How Market Segmentation Gives Your Business A Competitive Edge

Business market segmentation is often a forgotten step when launching a startup or small business.

Most business owners start with a product they created or a service they can deliver—then they try to find customers to buy what they’re selling. This approach is all wrong. If your business hasn’t invested in market research, can you be sure who your customer base is and what services or products would appeal to them?

You need to start with a niche market that’s an inch-wide and a mile-deep; otherwise, your marketing message will never connect. To do that, you have to figure out who is fun to work with, who’s most profitable to your business, and whom you can really help.

Market segmentation is a great way to do this. But what is it? What are the benefits of segmenting your business market, and can it mean the difference between success and failure? Let’s find out.

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How market segmentation helps you to connect with and convert more customers

What is market segmentation?

Market segmentation is the process of dividing a broad target market into subcategories or segments. Each segment consists of a group of customers with shared characteristics. So they have similar interests, needs, and problems that only you can solve.

By homing in on a tightly defined market segment, you’re better able to enter the conversation going on in your prospects’ minds.

As a result, your marketing strategies will target customers more effectively, and your marketing campaigns are more likely to generate a positive return on investment.

You can have a business-to-business market segment and a business-to-consumer market segment.

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Why is market segmentation important?

Let me ask you this first: Do you know why so many businesses fail? It’s not because they had a bad product or delivered terrible service.

Poor market segmentation is the reason why most startups and small businesses close their doors.

They make assumptions about who their customer is, what media they consume, which social networks they follow, the difficulties they face daily, and the messages that would resonate without ever having researched their target audience. They’ve possibly neglected any market-based research as well. So, essentially, it’s all guesswork.

Unless you are your ideal customer, your marketing efforts will be ineffective.

Any sales you make will be random at best. You’ll repeatedly be dipping into a fountain of cash (you likely don’t have) to pay for advertising costs and generating a host of low-quality leads who’ll never buy what you’re selling.

So correctly segmenting your business market is vital because it gives you a competitive advantage. And here’s how:

What is market segmentation & why your business needs it

1: Find a better quality customer

Not all customers are created equal. What this means is within your niche, you have suboptimal and high-quality customers. By identifying your customer segments, you’re more able to focus your marketing efforts on the segment that will bring in the dollars. For example, writing search engine optimised blog posts.

You can do this with the PVP index:

  • P – personal fulfillment – How much do you enjoy working with this type of customer?
  • V – value – Do these people value your service/product, and will they deal with you on your terms?
  • P – profitable – Are they willing to pay you a lot of money for what you do, and will you make a profit in the end?

It’s not an exact science, but it’ll help to hone in on your business’s ideal market segment—to maximize your profit and have a better chance of success.

2: Personalize your marketing message

You know what your customer segments crave above all else because you’ve talked to them, you’ve asked probing questions, and you can weave this into your messaging.

You'll have different customers within a business market segment, so your message will need to differ. Let’s use my business as an example.

I’m in the coaching business. I help business owners get clarity as it relates to their marketing. So I have three market segments I serve, and they’re largely segmented by need and revenue.

  1. My entry-level offer is my book, The 1-Page Marketing Plan, which is for side hustlers, startups, and business owners trying marketing for the first time. They’re clueless about marketing strategy and tactics, and they want to know marketing basics and how to get the best return.
  2. Then there’s my Academy, which is my professional offer. Members are looking for guidance. They want me to review their marketing strategy and suggest improvements. So these customers are willing to invest a monthly sum in taking their business to the next level.
  3. Now my premium service is one-on-one coaching. It’s pretty much a done-for-you strategy for businesses doing well but wanting to break through the $10 million barrier.

As you can see, they’re different customer segments, so my marketing message needs to address their needs. There will be some crossover, but the primary message will differ.

So personalized messaging leads to a higher conversion rate because your customers feel understood.

3: Waste less money and time on bad marketing decisions

Everyone likes to ask, “What’s your marketing budget?” But, I say, if you’re getting a return on your advertising, spend more.

When you get the segmentation of a market wrong, you make bad decisions. You create a laundry-type list of messaging that targets a broad audience, creating a knock-on effect. You get a lot of low-quality leads clicking on your Facebook Ads and Google Ads.

