Who should you sell to, when “Everyone!” means you sell to no one? Here’s where marketing strategy, the second step of the marketing process, and its segmentation, targeting and positioning comes in. Our blog post “Marketing Basics: The Marketing Process In Five Steps”, the first post in this series, will give you more tips on what marketing strategy means and covers, but for now we’ll focus on STP and walk through each below. Once you have a clear idea of your own STP, the foundation of your marketing efforts is very strong and chances are your competitors have skipped this part due to not understanding it completely. Let’s talk customers now! In this post:
- B2C Segmentation
- B2B Segmentation
- Evaluating Segments
- Selecting Segments To Target
What does customer segment mean? And what about segmentation? A segment is a group of people, who share some common characteristics, which in turn align with your business and its offerings. There are endless ways to group people together, but for the purpose of not just doing business, but adding the element of profitability to it, you need to create very specific segments to target (more on this below) with your marketing.
Notice I wrote segments in plural, as you can easily find a large number of groups of people to potentially serve, when doing your segmentation. Before you can decide who could be your best customer(s), for example depending on the season in which your business is at the moment, you need to know them quite well.
Selling to consumers (you sell B2C) makes marketing more straight forward compared to selling to businesses (B2B). It’s easy to find information online on B2C segmentation, but so far I’ve never seen B2B segmentation mentioned when searching market segmentation or such. If you need a refresher on the meaning of customer vs. consumer, B2B and B2C, please read our blog post “What Is Customer Experience Or CX?” before continuing.
1.1 B2C Segmentation
There are four major variables commonly used in consumer segmentation: a) geographic, b) demographic, c) psychographic and d) behavioural. When you segment markets like this, you find groups of people with common characteristics, needs and wants, resources, interests and buying behaviours.
A. Geographic Segmentation
Geographic segmentation as the word insinuates happens based on a customer’s geographic location. However, it doesn’t have to be clear-cut large such as a country or small such as a town or village, but it can imply areas created differently.
In Europe, which I know better than other continents, we have the “Nordic countries” consisting of Finland, Sweden, Norway, Denmark and Iceland. Our values and cultures are rather homogenous. There’s also BeNeLux (Belgium, the Netherlands and Luxemburg), who as far as I know have pooled military resources among others together.
Things get extra interesting when you consider urban, suburban and rural. You as a marketer can make the mistake of assuming a particular geographic area is completely urban, when in fact in the middle of a metropolitan area there may be rural spots–and possibly people with a wish for such a lifestyle.
Technically speaking, we’ve just introduced three different so-called variables to you. First there was country for the indivudual countries listed as well as country region, the two country clusters. We skipped the larger variable world region though, such as Western Europe or Asia. Next, I mentioned density, without including the last breakdown: exurban. If you never heard of exurbs before, that makes two of us. You find an exurb outside of denser suburbs of metropolitan areas. On the other hand, there’s also the variable size of city or metropolitan area to consider.
As with the three following segmentation variables, you can keep on finding new ways to break down groups of people, so we will return to segmentation in a more advanced marketing blog post. For now we’ll move on to the second major variable.
B. Demographic Segmentation
Demographic segmentation leans on demography, the statistical study of populations, humans among others and demos in turn means “the people” in Ancient Greek. Some of the variables used are age, generation, gender, income, occupation and education.
Typical mistakes in marketing may be to assume that all 80-year-olds are in frail physical health, when in fact you meet runners and yogis side by side with those, who need walking aids to move. Or that a particular car brand is bought only by peole of a certain income level, when in fact they may have need for more than one car and the second one is a practical, frugal purchase in comparison. Not all shopping happens for oneself either, but people buy gifts all the time.
As an example, a majority of Pinterest users are women of which statistically a large portion are heterosexual and cis gender (cishet), so if you assume they want to find good gifts for their husbands from time to time, you could target them on this social-media platform with your ads in a visual manner. Just remember to edit your testosterone-oozing copy targeted at men to suit your different audience.
C. Psychographic Segmentation
In psychographics, the human is studied based on psychological attributes in a qualitative rather than quantitative (numbers) way. This includes variables such as personality, values, opinions and attitudes. There’s also interests and lifestyle to think of. You may have stumbled upon the “AIOs” or “AIO variables” before, which stands for activities, interests and opinions.
As you might have guessed already, this is where drafting a good marketing strategy becomes trickier. It’s difficult to translate what’s intuitively understood about people into something concrete when numbers can’t be relied on as in the case of geographic or demographic segmentation. We’ll return to this though!
D. Behavioural Segmentation
The fourth and final major variable when segmenting consumers is behavioural segmentation, dividing markets into groups based on their relationship with a product: what they know about it, when they choose to buy and how often for example.
When demographic segmentation is generic because people can behave in very different ways, psychographic and behavioural segmentations are helpful in narrowing groups down further such that you avoid making assumptions asmentioned before, or trying to speak to segments that are too wide still.
