Know Your Audience: Market Segmentation and Customer Targeting

Evaluating market segments is critical to marketing strategy development. Here's how to do it.

Note: This is the second article in a series on marketing strategy from FrogDog. To begin from the beginning, click here.

Evaluating market segments is critical to marketing strategy development. By dividing the market into segments, businesses can better position products and services to target their specific customers’ needs and desires. Better targeting customers means better returns on marketing investment.

Who wouldn’t want that? Thing is, market segmentation sounds easier than it is.

Market Segmentation

Let’s look at some of the ways companies can evaluate their markets:

• Geographic: Region, area size, climate, urban/suburban/rural, and domestic/international
• Demographic: Age, gender, income, occupation, ethnicity, social class, family status, and education
• Psychographic: Attitudinal traits exhibited during the customer’s approach to life, including his or her activities, values, opinions, and interests
• Behavioral: Brand loyalty, benefits, and occasions

An automobile company may segment its market by buyers who are looking to purchase a vehicle for transportation, luxury and prestige, safety, or high-performance—or some combination of these factors.

For example, the Toyota RAV4 may be an attractive option for buyers looking to purchase a sports utility vehicle with strong safety ratings at a lower price point, whereas the Toyota Land Cruiser offers a similar high-performance option with luxury and prestige.

For segments to be practical, they should be evaluated against the following criteria:

• Identifiable: Is the company able to identify and measure the differentiating attributes of the segments?
• Accessible: Are the segments reachable through various communication and distribution channels?
• Substantial: Are the segment sizes large enough to justify needed resources?
• Specialized needs: Are there valid justifications for having multiple segments? Does each segment address different needs?
• Durable: Are the segments stable so that there is minimal restricting impact with each change to existing products or the introduction of new products?

After establishing market segments, companies should evaluate each one and decide the best way to market to it. This means determining how many and which segments to target.

Customer Targeting

Smart companies don’t attempt to market everything to everyone. Trying to do so is not an efficient use of time or money—and it’s not effective. Defined market segments help companies define their target audiences.

To define target audiences, companies should evaluate their skills and expertise and also understand the key features and benefits of their products or services. Who has a need for these benefits? Who currently uses the company’s products and services?

A company that sells to other companies will need to focus on the best businesses to target—and will need to understand who within these businesses is likely to be a buyer or a purchase influencer. Companies that sell to individual consumers need to understand the profiles of their ideal buyers—and, especially in the case of large purchases, their buyers’ influencers. Also, in developing targets, companies should consider who their competition targets. There may be a niche market still untargeted or a way to attract similar customers in slightly different ways.

Large retail corporations are great examples of segmenting and targeting audiences. Let’s look at Gap, which evaluates its markets by demographic (gender and income) and psychographic (activities and interests) traits. Each of Gap’s many brands targets a different audience. For example, let's review a few of the company's more well known options:

• Old Navy targets families looking for affordable everyday wear.
• Gap positions itself as an American brand specializing in classic basics.
• Banana Republic offers reasonably priced luxury.
• Athleta targets upper middle class women and girls with athletic and athleisure wear.

Let’s look at another example. American Express has segmented its consumer-focused market by brand loyalty and income. (The company segments its business markets as well.) For consumers, American Express has created cards that provide perks and rewards to different targeted groups:

• For higher spending and higher income people who pay their credit card bills in full each month, the company offers cards that provide extensive luxury service levels, including private concierge services to cover travel, event, and vacation planning.
• For people who would like to receive cash back for paying their credit card bills in full or for paying in full early, American Express offers cards that provide cash back and points to use on future purchases with preferred venders.
• For frequent travelers, American Express offers cards that provide perks and points on air travel and hotel-chain use.
  

Different Segments and Targets Require Different Messaging

When it comes to positioning its marketing and marketing messaging for each audience, different markets and different segments will require different activities and different approaches for maximum results.

For example, Staples, the large retailer of office supplies and products, serves individual shoppers and business clientele. Toward this end, the company has created two e-commerce sites: One for each of these two audiences.

When a company uses the same brand, like Staples, for different market segments, it must focus on doing and saying something different, yet complementary and not contradictory, for each audience. In Staples's case, individual shoppers have different needs than corporations.

Therefore, the company has created tailored messaging for each of its e-commerce sites; yet none of the messaging on one site contradicts what’s said on the other site. (More on crafting messages for target audiences in our next article in this series.)

An example of market segmentation and audience targeting in a corporation that markets to other corporations is American Surgical Professionals. American Surgical Professionals provides surgical assistants for hospitals, surgeons, and health care facilities.

Each audience has a different reason for needing certified and specialized surgical assistants. C-suite executives are concerned primarily with costs, while surgeons place greater importance on efficiency and specialized skills sets that complement their own abilities.

FrogDog helped the company market to each audience differently by tailoring its messaging to each target audience’s specific need. (You can read the case study here.)

Fresh Eyes Can Help Identify Targets and Segments

Market segmentation and audience targeting are more complicated then they seem at the outset, and they're critical for a successful marketing plan. And as with other elements of successful marketing plans, these elements evolve with a shifting marketplace.

Smart companies continually consider their marketplace positioning, including their market segmentation and audience targeting.

And then what? Once a company has its market segmented and its targets defined, it’s time to figure out what to tell them and how to spread the word. Stay tuned for our article on messaging—the next in our marketing strategy series.

Need help segmenting your target markets? FrogDog to the rescue! Contact FrogDog today.

Note: This is the second article in a series on marketing strategy. Read our first article in the series on the value of marketing strategy by clicking here. To read the next article, on developing target marketing messages, click here.

Image credit: Magda Ehlers