You’ll spend time and energy nurturing leads that will never convert to customers. And eventually, you’ll go out of business.

But if you’ve engaged with your customer segment, you can use their exact lingo in your campaign. You know where they hang out online, so it’s easier to reach them and entice them to join your mailing list or download your lead magnet.

If your lead-nurturing sequence is optimized, you’ll improve your campaign performance and have a clear direction of how to attract and convert prospects into customers. So aptly determine your business market segment and get better returns from your advertising.

4: Differentiate your business from competitors

When you’ve researched a market segment, you know what your competitors are doing, and you know what they’re not doing. Because of this, you’re able to deliver a world-class experience that surpasses any discount they may offer.

For example, would you rather go to a hairdresser that washes and cuts your hair or one that massages your neck while your hair is being washed, then hands you a cappuccino and biscuit to enjoy while having your hair cut? The latter will cost more, but it’s an experience that builds raving fans who love to be pampered.

And your repeat customers are where the money is made. So delivering a unique experience to a business market segmentation that your competitors have failed can massively influence your success.

5: Build a tribe of raving, loyal fans

A tribe of raving fans is a customer segment that loves and trusts you. They’ll walk past a similar product on sale and purchase your full-priced product. They send referrals to your business or post about it on social media. And they do this because they’re brand loyal.

It takes time and effort to build your tribe of raving fans. You’ve got to nurture this master segment. You have to prove that you can fill their need almost to the exclusion of everything else.

Get this right, and they’ll care about what you do, and they’ll be fanatical in helping you to succeed. Think lifelong customer retention—the ultimate dream. Here’s how to get started on building your referral program.

6: Branch out and develop new products

One of the benefits of having an engaged business market segment is customer feedback. You get insight into your product's highlights and shortcomings, which you can use to inform product development.

You’re also able to identify a sub-niche of your segmented market that you’re not yet serving. This allows you to create a product that addresses their needs.

For example, Uber began as vehicles for hire. But soon, they realized their customers wanted more than just the convenience of a taxi at their fingertips. They wanted to be able to order food and have it delivered. They wanted to be able to courier packages. And they’re still evolving. So this is a prime example of a brand branching into new services.

So those are six benefits of market segmentation, but what are the types of market segmentation?

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What are the 4 types of market segmentation?

The four types of business market segmentation

Market segmentation helps your business build a complete picture of your target market (potential customers). So you’ll need to conduct market research (I share five ways to do this).

Here are the four main types of business market segmentation:

  1. Demographic segmentation
  2. Geographic segmentation
  3. Behavioral segmentation
  4. Psychographic segmentation

You need to create your market segmentation strategy by answering the questions in all four segments before working on a marketing campaign.

1. Demographic segmentation

Demographic segmentation is possibly the most commonly used form of market segmentation. It involves dividing a market by easy to discern characteristics, for example:

  • Age, gender (male or female), race (ethnicity), physical location, marital status
  • What’s their annual income or earning potential?
  • Are they religious?
  • Are they well-educated?
  • What is their family size?

In a business setting, we might ask:

  • What is the size of their company?
  • What industry do they serve?
  • What job function do they perform?

It costs very little to gather this information. You can ask your consumer base directly or through an online survey. While this method is more time-consuming, using your customer’s lingo in your marketing is very powerful.

Social media is also another great tool to find information about your customers.

And when you combine demographic segmentation with other types of market segmentation, you’re able to narrow down your target audience further.

So let’s look at an example of demographic segmentation. Take the beauty and personal care industry. Think of the leading disposable razor blade brand Gillette. It produces razor blades for men (the Mach series) and women (the Venus series).

Outwardly, there’s very little difference between the two types of blades. The greatest distinction comes in the form of the coloring of the product and packaging and its messaging.

For example, the Mach series focuses on speed, precision, and getting a close shave, whereas Venus talks about smooth and silky legs. Marketing to a female audience focuses on pampering, and to a male audience, time-saving.

2. Geographic segmentation

Another commonly used type of segmentation is geographic segmentation, which targets a group of customers based on their location.