1.2 B2B Segmentation
Marketing to businesses can be quite similar to targeting consumers. Businesses can be segmented geographically, demographically and behaviourally, and in the case of solopreneurs perhaps psychographically in a detailed way as well.
Demographic segmentation in this case could include industry and size of firm. In the EU, we have a standardized way to categorise firms by size: SMEs and large enterprises. SME stands for small and medium-sized enterprises, which are further broken down based on two factors: “staff headcount” and (turnover or balance sheet total). Micro enterprises employ fewer than 10 people, small enterprises fewer than 50, and medium-sized enterprises fewer than 250. It’s worth noting that 99% of all enterprises in the EU are SMEs. Read more here.
The implication is that if you provide a service such as photography, does it make sense to choose the few, big companies that there are with many employees to take portrait photos of, since corporations’ wallets are much bigger? Or is it easier to adjust schedules with small-business owners active online, who might need many portrait photos over the years to keep things fresh online? Even when their budgets are extremely restricted in comparison? Maybe you don’t mind travelling in your country to combine work with a vibrant leisure either.
You can stumble upon the word firmographics online, which is used as an equivalent to geographic and demographic segmentation combined, but for firms. I’m completely new to firmographics but from what I read online it has the same limitations as demographics. You would make the same mistake to assume that all firms of a specific size have the same needs as you would when thinking that all people around 40, who have kids, are about to send those kids to college. (Some of us at 40 don’t even have kids yet, which is increasingly common in university-educated people these days.)
For this reason, B2B marketers are now turning to needs-based segmentation and account segmentation, where you identify your key customers to provide more value for these.
A final point that’s important to remember, if your customers are medium-sized or large enterprises, is that especially compared to consumers for which a decision-making unit is around a handful of people on average, the bureaucratic chain in a firm of either size can be complex.
While the basics of segmentation are multifaceted, targeting is more straight forward. Once you know who could be your customer, it’s time to think about it realistically. Often it’s impossible to target all segments identified because of lacking resources and so you will need to be picky. Especially if you own a small firm, you might think it’s attractive to “go big or go home”, but sheer volume due to huge demand may cause your reputation to take an irreparable hit. Be smart to plan with honesty.
2.1 Evaluating Segments
From your chosen segments, which is/are of a good size and growth expectancy? You’re looking to identify and choose those that as per your predictions will behave optimally in relation to your know-how and hiring or outsourcing capabilities, should growth be expected.
There’s also the element of novelty as in how established is your market? Are there possibly too many competitors for a specific target compared to another one?
2.2 Selecting Segments To Target
When you’re done analysing, it’s time to make a decision. Which segments will you choose to target?
It’s likely you’ve heard of mass markets at some point. The selected segment(s) determine the style at which you market. Mass marketing is also called undifferentiated because you target broadly. Slightly narrower is differentiated or segmented marketing and then we arrive at concentrated or niche marketing. The narrowest targeting is micromarketing, also called l0cal or individual marketing.
An aim of concentrated marketing as an example could be to strive for a large share of a very small market, thereby increasing profitability. If you’re a baker or pastry chef, instead of wanting to make all the pastries, you would decide to open a cupcake shop. With a limited range of cake bases, on the frosting and decoration side you can go wild, thereby keeping customers coming back again and again. And you might decide right away not to add a café section, but keep it simple as a take-away shop only.
Positioning is without doubt the most abstract concept to wrap one’s head around of the three in STP. Positioning is a verb just like targeting and as such it indicates a position. In business, this refers to the position that your firm occupies in the mind of a potential customer.
Comparing businesses and their offerings can be complex, so usually once a prospect forms a mental picture, a position, of your particular firm, it’s not easily changed but requires active–and costly–repositioning. Part of this position is all the facts and emotions, and it happens whether you do something active or not.
The aim of positioning therefore is to plan the position carefully. You think of competitive advantages and how you differ from other firms, then pick the advantage(s) that could have the best effect on revenue. Positioning is closely tied to the value proposition, so there’s quite a bit of theory around this concept. We’ll return in greater detail to both as they deserve more discussion still.
Once you have decided on how you would like your prospects and customers to think of you and what associations they could make, it’s vital to help this message come to life in the third step of the marketing process, the one where you create a marketing plan based on these components of marketing strategy (STP and value proposition).
When working on the segmentation part of your marketing strategy, be sure to use many enough variables in your customer analysis. The more specific you can be, the better defined your targeted segment will be down the marketing process. And the more you know later on about the people or businesses, who buy from you regularly, the easier you can identify various types of super-users. No matter how lovely your positining may sound, if you’re trying to get the attention of the wrong people, your efforts won’t translate into money in the bank.
We suggest you read this again at a later date, because the nutshell version of STP presented here is business-school level. Hardcore as promised <3
Please comment with requests to expand specific parts of this blog post into their own posts! And let us know either in the comments below or through our Contact page whether this is difficult to understand. I’d love to help if there’s something I can rephrase!
This blog post is the second in our beginner-level series Marketing Basics.
Photo credit: Andrew Ridley.