Getting A Slice Of The Market : Customer Segmentation Basics

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Where are the customers?! So many entrepreneurs have great products, but they can't seem to get buyers. (ARGHHH... The frustration!) When you're running a business, reaching the right audience with a tailored marketing messages is the key to success. However, a one-size-fits-all approach will be a waste of time, effort and eventually end up being financially draining and will drive you mad. That's because, though you might have a product that multiple types of user need- you can't sell to all of them, without your brand developing multiple personalities. The way forward is to group your most likely buyers using customer segmentation, which will help you develop a strategic approach for optimizing your marketing efforts.

Entrepreneurs often grapple with the challenge of effectively allocating their limited marketing resources. (Ah yes, the joys of having limited resources and wasting the.) Attempting to target everyone is impractical and costly, so there is obviously a real need to streamline your marketing efforts, but figuring out how to do that is something many people struggle with. This is where customer segmentation comes into play, because it allows you as an entrepreneur to categorize your target market into smaller, more manageable groups and tailor your strategies (and money) accordingly.

So let's dive right into it, what is customer segmentation and how do you do it? Customer segmentation involves dividing your market based on specific criteria to better understand what your customer needs and what their preferences are. The four primary bases for segmentation are demographic, geographic, psychographic, and behavioral.

1. Demographic Segmentation

Demographic segmentation involves categorizing customers based on identifiable non-character traits such as age, gender, occupation, socio-economic status, marital status, family life stage, income, education level, ethnicity, religion, and family size. For instance, a company selling baby products might target new parents with marketing campaigns addressing their specific needs.

2. Geographic Segmentation

Geographic segmentation divides the market based on customers' physical location, including factors like country, region, population density, city or town size, and climate zone. Tailoring marketing efforts and products to suit regional preferences is a key advantage of this segmentation. Think along the lines of selling air conditioning to Eskimos- wouldn't make sense considering their typical geographic location.

3. Psychographic Segmentation

Psychographic segmentation focuses on customers' personalities, interests, activities, opinions, values, lifestyles, and beliefs. This segmentation helps target consumers with similar psychological and behavioral traits. For example, a company selling luxury watches might target consumers who value high-end products and seek status symbols. Think of the people who would buy a Lamborghini.

4. Behavioral Segmentation

Behavioral segmentation involves categorizing customers based on their buying patterns, usage habits, brand loyalty, and other behavioral factors. Businesses can tailor marketing campaigns and strategies to align with each behavioral segment. For example, a company selling running shoes might target frequent runners.

Segmentation Examples

How to Assess Your Performance in Segmentation

Ok, so you've probably thought about your customer segments at some point while running your business. Segmenting your customers however, is only the first step. To make sure that you have the right segments, it's crucial to evaluate the effectiveness of your approach. Key segment assessment criteria would include:

  • Identifiability: How distinct are your segments within the marketplace?

  • Substantiality: Are your segments large enough to be profitable for your business?

  • Accessibility: Can you easily reach and market to the selected segments?

  • Responsiveness: Do the chosen segments respond positively to your marketing efforts?

  • Actionability: Can you implement effective marketing strategies based on these segments?

Segmentation in the SPARK Framework

In the SPARK Framework, a structured approach to business development, segmentation plays a crucial role in step 3: "Assemble your business model." Just like assembling a puzzle, this step is important to piecing together your business model. Understanding and implementing customer segmentation at this stage is vital for aligning your business model with the needs and behaviors of your target audience.

Getting Started with Customer Segmentation

To help you start working on your customer segments, we have created some Customer Segment Insight Worksheets, that will guide you through identifying and categorizing your target audience effectively. Tailored from insights in this article, this worksheet will help optimize your marketing efforts and boost engagement. Get the worksheet and dive into the full article for in-depth knowledge!

Download the Worksheet Here →

Share Your Thoughts

Customer segmentation is a dynamic field, and I'd like to hear your thoughts, experiences, and insights. Have you utilized customer segmentation in your business? What challenges and successes have you encountered? Let's engage in a meaningful discussion to further enhance our understanding of this vital aspect of business strategy.

Previous Articles and Further Reading

For more insights on business basics and related topics, check out our previous articles:

Stay tuned for more in-depth discussions on optimizing your business strategies and navigating the dynamic world of entrepreneurship.

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