Consumers have always connected better to a brand when the marketing message is personalized. However, with globalization, millions of marketing messages and decreasing attention spans, it's even more crucial for brands to personalize their marketing. Personalized marketing can be so powerful that 72% of customers will only engage with personalized marketing.
This is where customer segmentation comes in. Consumer segmentation helps you understand your audience and tailor your message to the pain points of your target audience. They may have a need that they may not have realized yet – but you'll be the first brand to preempt this need and take care of it.
With that being said, we'll explore what consumer segmentation means and the segmentation models brands need to consider when investing in a marketing campaign. Above all, we'll analyze how it affects sales and a brand's long-standing reputation. Let's dive right in!
What is consumer segmentation?
Consumer segmentation is a marketing strategy that involves breaking down your audience or consumer market into smaller and more defined groups with similar wants, needs, characteristics and consumer behaviors. By doing this, brands can create personalized and highly-targeted marketing campaigns that appeal to particular sub-sets of the consumer market.
It's safe to say that consumer segmentation can make a big difference in all stages of the marketing funnel. By understanding your audience subset's preferences, you'll not only create marketing campaigns that appeal to them, but more crucially, respond to their needs. Unquestionably, this leads to increased sales, greater customer satisfaction, as well as a boost in brand loyalty.
Consumer segmentation can be particularly useful when brands develop a new product or service. Say you're a clothing brand working on releasing a new line. One of the segments consists of athletes and people who like working out. These people are looking for a jacket that can take them from the office to the gym. By developing this specific type of jacket, you'll be responding – or even preempting – to this need, which leads to a successful marketing campaign, increased sales and repeat buys.
Speaking of successful marketing campaigns – one of the core use cases of consumer segmentation is the marketing campaign itself. By understanding your audience subsets, you can create marketing campaigns that resonate with specific consumer segments. If we use the same clothing brand example, segmenting your audience geographically can impact marketing decisions, such as using different languages in ads, setting up different redirection links, and being aware of cultural sensitivities.
Consumer segmentation models
When talking about consumer segmentation, it's important to mention consumer segmentation models, which provide the categorization framework brands use to carry out consumer segmentation. By using the following models, brands can break down their audience into groups based on shared interests and create more targeted campaigns.
Behavioral segmentation
As you might have already guessed, behavioral segmentation is based on consumer behavior. This includes buying patterns, brand loyalty, product usage, consumers' interaction with the brand's website, and so on.
This model assumes that people with similar purchasing patterns have similar needs and preferences. The advantage of behavioral segmentation is that it not only tells you what kind of products your audience likes to buy, but also the channels they use to buy the products. By learning this, you can personalize your marketing message to them and predict certain behavioral trends.
Demographic segmentation
Demographic segmentation divides consumers according to demographic factors such as gender, education, income, race, marital status, nationality, and religion. Unlike more abstract models, demographic segmentation is easy to measure and understand, as brands can obtain this information through surveys, public data sources, market research, and social media data.
This segmentation model is particularly useful for brands operating in different territories, as it enables them to meet the needs of diverse consumers. However, brands that use demographic segmentation must be careful not to enforce certain stereotypes and biases, which can do more harm than good to a brand's image and popularity.
Geographic segmentation
Geographic segmentation is another easy to encapsulate, as it divides the audience according to their geographical location. Beyond this simple breakdown, it also takes into account geographical aspects such as climate, season, zip code, state, time zone and so on.
This is particularly important if the brand operates in multiple regions and wants to tailor its message to the region. For example, if the same clothing brand we used a few paragraphs ago sells a winter jacket in Florida in the middle of summer, they will definitely not be as successful as if they sold the same winter jacket in the Pacific Northwest.
Needs-based segmentation
Needs-based segmentation identifies people with shared experiences or needs, as they're more likely to respond to similar marketing messages. It's important to note that, since it's more abstract, needs-based segmentation needs to be based on both qualitative and quantitative data, so that you get the full picture.
For example, if you have a skincare line, people with acne and those with wrinkles have different skin-care related pain points. By analyzing how many people experience the same problem and understanding their lived experience, you can recommend different products to them in your marketing message.
Technographic segmentation
Do you argue with your partner because they're an Android user and you're a hardcore Apple fan? For brands, this dissonance would mean you're in different technographic segments.
As the name suggests, this segmentation model is based on different technological preferences and device usage. This is particularly useful for brands operating in a technology-driven industry, as the device their audience uses makes a big difference in marketing campaigns. For example, if you have a gaming company, you need to customize your message according to whether the consumer at the other end of the screen uses a PC or PlayStation.
Firmographic segmentation
Firmographic segmentation is primarily used by B2B companies, as it deals with the shared characteristics of businesses or organizations. It takes into account attributes such as company size, revenue, industry, location, sales cycle stage, performance and status.
Why is consumer segmentation important in driving sales?
Create targeted promotions
There are several reasons why consumer segmentation is essential for any business that wants to drive sales. However, one of the greatest advantages of consumer segmentation is undoubtedly its ability to shape the direction of promotions and campaigns. Thanks to consumer segmentation, companies are able to develop highly targeted campaigns that resonate with different subgroups of their audience, leading to a boost in sales.
Build customer loyalty
Successful marketing campaigns are those that speak to the customer and make them feel valued. By segmenting their consumers, companies are able to create marketing campaigns that are much better tailored to the customer. This in turn builds customer loyalty and creates a stronger emotional connection between customer and brand.