  • Where do they live? Be specific. What country? What state or province? What city?
  • What are the characteristics of the areas they live in? Are they based in a rural or urban area? Is it sparsely populated or overcrowded? What is their climate like?
  • What language do they speak? Do they respond to particular phrases?

It’s an essential part of your segmentation strategy because understanding your customers’ location helps you determine what to market and when.

For instance, someone living in the inner city would have very different buying habits than someone living in the rural countryside. And a small, local business would not need to target a global customer base.

So, understanding where your customer lives can help you address their needs better and reach them through geo-targeted ads.

For example, an eCommerce platform wouldn’t market lawnmowers to densely populated inner-city areas. Those customers are more likely to shop for small, potted plants to place on their balconies.

Whereas a customer living on the outskirts of a city probably has a small garden that requires regular maintenance and would be more interested in purchasing a lawnmower.

Another great example of geographic segmentation would be a global clothing brand. It has to consider more than just the climate; it has to use the language of its consumers in its marketing.

For instance, in South Africa, flip flops are known as slops and slippers are often referred to as stories. But if you were to use these words in the U.S. market, you’d create a lot of confusion and not many sales.

So it’s vital to understand how geographic segmentation (language, climate, and location) affect the advertising and marketing content you create.

3. Behavioral segmentation

Unlike geographic segmentation and demographic segmentation—which focuses on who the customer is—behavioral segmentation looks at how consumer behavior relates to your product or service. So how do they make their purchasing decisions?

  • Do they shop online or in-store?
  • When online, what actions do they take? Do they read online reviews and compare prices across multiple e-commerce platforms before making a purchase? Or do they research the product online before booking an in-store appointment to talk with a salesperson and physically interact with the product?
  • What is their attitude towards your brand? Are they brand loyal? An excellent example of behavioral segmentation is the Apple brand. Apple fans won’t just purchase an iPhone. They’ll buy an iPad, an iTV, an Apple Mac, and an Apple Watch. They’ll stand in long lines from the early hours of the morning, in rain or snow, to get the latest Apple gadget. And they’ll staunchly defend their brand against other technology brands. Brand loyalty is compelling because it’s guaranteed future purchases without needing to convince or win trust.
  • How do they use it? Are they knowledgeable about your product or service?
  • Is there a built-in bias for the way they make their decisions? Take engineers, for example. They’re very analytical. They want to know the specifications, the granular detail. In comparison, a CEO is more inclined to look at the big picture—how it will make their life better. Therefore, the way you interact with and market to these segments needs to be very different.
  • Are they motivated by rewards or discounts? Are they the kind of customers who want to be first to know about a new product or be invited to an exclusive early-bird sale? Being a member of an exclusive club can be a massive motivator for getting consumers to spend a lot of money.

Luckily, it’s not difficult to acquire this information. You could place cookies on your website to track user behavior or analyze the purchasing data from your CRM to see which products are more popular. You could also reach out to third-party datasets such as eCommerce sites.

4. Psychographic segmentation

Psychographic segmentation shares similar traits with demographic segmentation, but it deals specifically with your customers’ personality traits and intrinsic characteristics.

As you can imagine, this information is more challenging to identify. The best way to acquire it is to engage customers in conversation. You’ll want to arrange interviews or focus groups with existing customers.

You could also use surveys or monitor your website to see what types of content your users engage with. These, and even networking events, are all great ways to gain valuable insights into who your ideal customer is.

Here’s what you want to look for:

  • What do they value?
  • What are they interested in?
  • What are their priorities?
  • What motivates them?
  • What lifestyle do they want?

Knowing this information will help you to understand what they care about and would motivate them to buy. So your job is to cater to the unique needs of each segment of your market, and psychographic segmentation helps you to do just that.

For example, vehicle brands do a great job of segmenting their market by psychographic traits. A lot of people own a vehicle, but their tastes differ widely. A businessman in his 60s probably has no children at home. He wants to purchase a car that makes him feel younger, which cements his status as having made it. So he’s more likely to buy a convertible or high-end vehicle.

