Digital transformation is the new normal. Thanks to the pandemic and the dramatic shift in how customers consume products and services, companies are under increasing pressure to catch up with the desire and demand for digital. Consequently, digital product development including improvements in existing digital applications and platform experiences is taking center stage in board room deliberations and budget allocations.
While success in digital product development requires management buy-in and budgetary support, there is much more to it. For instance, companies must reassess and realign their digital strategies, especially along customer touch-points. One way of pivoting to this customer-centric approach is through a well-thought-out market segmentation process.
What Is Market Segmentation
As a marketing practice, market segmentation refers to the division of your target market into subsets. The subsets comprise approachable groups classified based on common interests, priorities, demographics, psychographics among other criteria.
Take Apple, Inc., for instance, its market segmentation is based on region (US and international), demographics (sex, age, income, and occupation) psychographics (lifestyle and social class) and behavioral (degree of loyalty, benefits, and personality).
Because approaches differ, you will find different market segmentation at Tesla, Inc., The Coca-Cola Company, McDonald’s Corporation, or Shell plc.
Benefits of Market Segmentation
Market segments enhance your understanding of the target audience and inform your product development cycles. Here are the top five benefits you can reap from your market segmentation efforts.
Improves Clarity
Market segmentation involves mining, sifting, and cleaning customer data to get the most accurate information about your target audience. These processes give you clarity on the nature of your customers, their needs, and how to group them based on their business-relevant attributes.
Segmentation helps you to disregard any unimportant clutter of information about your customers and filter through to the next phase only what is actionable.
Increases Brand Loyalty and Engagement
Customer engagement is the heartbeat of marketing. Market segmentation involves collecting customer behavioral data from discussion platforms, social media, mass media, and even purchase histories.
Reading through this data, you can identify the needs and interests that matter the most to your customers and how best to develop a psychographic segmentation of your target audience. In turn, this will power your customer engagement strategy, especially in ad campaigns and target marketing.
Resource Optimization and Cost-efficiency
If there is one thing the pandemic has taught us well is how to do more with less. When it comes to marketing, return on investment (ROI) requires that every dollar outlay generates more. The two main ways of achieving these goals involve cost efficiency and revenue enhancement.
As a tool, market segmentation helps organizations gather and analyze business intelligence information. It slices and dices the market to develop deeper insights into profitable customer subgroups and opportunities for targeted micromarketing.
Think of Microsoft, Google, Salesforce and the rest, their marketing strategies are targeted at precisely defined market segments. This approach ensures near-zero resource wastage and high-level cost efficiency which ultimately pushes up the bottom line.
Makes Success Measurement Possible
The ability to measure business success – where, how, when, and to what extent it has been achieved cannot be overemphasized. However, not all businesses have the tools to accurately measure success.
Through market segmentation, organizations can break down huge markets into sizeable chunks to enable the measurement of segment-specific strategies, policies, and projects. Thanks to multi-platform real-time data, businesses can assess the depth of their market penetration and their overall performance to help in decision making.
In 2017, Coca-Cola began to evolve its strategy by focusing more on customer-centric brands. This strategic shift from what the company wanted to sell to what customers wanted to buy was phenomenal. It positioned the company way ahead of evolving trends tastes. This shift was partly made possible by market segmentation data that drilled success metrics down to the granular level.
Boosts Niches Marketing Efforts
Naturally, markets are way too complex for a one-off mass assessment. Market segmentation helps power mission-critical roles by unearthing data and insights into hidden market dynamics. Using the collected customer data and micro trends discovered in the target market, businesses can identify and grow potential niche markets where they can easily dominate and take lead.
Take Peloton Interactive, the New York-based interactive fitness company, as an example. During the pandemic, the company quickly pivoted to home fitness offerings including refreshed app interfaces targeting the work-at-home niche market. The same to Zoom Video Communications and Microsoft Corporation in their Microsoft Teams application.
The rapid market expansion and customer conversions witnessed in each of the above cases was groundbreaking. They had the data and insights, seized the niche opportunity, and grew their market share.
The Bottom Line
As you begin your journey into developing market segmentation strategies for your digital products, having a professional digital product management consultant to hold your hand can go a long way. They will advise you on the best approaches to aggregate, cleanse, and standardize all information and metrics needed to stand up a precise market segmentation strategy.