Convert casual buyers to repeat buyers
Loyal customers are the key to a brand's success, as they're the ones who promote the brand through word of mouth and share content of the brand's products on social media. More importantly, loyal customers are also the ones who repeatedly buy the brand's product or service, and choose the brand over its competitors. Therefore, loyal customers are essential in driving sales and ensuring the brand's long-term success.
Keep up to date with each consumer segment's wants and needs
By understanding the specific needs, desires and pain points of their customers, brands have the power to forecast trends and create products or services that are specifically tailored to different segments of their customer base. Undoubtedly, responding to your audience's preferences is the key to driving sales.
Determine which type of customer segmentation would work best
Finally – it's time to determine which type of customer segmentation works best for your brand! There are several models to choose from, and the right model depends on what your marketing goals are, what your business is, and who your target audience is.
It's important to remember that different models overlap, and that the use of multiple segments usually creates more meaningful segments. For example, demographic and behavioral segmentation tend to overlap. Together, they give a more comprehensive picture of your audience, leading to higher success rates.
In addition, you need to make sure that the segments you extract have real value in terms of sales. If a segment isn't impacting your profits, it isn't useful. Therefore, each segment's data should be extracted from an existing product or service and tested in terms of how the implementation of that segment in marketing campaigns drives sales.
Impact of sales promotions through consumer segmentation
93% of consumers use a coupon or discount code throughout the year, while brands sell up to 73% more if they offer a bonus pack. These statistics show the impact of sales promotions on revenues and the conversion of casual consumers into loyal customers.
By using customer segmentation, brands can create targeted promotions that increase the positive impact of sales promotions and promote repeat sales. Targeted promotions are an excellent way to improve customer loyalty, as customers who see personalized messages that target their needs are more likely to buy from the same brand in the future.
A clear example of customer segmentation, coupled with sales promotions in action, is the price-sensitive audience segment. These are people who are more price conscious and therefore take longer to buy certain products. If a company identifies this segment, it can choose to offer special promotions for certain products for a limited period, which will encourage that segment to act now.
It's important to keep in mind that sales promotions may not be as effective on other customer segments. Some segments might be put off from buying a discounted product, thinking it's of a lower quality or not "exclusive" enough. Therefore, it's important to constantly monitor customer data and how different segments influence the ROI.
Case studies
Netflix
It's safe to say that Netflix has become a global video content and streaming giant. In addition to innovation, Netflix's success is largely due to its cutting-edge marketing campaigns driven by customer segmentation.
Let's take Netflix's demographic and geographic segments as examples.
While 70% and 65% of its user base are Gen Zers and Millenials, Netflix is growing in popularity among Gen Xers (54%) and 39% (Baby Boomers). Hispanic Americans are also more likely to have Netflix than white Americans (70% compared to 61%).
Moreover, while Netflix initially had a majority base in the US, its audience is now evenly divided between North America, Europe, America and the Middle East, and Latin America and Asia-Pacific. In recent years, the Asia-Pacific region has been Netflix's fastest growing area.
All this is reflected in Netflix's marketing and content. TV shows like "Outer Banks," "Wednesday" and "Ginny & Georgia" reflect Netflix's strong Gen Z leaning. Additionally, its heavy investment in K-dramas reflects the streamer's growing popularity in Asia.
Nike
Who doesn't immediately associate the "swoosh" with Nike? No one! Nike's branding is so powerful that it has established Nike as the go-to sports and athleisure brand for five decades.
Nike also invests heavily in advertising and uses consumer segmentation to personalize its brand messaging and boost sales.
What's interesting about Nike's target audience is that its age range is broad and ranges from young teens to middle-aged. In recent years, it has used demographic segmentation to create specific campaigns for women, young athletes and runners. In addition, it strongly targets its youth market to ensure future growth.
From a geographical segmentation point of view, Nike uses local celebrities to promote its products in specific markets. The brand's "Nothing Beats a Londoner" campaign was highly successful, as it featured London athletes and Londoners, hyper-targeting the young London market.
McDonalds
The fast food giant McDonalds has the highest brand value in the world – estimated at $155 billion. It covers a broad age group, with the average customer persona being a married middle-aged woman who regularly grabs a McDonald's breakfast on her way to work.
McDonald's' target audience is mainly lower-income and middle-income customers who want to buy cheap and convenient food. It's important to mention that the McDonald's' audience is very loyal and visits a McDonald's outlet an average of 44 times a year. The brand also focuses on families and offers multi-generational food options as well as perks such as playgrounds for kids, Happy Meals and combos.
However, in the West, the health-conscious cultural shift from around 2015 forced McDonald's to make certain changes that remain culturally relevant. As an example, their roll-out of vegan options in all UK outlets by 2022 is significant, especially as veganism has become more popular among Millenials and Gen Zers in recent years.
Chanel
By employing consumer segmentation, Chanel has managed to stay on trend and maintain its stronghold in the fashion industry and public consciousness. Chanel's demographic segment primarily includes women between 15 and 40 years of age who are inclined to luxury, accessories, and fashion.
In terms of behavioral segmentation, Chanel also maintains its aspirational status by attracting lower-income women who look at models and celebrities wearing Chanel and end up buying the brand's smaller offerings. Therefore, Chanel takes advantage of this market share by partnering with the most popular models and celebrities to continue exuding the aura of exclusivity.
Final words
Consumer segmentation's power is its ability to make a significant difference in all stages of the marketing and sales cycles.
By employing customer segmentation, brands can elevate their marketing campaigns and ensure that their marketing message resonates with specific consumer segments.
Ultimately, this can lead to more successful marketing campaigns, increased sales, and loyal customers. Therefore, if you haven't yet implemented this marketing tactic, the time is ripe to reap the benefits that only customer segmentation can offer.