Now someone in their 30s and 40s with a young family is more likely to purchase an SUV. But perhaps sales conversions for this segment is low. When you apply psychographic traits, you learn that this customer segment also values safety, family adventure, and community. So you might show ads of families camping or taking their kids and their friends to football or baseball practice.

So those are the four types of market segmentation. But how does this vital market research influence your marketing strategies?

Business market segmentation

How to zero in on the right market segment

When segmenting your market, you want to choose the market in which you’re going to have the greatest success. Remember the PVP index?

  1. You need to enjoy working with them.
  2. They need to value your expertise.
  3. They need to be profitable.

So here’s how I determined my market segment...

I always knew I wanted to be in success education, but that’s a pretty broad market segment. My expertise was in building multimillion-dollar businesses, so it made sense to target a business segment.

But business education could encompass anything from mindset, personal development, sales training, managing finances, or getting funding.

I wanted to zero in on something I felt I could deliver the most value—marketing education. It’s a subcategory of business education.

Marketing education could encompass advertising, email marketing, search engine optimization (SEO), branding, social media, etc. It’s more targeted, but it’s still a wide sub-niche, and it’s already dominated by well-known influencers such as Neil Patel and Gary Vaynerchuk.

So I thought, where are the gaps? Where could I make a difference and gain traction?

I’d spoken with hundreds of small business owners (my target market), so I knew marketing planning was a largely untouched and unknown market segment. So that’s the segment I targeted. It’s an inch-wide and a mile-deep.

How to use your website to segment your email database.

A question I get asked a lot is: “How do I manage multiple target markets?” A great way to do this is to segment your email database. But how do you do that?

Remember, if you use the same email sequence for vastly different groups of subscribers, you’re going to have many people unsubscribing, which is pretty bad.

And trying to segment your subscribers after they’ve opted into your email list is a nightmare. So you want to streamline the process.

Start by looking at past and existing customers. What are their common characteristics? So what problems routinely keep cropping up?

Let’s use James Schramko of Super Fast Business as an example because he does segmentation well. Instead of funneling his email subscribers into a single funnel, he uses questions on his website to allow his prospect to self-select.

  • Do you need help with your business strategy (pricing structure, business model)?
  • Do you want help with getting more traffic and sales?
  • Do you need help with productivity (knowing where to focus your time and energy)?
  • Do you want help with building your team?
How to segment your email subscriber list

As you can see, these are all very different needs. Now someone looking for help with building their business strategy is probably a startup. They’re nowhere near ready to talk about building a team. Sending an email campaign that talks about the best places to hire great talent will probably not resonate.

James has to write lead-nurturing sequences for all four market segments, but by allowing his target consumer to self-select, they’ll be separated into lists in his CRM and receive the right sequence.

How to create a market segmentation strategy for your business?

By now, you know what market segmentation is, how it helps you understand your customer base and purchasing habits, and how to use it to inform product or service development.  

So market segmentation allows you to more easily map your customer journey and improve how you communicate with your target customers.

Now let's look at how you can use segmentation strategies in your company.

1: Analyze your existing customers

Always start the market segmentation process with audience analysis. Here, your goal is to identify the unique characteristics of your current customer base so you can better target potential customers.

Interview your favorite customer.

This is a unique group of people who keep purchasing from your company. They're the ultimate example of customer loyalty, so you want to find out what they love about your products and services.

I want you to find out:

  • What they love about you or your business. Did they talk about value or quality of service?
  • What blew them away?
  • What words do they use to describe themselves?
  • What words do they use to describe you?

Use their insight to improve product development.

Use their words and phrases in your marketing campaigns. This is a great way to create messaging that connects with your target audience every time.

Remember, getting inside their minds helps you flesh out the four types of market segmentation: psychographic segmentation, demographic segmentation, geographic segmentation, and behavioral segmentation.

Speak to your company employees.

Talk to your team. They deal with your target customers and current clients every day and provide valuable insight into the common questions that get asked, personality traits, and purchasing habits.

They might also share new markets to tap into, ways to target customers and how to innovate your products and services, so use them as a source of data.

Survey your email database.

Learn more about your target market by surveying your email subscribers. Stick to 10 or 20 questions, and track the responses you get. Are you seeing any patterns?

