Market segmentation models can be designed to meet a wide variety of goals. If executed properly, market segmentation leads directly to important cost saving and revenue opportunities. Following are the most common benefits of market segmentation.
1. Achieve differentiation. How can you make your brand or product stand out in an increasingly noisy marketplace? By identifying the needs of specific customer groups and positioning opportunities with the most profitable segments. By doing so, you will better differentiate your brand from your competitors.
2. Make informed messaging decisions. Why use generic messages that mimic competitors when you can create messages that will truly resonate with specific customer groups. A segmentation model helps you create new messages on an ongoing basis, sometimes even in response to macro-level trends—such as a recession and recovery.
3. Plan product road maps. It’s a lot easier to build a road map when an organization has internal agreement regarding the characteristics of the most profitable customer segments. If decision makers share a common view, then planning new products and product adaptations becomes a far more efficient and cooperative process.
4. Optimize media channels. One of the biggest marketing expenses for any organization is media. Yet optimizing the mix of advertising on television, radio, billboards, print, online, direct mail, and other channels often requires a very expensive trial-and-error process. With a segmentation model, you can optimize media that most heavily influence specific customer groups.
5. Select sales channels. In many markets, the ratio of direct versus indirect sales is changing. In some categories, intermediaries are losing out to direct, online sales. In other consumer categories, customers are more loyal to the store than the product brand. Optimization of a sales channel strategy is difficult. However, by examining the purchase behaviors of priority customer groups, organizations can make these decisions with confidence.
6. Embrace niche marketing. Few companies can afford to compete with the big fish in the big pond. Instead, a segmentation model shows you how to be a big fish in a little pond—or several little ponds. A segmentation project can be designed to identify, profile, and select niche markets.
7. Reduce waste in your marketing budget. Segmentation optimizes marketing spend by allowing you to focus on the most attractive segments, so you do not waste money on marginal segments. Segmentation models can also help you determine which marketing investments will be most effective.
8. Improve brand management. With knowledge of specific customer segments, brand awareness and perceptions can be measured across all target segments and for unique segments. Tactics for improving brand awareness and perceptions are far easier to identify and test when done by narrower customer groups.
9. Deploy customer retention strategies. When it comes to customer retention, some strategies are obviously universal. All customer-centric companies seek to keep customer satisfied, but only 5% of satisfied customers demonstrate consistent behavioral loyalty. A segmentation study that includes analysis of current customers can identify interesting opportunities for customer retention. For example, some groups may be more likely to demonstrate loyalty behaviors based on loyalty programs, whereas others may be more concerned with the organization’s efforts to listen to its customers.