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Investment in segmentation is rarely wasted. In fact, it’s typically a game changer, providing the insights required to dramatically enhance marketing ROI, brand growth and profitability.
Depending on which article you read, there are 5 main types of segmentation approach – or 7, or 11!
Some of the most commonly cited include demographic segmentation, behavioural segmentation, geographic segmentation, psychographic segmentation and firmographic segmentation (for the full list with explanations, please take a look at our article: What is B2B Segmentation? Your Questions Answered).
Whilst each of the above can segment a target audience in its own right, a segmentation model is more likely to reflect a number of different (segmentation) criteria. This is because, the greater the number of criteria that can be used, the more impactful the final segmentation is likely to be, in terms of its ability to meaningfully dissect the target audience and any relevant subsegments within it.
Quite simply, a segmentation which combines (for example) demographics, psychographics and geographical location is going to be far more powerful than one based on demographics alone.
Segmentation is most commonly referred to as either customer (or consumer-) segmentation, or market segmentation. It is typically assumed that these phrases mean the same thing. As a result, they are most often used inter-changeably.
However, they have fundamentally different meanings – and applications – as outlined below.
Market Segmentation
A market segmentation is typically the output of an online survey, commissioned by a brand that is considering (for example) new market entry, a significant expansion of its current footprint into new areas of the market, or the development of a niche proposition.
Because its purpose is to provide the big picture, it will typically be undertaken across the whole market, rather than being limited to just a part of it. This maximises learning and ensures that all potential opportunities – and barriers – can be taken in to account.
A market segmentation provides vital information when:
- Identifying the optimal target customer(s) and the competitors who currently serve them
- Identifying brand gaps where the competitors’ foothold may not be as strong
- Identifying opportunities for new product or proposition development
- Developing pricing strategies
- Developing distribution strategies
A B2C market segmentation is most likely to have demographics at its heart, augmented by other segmentation criteria e.g. needs, behaviour and geographic location.
On the other hand, a B2B market segmentation is far more likely to be based on firmographics, which typically reflect sector, company size e.g. headcount and/or turnover), location. Equally, this may be supplemented by geographic data.
Once completed, a market segmentation is often augmented with the results of deskwork in order to:
- Identify any macro (e.g. SWOT or PEST) issues that could affect the marketplace – either in the present or future
- Undertake a more in-depth assessment of individual competitors – including board directors and institutional investors
- Identify competitors’ marketing activity and marketing spend
- Determine what level of press and PR coverage both the market and the competition are receiving
The work described above will enable the brand owner to make informed decisions regarding the nature and size of the opportunity, identifying the optimal combination of:
- Target consumers
- Proposition and positioning
- Minimum features and benefits
- Pricing
- Distribution
Customer Segmentation
Whilst the role of a market segmentation is to provide market-wide insight, the role of a customer segmentation is to be much more focused – and granular. This is because it is typically undertaken for one of two reasons:
- Following the initial market segmentation and the identification of a section of the market that is of particular interest, a customer segmentation can be commissioned to focus on that area alone, so that it can be broken down into smaller segments, in order to fine-tune the brand’s understanding – and targeting
- As a brand grows, so does its customer base, and the profile of the target audience. As a result, the brand owner can easily lose sight of its ‘must succeed with’ customers, and what is most important to them, meaning that the brand’s marketing strategy may no longer be as relevant and impactful as it once was.
A customer segmentation exercise enables the growing customer base to be reassessed, in order to rediscover the brand’s most important customers and how best to target them.
Alongside the segments themselves, another key, customer segmentation deliverable is typically a set of highly visual customer personas, designed to bring each segment to life for internal audiences.
Together, the insights provided the segmentation model and the individual segment personas enable the development of B2C marketing campaigns capable of resonating more fundamentally with the target audience, often at an emotional, System 1 level.
However, in highly competitive markets this insight may still not be enough to create sufficiently impactful and differentiated messaging. In these instances, the opportunity exists to conduct a further, qualitative deep dive on specific insights at segment or persona level, to identify Eureka! insights that with the power to resonate and differentiate.
Conclusion
Whilst the terms market segmentation and customer segmentation are used inter-changeably by many marketers, they do actually have fundamentally different meanings – and implications. We suggest caution is applied!