I recommend ActiveCampaign, ConvertKit, and Ontraport when investing in a CRM.

Analyze your website analytics.

Analyze the graph to make assumptions about your target audience

Use Google Analytics to track your customer journey and analyze behavioral data. For example, if you have an eCommerce site, the data you collect will tell you which products perform best and what customers to target based on age, gender, physical location, etc.

Use social media to research audience interests.

Analyzing your page Insights helps to improve content

Again, social media sites have analytics tools that give you insight into the ads your audience interacts with, the post they engage with, the conversations they have.

Use this information to build a world-class customer loyalty program.

Use SparkToro to discover what your target customer searches for.

SparkToro crawls the entire web and all social networks so you can see what your audience frequently talks about, words they include in their profiles, accounts they follow, websites they visit, podcasts they listen to, hashtags they use, and so much more.

Knowing your audience's interests helps you identify psychographic segments, as well as the topics they care about.

It also gives you access to your customers' top sources of influence as well as where they hang out. This insight will help you decide WHO to connect with, so you can collaborate with them on an ad campaign or whatever project you're working on.

Check out customer reviews.

Read customer reviews to see where changes can be made

While you might prefer to avoid your 1-star reviews, they can help you identify ways to improve your products or services. So read them all. See what they love. When you target customers based on the words they use, you increase the effectiveness of your marketing campaigns.

2: Create a customer avatar or buyer persona

Using the data you’ve gathered so far,  create a profile for your ideal customer. This is the person who is most likely to buy from you and respond enthusiastically to your messages.

Choose a photo of your avatar. You have to visualize them in your mind if you're selling to them in the future. Remember the research you conducted: geographic segmentation, demographic segmentation, behavioral segmentation and psychographic segmentation. Use this information to answer.

  • What's their name?
  • How old are they?
  • What gender do they identify as?
  • Where do they live? Be specific.
  • What's their education level?
  • Do they have kids? Pets?
  • What's their life circumstance? For example, did they just get married, buy a new car? Are they currently studying? Do they own a business? If so, what number of employees do they have?
  • What are their unique characteristics?

Unpack the decision-making process your customers go through. You need to care about their buyer behavior.

3: Identify market segmentation opportunities

Now that you have a comprehensive customer avatar, start looking for new markets to target.

Answer the following questions.

  • What problems does your brand solve?
  • What do you do better than competitors? Is it the content you create, your product, or the experience you deliver?
  • Where can you deliver a ton of value? Based on the data you've compiled, are there gaps you can potentially plug?
  • What groups of people do you enjoy serving? This is the audience you want to target.

Continually refer back to your data to discover how to serve this segment best. What can you offer that would lead to greater brand loyalty and the growth of your company?

4: Research your market segment

Know which keywords to rank for

Before tackling a new segment, it's vital that you gauge the interest of your audience and that you're aware of major competitors in your market space. If there's little interest in your new segment, you're wasting your time and money.

Start with keyword research. Using AHREFS, you can get a sense of which keywords perform well and where you can gain market share. Ideally, you want to target popular phrases that have little to no competition. If you're trying to rank for keywords that Hubspot or Forbes already hold pole position, you're going to struggle.

5: Measure and Manage Your Numbers

Closely monitor and measure your campaign results. In any marketing campaign, you'll create different messages and ads. Keep your messaging clear and concise, and monitor the performance of each ad and the media you choose to advertise in.

Cut the losses and invest big in the winners.

Segment correctly to level up your business

So that’s it, we’ve covered what a market segment, the benefits of market segmentation, the types of market segmentation and segmentation strategies.

And really, market segmentation is a great way to infiltrate an industry and come to grips with who your customer is and what they need.

It touches on everything you do. It’s going to drive the marketing strategies you implement, the message you create, what media you choose to advertise or invest time in, how you deliver your product or service, and whether your customers become raving fans.

Getting your market segment right leads to rapid business growth and interest from investors (potentially your biggest payday).

Do the work upfront (research thoroughly), and you’ll avoid the laborious and costly task of recreating your marketing campaigns. Good luck.

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