Market Segmentation: Capitalizing on Market Clusters to Get More from Less

How can marketers get more from less? The biggest challenge for product and marketing teams is how to maximize effectiveness with limited resources. To do so, we need to be disciplined in how we allocate both financial and human resources. Effectively segmenting your market can optimize this resource allocation.

We well understand that personalized marketing is more effective than its spray-and-pray counterpart. But companies typically don’t have the resources to create a completely customized marketing strategy for every account and the personas within those accounts.

By learning from customers at the earliest stages of product development, and again after your product has launched, you can tailor your marketing efforts and optimize the different channels in which you’re running your marketing, ultimately reducing the risk of a marketing campaign fail.

The Best Approach for Segmentation

There are a variety of ways to segment your markets. Traditionally, we see four pillars of segmentation:

• Geographic – country, region, or density
• Demographic – years of experience, gender, specialty, or industry role
• Psychographic – attitudes, rate of adoption, affinity for innovation, customer-centricity
• Behavioral – purchasing behavior, product usage, reaction to market events

If your product is a B2B product, there’s also a fifth: the firmographic, or the business pillar. This pillar deals with understanding the nature of the businesses or the firms you’re selling to.

Most segmentations use only one or two of these pillars. Each pillar has its own pros and cons. The most common segmentation applies readily available geographic and demographic data.

Consumer marketing often focuses on demographics as an indicator of other customer characteristics. For example, car manufacturers traditionally market cheaper, smaller, more stylish cars to younger drivers.

A segmentation that’s more behavioral based uses the customer’s habits. Customers exhibit observable behaviors revealing their actual underlying needs. Retailers have done this for a long time: When you go grocery shopping, you have your loyalty card, which is not just a way to get discounts or access to sales – they’re also used to gather data about your shopping habits. The retailer can take that data, segment it, and then use it to create targeted promotions or special offers to groups of shoppers.

Behavioral segmentation tends to be dynamic. The size and nature of the segments often change in response to the latest data. That’s where the psychographic segmentation comes in. This segmentation is the most difficult to achieve. It’s based on customers’ opinions and beliefs, things that are hidden and thus tricky to measure.

Data like this is often gathered through some form of primary market research, such as a quantitative survey. But while the psychographic segmentation may be more difficult to conduct, it also tends to be a more powerful because you’re getting to the core beliefs and attitudes that drive the customer’s behaviors.

It takes many years for someone’s core beliefs to change. A segmentation built on that psychographic data should be valid for many years, which can be crucial because sometimes it takes several years for a company to plan and execute a marketing strategy.

B2B Holistic Segmentation

Holistic segmentation takes all the above pillars into account. When segmenting customer accounts, or B2B teams within those accounts, you can still get a sense of how that firm behaves or how they may make their decisions.

In some B2B roles, the customer is a single individual. You still take the same approach with segmenting those individuals and understanding what they look for when they make decisions. What are their beliefs? What drives their decisions? Often, this is the company culture reflected in individual behavior.

Holistic segmentation blends the best aspects of each type of segmentation into one, capitalizing on the benefits of each. It takes the benefits of having geodemographic information and the behavioral information that reflects your customer’s preferences and combines that with psychographic data, which gets at the underlying drivers or behaviors to create something that’s more accurate and longer-lasting.

Holistic doesn’t mean only running a quantitative survey comprising demographic, geographic, psychographic, and behavior questions. It means also simultaneously using multiple sources and methodologies to help inform a single segmentation solution.

Final Tips for Segmentation Success

Get early buy-in so your segmentation won’t sit on the shelf unused. Create knowledge-sharing workshops to ensure a clear understanding of objectives.

Conduct qualitative research. Holistic questionnaires can be difficult to create. Qualitative interviews help you explore and better understand the market landscape first. You also need to understand the different attitudes and emotions that come into play when a customer is deciding.

Have a hypothesis. This could be a hypothesis about the segments’ key attributes or what the personas will ultimately look like. Include this in the questionnaire along with different profiling questions that allow your segments to be described once the analysis is done and these segments are all split out.

Consider your questions. Some questions, such as open-ended questions, don’t work for segmentation. Numeric questions that use a scale tend to work much better; they allow you to focus on the variables or questions that are the main drivers and to split the data out into the different clusters that ultimately make up a segment.

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About Geoffrey Chu

Geoffrey Chu is a director leading GLG’s surveys team and is a quantitative market research specialist specializing in methodology and analytics. He has over 8 years of experience utilizing various techniques such as conjoint exercises, MaxDiffs, and pricing models. Geoff is also experienced in analytics, integrating both primary and secondary data to lead quantitative studies, such as market segmentations. Prior to his career in market research, Geoff was a medical researcher developing predictive models for neurodegenerative diseases.

Geoff holds a BS in chemical and biomolecular engineering from Johns Hopkins University, a master’s degree in Biotechnology from the University of Pennsylvania, and an MBA from New York University’s Stern School of Business.

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This article is adapted from the GLG webcast “Getting to Smarter Market Segmentation: How to Capitalize on Clusters to get more from less.” If you would like to listen to this webcast watch the on-demand version here.