Top 5 Reasons to Segment

in Digital Marketing Strategy & Trends | by Ethan Lyon

Market segmentation is the process of dividing groups of consumers based on their purchasing behavior and reaction to promotions and communications from the company. Each segment should differ in these behaviors but within the segment, members should be homogeneous.

Implementing segmentation has many benefits to a company—and an integrated digital marketing agency can walk you through the process. But after segmenting the market, you can more effectively identify a customer’s needs, better communicate with your audience, create opportunities for growth and increase profits and market share.

1. Better Satisfy Customer Needs and Wants

Through segmentation, a company can match customers’ needs and wants. Since all customers have differing needs, they must be handled in different ways.  Segmentation enables identification of the different customer segments and their preferences.  Then, a solution can be customized for each segment using the company’s products or services. As customers grow older, their preferences and buying behaviors change. By identifying these changes, solutions can be provided to customers throughout their ‘life cycle’ by adopting the product or service to the segment’s needs. This is a great way to retain customers as they change their behaviors over time.

2. Better Communication

A marketing message needs to be targeted to specific customer segments for it to be effective. Since customers have different needs and wants, solutions to each segment need to be communicated separately. Mass marketing causes some target customers to miss the intended message. Also, too much money is spent on advertising to customers who will never purchase the product. Through segmentation, customers can be reached with a specific marketing message that is designed to solve their individual problems, which is less costly for the company.

3. Opportunity for Growth

Segmentation enables identification of potential customers who wouldn’t normally buy a product. By segmenting the market, a company can create its own ‘niche’ and attract customers who normally would look to alternative sources for a solution to their problem. If these unique problems are identified, companies can adjust their product offering to provide a solution. Also, segmentation can increase sales as customers are introduced to new versions and upgrades of their current product. If they try out a product with a lower price point and like the product, they can upgrade to a more premium version.

4. Increased Innovation

With segmentation, smaller segments in the market that have similar needs and wants can be identified. Although these segments may not be traditional customers, identifying new needs can stimulate innovative ideas to solve new problems. With newly developed products and services to meet these needs, problems, premium prices can be charged and the advantage in the market can be sustained.

5. Higher Profits/Market Share

Consumers have different price sensitivities so by segmenting the market, different prices can be charged to extract the most consumer surplus. In doing this, profits are increased. Since segmentation supports niche strategies, highly attractive segments can be identified and market leadership can be achieved. A competitive position results from this place in the market, along with improved relationships and a stronger brand presence. Also, competitive production and decreased marketing costs are associated with segmentation. Due to all of these factors, profitability increases.

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