Which of your market segments are the most profitable? Market segmentation (or customer segmentation) can help answer that question as an integral part of your organization’s marketing strategy planning and marketing tactical planning processes.
Market segmentation continues to gain recognition as a powerful set of tools and techniques for maximizing every marketing, sales, and advertising dollar that companies spend to get more customers. There is some confusion about exactly what is market segmentation, and at MindEcology we are sometimes asked about our definition of market segmentation. Our market segmentation definition is as follows:
Market segmentation is the practice of dividing the consumer or businesses in your target market into meaningful groups, or segments, for the purpose of creating a more targeted and focused marketing strategy, with the goal of higher marketing return on investment (ROI).
Market or customer segmentation methodologies are rooted in the insight that not all customers have equal demand for your products and services. Rather, personalized target marketing strategies are required in order to reach out in unique ways to each target group.
Why Bother With Market Segmentation?
Experienced businesspeople know that not everybody in the marketplace desires – or has the capacity or willingness to pay for – their products and services to the same extent. In other words: customer needs vary. This is a hard truth to accept for those companies that falsely believe that “pretty much everybody” who could buy their product or service actually has the desire and/or capacity to do so. However, companies ignore this reality at their own peril: they risk investing good money in well-intentioned marketing campaigns that fail to reach their target audience or are unable to speak to prospects in a way that will get them to open their wallets to make a purchase.
Market segmentation is a powerful set of techniques and methodologies which can be used to identify the types of prospects who are most likely to respond to a given offer, locate those prospects, and then devise a targeted message that speaks to their motivations and interests. In other words: market segmentation helps you identify your best prospects and then helps push their buy buttons. Putting together a customer segmentation strategy can pay off in much higher return on investment.
Traditional Market Segmentation Analysis
All market segmentation techniques involve making inferences about which types of households (or companies, in the case of B2B marketing) would be most likely to buy one’s product or service. Note that, in some cases, a company’s best prospects may be further divided into sub-groups in a way that allows them to be differentiated by factors such as the price they are willing to pay, by their purchasing motivations, or the media they tend to consume.
Over the past several decades, traditional market segmentation techniques have relied on what we at MindEcology call “simple demographics” to differentiate prospects into distinct segments or groups. Examples of simple demographics can include age, income, marital status, age of home, net worth, employment status, and many others.
Simple demographics-based market segmentation can be a smart way to approach segmentation. However, more sophisticated segmentation systems now exist which can find subtle-but-important differences between households that have identical values along simple demographic dimensions.
Sophisticated segmentation or clustering systems today mine customer purchasing, demographic, psychographic, and geographical data from multiple database sources and then combine them in unique ways to find meaningful patterns. These patterns are leveraged to create proprietary segmentation clusters, each with an identifying number, name and description. Each households in the US is then assigned one of these cluster numbers.
MindEcology’s Market Segmentation Analysis Process
MindEcology leverages both simple demographics and advanced clustering segmentation techniques to develop profiles of your historically-best customers. We thereby identify those segments which are most likely to respond favorably to your marketing outreach efforts – and to spend more money with you once they do make a purchase. We can then apply those models by projecting them onto your trade area in order to identify those prospects who match your “best customer” profile. We have performed detailed market segmentation analyses for companies in Austin, Dallas-Ft. Worth, San Antonio, Houston and across the entire United States.
We base our analysis on your own customer data. By conducting a detailed analysis of your existing customers, we are able to build a model of your best prospects. In this way, we differ from some market segmentation firms that generate “best-guess” segmentation projections that are not actually derived from your own data.
At MindEcology, we are also able to apply our market segmentation process to help you cross-sell or up-sell to your existing customers. In this case, we combine the demographic, psychographic and geographic data with behavioral data such as purchase history, frequency, and product preferences. We can then apply our model to your own customer base in order to help you identify which current customers are pursuing with special offers for additional products or for your premium offerings.
For our more advanced projects, our market segment analysis work leverages artificial neural networks and other advance predictive modeling techniques to combine multiple variables or inputs from various sources into razor-sharp predictive models.
Strategy and Marketing Planning
MindEcology’s market segmentation services can also be applied to your marketing planning and marketing communications planning projects. Whether you are devising a new marketing campaign, putting together your annual marketing budget for next year, or are planning on conducting a site selection analysis for company’s future expansion, our segmentation methodologies can help you to gain a crystal-clear view of who your best prospects are and where to find them. You can leverage this information to devise an entire campaign.
The strategic marketing planning process often starts out with the definition of a business market (for B2B marketing) or the definition of a consumer market (for B2C marketing). In other words, it starts with the definition of a trade area. From there, the planning process continues with the estimation of market size, identification of market segments, and the creation of a marketing campaign that fits the annual or monthly budget.
Target marketing is a practice that is closely related to market segmentation. The target marketing definition varies depending upon whom you ask. At MindEcology, our definition of target marketing is that phase of market segmentation that involves identifying your best prospects, which then become the targets of your campaign. Specifically, it allows you to identify a specific target niche market segment and go after that segment with appropriate messaging, pricing and offers.
Target marketing efforts may involve dividing your best prospects into even smaller groups, with the members of each group being designated as the recipients of a different aspect of your campaign. You may, for example, choose to differentiate your various target groups during the execution phase of your marketing campaign in terms of:
- Marketing frequency (e.g., number of direct mailers, outbound calls, or e-mails per month)
- Cost of printing and postage for direct mail, depending upon mailer size and quantity
- Which prospects to target and which to skip over altogether
- Day parts, channel choices and ad frequency for TV and radio spots
- Location of billboards chosen for billboard advertising
- Whether certain e-mail or phone call recipients will also receive an in-person visit from your sales team
In short, smart target marketing is an excellent way to reach out to only your hottest prospects and in the ways that will speak directly to their needs or motivations. We can leverage our analytics to develop for you a target marketing list of prospects who are 3-5 times or more likely to become your best customers than the average prospect in your trade area. Let MindEcology develop a target marketing strategy designed to maximize the efficiency of your marketing budget and generate more business for your organization.
Contact MindEcology today to get started on a custom market segmentation analysis based upon your own customer data.