In this article, we will discuss how high-quality data and thoughtful market research can help your business with consumer segmentation and why this is important for your business.
What is consumer segmentation?
Segmentation is a key market strategy and research process that helps businesses understand who their clients are or who their prospective clients are, and who they, as a business, want to connect with.
There are various data sources available that may include in-house sales data, research, market data and consumer patterns.
So, segmentation, in essence, is a way of looking at your market in segments and sub-categories by using quantitative market research tools that allow comparisons of the different segments, such as age groups, gender, income, lifestyle and family or lifestages.
Quantitative resource sources include statistics or surveys, or other sources.
Explaining What Segmentation Achieves
Just to give an example, you could view segmentation like creating an event seating plan. Naturally, your goal is for everyone to have a good time, and with events such as a wedding or birthday for family and friends, your goal would be for everybody to have fun.
So to make that happen, one would naturally create a seating chart that groups people who get along, or who can have fun together. You’re not likely to seat Uncle Bob, the farmer, next to the rock guitarist from your wild days at university. Unless Uncle Bob is a closet Metalhead.
In essence, you would try to answer the questions, who your guests are and what their preferences are.
Likewise, in business segmentation, where you have an additional layer, the need to answer the question of how the segment can be reached effectively, and can be targeted effectively.
Difference between Consumer and Audience Segmentation
Within segments, of course, not every person is the same; however, things such as where people live, what they do and what they earn do create similarities.
Consumer segmentation is more narrowly focused on those who are or who might be customers and answers the question, who will or could buy your product or service offering?
Example: A fitness enthusiast who buys running shoes every six months. You should be able to identify that those consumers are looking for shoes, they are buying shoes every six months, and these people are likely to buy in the future.
When speaking about audience segmentation, it is a little bit broader perspective with a view on all individuals who interact with a brand or a company, which often includes non-buyers, maybe enthusiasts, fitness enthusiasts, or general followers.
So audience segmentation strives to answer a different question: Who engages in any way with the brand or with the company? Most often than not, those two groups of segmentation types coincide.
How do you Build a Consumer Segment?
This is traditionally done with a mix of data that looks at a particular demographic as one of the core aspects of your segment, such as population by age, by gender, or by urbanisation level.
Then layers of additional data need to be considered about the broader segment that might include aspects such as income, where they live or even education levels
Segments such as population by language, by religion, by ethnicity or by race, can be very different in some countries and geographies.
There are additional segments, such as socioeconomic segmentation, where groups are defined by their income or wealth levels, by different spending patterns, or even by savings patterns.
Additional data layers such as behavioural or psychographic segmentation, basically grouping consumers by their needs, values, preferences, and of course behaviours are also often useful in identifying key market segments.
What Data Sources Are Available?
Data really comes from different sources in all shapes, sizes, with two dominant sources:
Internal data, the data that you get from business operations, from within the business. This type of data is great for showing what’s happening right now with current customers, current consumers. One can find important consumer clues as to purchase patterns, product preferences, value by timeline and so on.
The second is external data from research providers or via online questionnaires and enquiries, and engagements that provide businesses with a much wider view.
This data is valuable in that it pulls insights from lots of different sources across different countries, or different regions, and across different categories. And this is useful in helping businesses spot bigger trends on time for what’s coming next.
The magic, lies in effectively bringing both of those types of data together to build a cohesive picture of your marketplace you operate in. This is when you are able to build a full picture, the most granular picture.
Really knowing your consumers is literally the only way to offer something that effectively hits the mark in your market. When segmentation is done properly, when segmentation is done well, the spending of the company is smart, it’s focused, it’s effective. And consequently, brands can get better financial results, stronger intangible assets like brand strength and higher engagement.
