What is Market Segmentation?
Market segmentation is a way to group people with common interests into distinct consumer groups - often called segments. The people who fall into each segment are defined by common needs and characteristics, allowing brands and retailers to gain better insights and make more informed decisions.
In the case of sports fans, one segment might be people who watch college football every Saturday from the time they wake up until they go to bed, while another may be more casual fans who watch the Super Bowl (and are really just there for the snacks). Defining these segments helps brands and retailers know how to reach their audiences best.
Why conduct a Market Segmentation?
Market segmentation studies empower brands and retailers to make data-driven decisions that target the right audience and thus allocate resources most efficiently. Companies can optimize their marketing and product development initiatives by focusing on the most promising segments to grow the business and outperform the competition.
By identifying target segment(s), brands and retailers can then:
- Create targeted marketing strategies that address the specific needs and preferences of target people segments.
- Develop new products/offers that meet the unique requirements of each segment.
- Optimize pricing strategies by understanding the willingness of each segment to pay for their products or services.
- Gain a competitive edge by understanding customers better than competitors and positioning themselves more effectively.
- Develop more effective retention strategies to enhance customer loyalty and brand advocacy.
What questions does Market Segmentation answer?
Market segmentation studies provide clients with the information needed to ensure that their marketing and innovation strategies will most effectively grow the business. Specifically, segmentation studies answer these critical questions:
- Which consumers or shoppers should we target? Why?
- How much is my target worth? In sales revenue? In profit? What is my untapped opportunity?
- What does the target need or want? Are those needs being met now? How?
- How should we target those people? With what product(s)? With what key message(s)?
- Where should we target them? What channels? Where in those channels? And when?
How is Market Segmentation conducted?
Creating the segments involves making two critical decisions:
- Selecting the data that will define the segments
- Choosing the appropriate numeric calculations to apply to the data.
Selecting the data used for segmentation can vary, and each inclusion or exclusion influences the nature of the resulting segments. Different types of data provide distinct insights:
- Personal Characteristics: Factors like age and gender, income, and so on can add a human element to the segments and facilitate targeted communication.
- Behaviors: Information such as shopping preferences, spending habits, and brand usage can reveal differences in outcomes and guide effective targeting. As offered by Numerator, validated behavioral data is valuable as it mitigates issues related to self-reported information and memory biases that have been known to add “noise.”
- Attitudes and Opinions: Understanding individuals' attitudes toward categories, brands, retailers, and their own needs can uncover specific motivations driving observed behaviors. This knowledge aids in crafting tailored messaging.
While the inclination is to include all available data, one must exercise caution and utilize expert guidance to select the most relevant factors.
Including too little data leads to thin and less valuable segments. Including too much data can result in complicated and hard-to-use segments. It is crucial to strike the right balance based on the specific research goals - the data should be relevant to the questions you are asking.
The selection of the numeric calculations used to create the segments can also vary. Without delving into the intricacies of various approaches, it is important to note that trying multiple ways and choosing the solutions that convey the most meaningful insights is often the best approach. Each approach focuses on different patterns in the data, and there is not a universally "right" choice. Instead, the "right" answer is the one that effectively communicates the most useful story based on the specific objectives and context of the analysis.
To illustrate this concept, imagine trying to gain insight into the contents of a house. By looking through different windows (utilizing different approaches), you would see varying perspectives of what is inside (different ways of defining the segments). If couches are of particular interest to you, certain windows may provide a clearer view of the couches in that house.
The Numerator Advantage: Expertise and High-Quality Data
The success of a segmentation study relies heavily on the quality of data that is used, the company's expertise and capabilities, and the ability to make the insights actionable.
Highest Data Quality: It is vital to consider the reliability of the data used in the segmentation process. Are the right questions being asked to gather pertinent information? Does the behavioral data accurately reflect actual actions instead of relying solely on self-reported claims? Is there a strong correlation between the behavioral data and actual sales and revenue figures? The saying "bad data in, bad data out" holds true, highlighting the importance of using reliable data. Numerator data takes guesswork out of understanding consumer behavior with a rich pool of panelists that submits verified purchase data every month.
Art & Expertise: Possessing a deep understanding of the "art" of segmentation and utilizing high-quality data to create meaningful segments is essential. From an artistic perspective, accurate interpretation of the data is crucial, ensuring that the results are applicable and meaningful, especially when dealing with different data types. Careful calibration is necessary when combining behavioral data and attitudinal responses to ensure compatibility. The Numerator research team possesses a wealth of experience and expertise in market segmentations. With a collective background spanning numerous industries, our seasoned professionals have navigated the complexities of segmentation projects with finesse. Our deep understanding of consumer behavior, advanced analytical skills, and innovative approaches to segmentation enable us to consistently exceed client expectations.
Actionable Insights: The most powerful segmentation is one that becomes integrated into strategic decisions day in and day out – not just one that is reviewed as a static resource. Numerator can bring your segmentation to life in new and exciting ways with the ability to apply your segments to our 150K static panel to monitor performance shifts over time.
At Numerator, we specialize in seamlessly integrating diverse, yet single-sourced, data daily, providing you with trustworthy insights. Our segmentation team combines extensive experience in successful segmentation studies with a deep understanding of various analytical approaches to uncover patterns within the data. With Numerator's verified buying behaviors, you can have confidence in the authenticity of the purchases, actual brand usage, and accurate identification of retailers involved.
This wide-ranging expertise, coupled with the quality of our data, allows Numerator to offer a diverse range of solutions and select the most suitable segmentation approach for your specific needs.
Learn more about leveraging Numerator’s unique approach to market segmentation.