segmentation is therefore the way to identify potential customers for your business, choose the customers to target, and create value

  • Market segmentation and targeting are the keys to identifying and acquiring key customers.
  • Segment consumers based on location, lifestyle, or demographics. The other way is to segment using the who, what, and why questions approach.
  • Segmentation and targeting have a huge impact on a company’s strategy for communication, customer management and pricing.

The first step in the process is segmentation. It is a means to group customers with similar needs and determine the factors affecting each of the customers. As a case in point, an automotive company can be split into two categories: price-sensitive and price-insensitive. The price-sensitive are those characterized as having less disposable income.

Targeting is the second step. This is where a company selects a given segment of customers they want to focus on. Most companies determine this selection based on the attractiveness of the segment. Attractiveness is mostly dependent on the size, profits, intensity of the competition, and the ability of the company to serve the segmented customers

Lastly, through positioning, which, in other words, means the value proposition for the company that appeals to a selected segment of customers, companies communicate the created value to their customers through designs, distribution, and advertisements. An example, a company can create value for price-sensitive customers by marketing products with terms such as fuel-efficient or reliable.

What is demographic segmentation?

Market Segmentation and Targeting: What you Should know

Demographic segmentation embodies the categorization of a given market based on certain demographic factors such as gender, age, education, income, occupation, and family status. A successful segmentation creates a lot of opportunities for the company in terms of marketing and advertising. With this data, the company understands the behaviours of their customers, their preferences, and more, which then helps the company tailor targeted advertising to a select group of customers within their target market.

By collecting this data, companies classify common traits and behaviours of consumers, for example, how different consumers engage with their products and their purchase behaviour. Demographic segmentation therefore helps in bringing more personalized and relevant experiences to their customers, driving greater satisfaction and loyalty. Demographic segmentation helps businesses create customized marketing campaigns that resonate with different demographic groups and ultimately drive sales.

How Companies Segment Consumers

Imagine a big pie as a representation of your entire customer base. Market segmentation is more like slicing that giant pie into smaller pieces based on common characteristics such as demographics, geography, psychographics, benefits, or even behavior.

Behavior refers to the purchase occasion, usage rate of the buyer, and customer loyalty. Psychographics pertains to the hobbies, viewpoints, way of life, or character traits of the buyer. Benefits sought are simply the value the customer is looking to get, for example, the status of the product, convenience, and price.

The most difficult, yet most important, is segmentation based on customer behavior. This is where the who, what, and why questions approach comes into play. This is mostly done by collecting a customer’s past purchases to predict future behavior, thereby allowing the company to deliver its message to the right customer.

With the “what” question, companies focus on the purchase behaviour of the customer. They break down the data into recency, frequency, and monetary value. This is done to track the last visit of the customer to the store, how often the customer comes, and how much they spend on each of their visits.

“Who” is arguably the easiest of all, as its information is easier to collect. This is mostly information about the customer’s income, family size, education, and age. For instance, businesses presume that a customer in their mid-40s with a large family would likely prefer an SUV if they are an auto company. Consequently, they would focus their marketing efforts on this individual for an SUV rather than a two-seater car.

Market Segmentation: How Companies Target Customers

Targeting is defined as the process of assessing the attractiveness of the customer segment and determining how to attract more customers. For the company to select its customers, it largely depends on the services or products they offer. This is also what drives the company’s overall marketing strategy, even though they apply a different strategy for mass marketing.

Large companies such as Microsoft use similar designs for all customers and other marketing; they use personalized forms of marketing like sending personalized emails and ads to a select group of people. Companies target customers through various strategies and techniques to effectively reach their intended audience. There are three factors, however, that influence a company’s segmentation process, which include characteristics, competencies, and competition.

  • Attributes include the rate of growth or decline of a segment and its profitability.
  • Competence and resources are the needs of the segment. A case in point: a large segment may be attractive, but the company’s ability to serve the whole segment might be limited by resources.
  • Competition in the market is another factor companies consider, and this covers both the present and the future. A growing segment is profitable, but it attracts a lot of competition, thereby reducing the margins.

Market Segmentation and Targeting Strategy

Market Segmentation and Targeting: What you Should know

A strategy refers to the process of manufacturing or creating a product, setting its pricing, communication, and customer management. In this regard, therefore, a product strategy aims to extract value from the customer. This is done by offering products or services at different pricing levels based on the affordability of the target customer or by presenting the most expensive products first to the customer.

Pricing strategy is more about appealing to either the price-sensitive or the price-insensitive groups of the segmented customers. Communication strategy is more about the right messaging delivered to the right people, using appropriate ads, or advertising on the right media based on the company’s target segmentation.

Products for young adults are often advertised on platforms like Facebook and Google, targeting a younger audience. Customer management strategy uses past purchases to decide how to advertise and promote products effectively to customers. This strategy also accounts for how frequently you promote these products.

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