Segmentation examples: Learn how 5 brands used market segmentation for sustained growth
You might not know that one of the major sales drivers in 2022 is the ability to create personalized experiences. In a survey of 1000 people, 80% noted that they would prefer to do business with brands that create personalized experiences for them.
For example, McKinsey did a recent study on the impact of segmentation and personalization in the retail space. They found that it leads to 20% higher customer retention rates and a 10-15% boost in sales conversions.
MetLife, one of the leaders in the insurance space, used behavioral segmentation to divide their audience into groups based on past behaviors and attitudes. This resulted in a lower number of customer issues. Due to this, they set their annual savings target at $800 million.
The above ties in with the primary objective of segmentation, which is to minimize risk. With segmentation, you can create tailored marketing campaigns, tailored products, and become more efficient at spending for your business. Segmentation also influences the channels you choose for delivering your product or service to the market. However, you need to know the right way to do it.
Getting great results with your marketing communications require knowing how to segment your audience. In this article, we’ll show you the most common approaches to segmenting your audience, some examples of brands that have used customer segmentation successfully and what you can learn from them.
Identifying the right customers isn’t always a piece of cake
Knowing the right customers is at the center of most marketing endeavors. It determines the channels you use, the budget you allocate, the partnerships you make, and products you create. However, the process of figuring out your target customers isn’t always clear-cut. But the consequence is always the same – wasted time and efforts.
If you go too narrow with your target market, you garner high lead acquisition costs as you’ll only have a limited number of people to market to. This would make it difficult to scale since your marketing strategies would be expensive and too hyper-focused. Going narrow works great if you sell a high priced, ultra-specific product. And even then, you have to plan on expanding that defined customer segment a bit more.
On the flip side, you can’t have everyone as your target market. If your target market is everyone, then you’ll be easily outcompeted, and might not really reach anyone. Sometimes, businesses have to define exclusionary personas, that is, the worst fit customer archetypes to focus on the right customer segments.
What are the 4 types of market segmentation
1. Demographic Segmentation
This segmentation strategy focuses primarily on life stages: Millennials, baby boomers, Gen Z, Gen X.
You wouldn’t market to baby boomers the same way you’ll market to millennials. While baby boomers are more concerned about retirement and health, millennials want to try new things, they’ll choose a feel good vibe over most other criteria. They shop for experiences.
Demographic segmentation also incorporates age, gender, education, income, race, social status, religion. It’s the most common type of segmentation strategy used by businesses. It demands that you understand who your potential customers are at the surface level. This means you’ll be able to identify best fit customers based on how many of the right boxes they tick. However, you shouldn’t rely on demographic segmentation alone. It should be used with any of or a combination of the other strategies we’ll talk about.
As an example, Macy’s Market by Macy’s is an approach to attract more millennial customers. Research has shown that more millennials favor local food and local goods, and a number of millennials are shopping in stores. Market by Macy’s feature stores smaller than the average Macy’s store for convenient and easily accessible shopping to meet the shopping needs of the millennial demographic.
2. Psychographic Segmentation
Psychographic factors are more difficult to measure than demographics because they are subjective. This type of segmentation focuses on values and personality rather than obvious traits. For example, while demographics might focus on the question, who purchases the product? Psychographics answer the question, why do people purchase the product? So in our previous example, we understand that psychographic factors help shed more light on demographic traits. For example, millennials spending on experiences, and luxury buyers on status.
This is why market researchers ideally would use both of these together when creating brand positioning and marketing strategies for different target markets.
So, in the Macy’s example above, Macy’s targeted convenience as a psychographic trait of millennial consumers. They created a smaller version of the normal Macy’s store, featuring convenient services like curbside pickup, buy online – pick up in store, and same day delivery with Doordash.
3. Behavioral Segmentation
While the above two answers the who and why questions, this answers the how question, i.e. “how has the customer acted before?”
This is essentially the most common type of segmentation used by email marketers, particularly in eCommerce. For example, you could send out a series of win-back emails to customers who have purchased a product from your company in the past. You could offer them a discount or coupon to bring them back. Odds are since they already bought your product before, they might be inclined to do so again. You could set up triggered emails based on customer actions.
While demographic and psychographic factors might depend on a measure of assumption, behavioral segmentation would require you to track or be proactive with checking analytics. You’ll need to have a higher level of certainty.
For example, a real estate agent might target expireds, that is people who have had their listings expire due to poor marketing from their current agent, or wrong pricing. It’s easy to understand that these people want to sell their home, and if a new agent offered them a better marketing plan backed up with good social proof, they might be inclined to list with that agent.
4. Geographic Segmentation
Where is our customer located? Real estate businesses and other small location based businesses can’t afford not to segment by geography. And it needs to be super targeted too, depending on their budget for both marketing and fulfillment. While segmentation’s goal is to allow for cost-efficient marketing, geographic segmentation is ideally for businesses with limited budgets.
For example, a real estate investor could send out direct mail to people that fit a particular criteria in a specific location, avoiding inefficient spending.
You can segment by Country, region, city or postal code. This is one of the easiest ways to segment your audience since you’ll most likely be privy to your customer’s location. You could also target by proximity to a store using location based marketing, geotargeting or geofencing tools. Some businesses even send out ads to customers who have shopped in their competitor’s location.
One of the best ways to use location based marketing is via events. For example, a luxury car business could sponsor events happening in their target region or set up and market a car show to display their luxury cars.
5 Best Market segmentation examples (plus their primary segmentation strategies)
1. Victoria’s Secret – demographic segmentation
Victoria’s secret, the number one lingerie company in the USA, markets primarily to women between the ages of eighteen and thirty five. They primarily target women of all races who are middle-income and high income earners living in major cities. The company also markets some products to men but women make up its primary target market. They also target teens with their PINK brand which presents a fun and flirty side without an overtly sexual tone. Victoria’s secret combines demographics with psychographic factors including sex appeal and high self esteem.
However, the company came under fire in the past for sticking to using models (angels), which do not reflect the most common body types and shapes among women. In quarter 1 of 2021, they reported a 25% rise in same-store sales as they brought in new and more diverse brand ambassadors. Shoppers responded positively to its first-ever Mother’s day campaign in 2021 that featured a pregnant model.
Practical Takeaway: Victoria’s secret has successfully identified and captured a big share of their target market. However, by not featuring other body types and sizes, they were alienating a big portion of their target market. Your marketing messages should reflect your ideal customers accurately or else they’ll switch to other brands.
2. Wells Fargo – demographic segmentation
Wells Fargo consistently ranks among the top banking brands in the world. It was the first U.S. bank to offer online banking. And it has a number of comprehensive products and sophisticated digital banking tools that cater to the needs of individual customers and small businesses, middle-market companies and large corporations.
So its three main customer segments are individuals, small businesses and large businesses. There are five major service sections: Community Banking, Wealth and Investment Management; Consumer Lending; Payments, Virtual Solutions and Innovation; and Wholesale Banking.
Under these main customer segments, they use demographic and psychographic elements to create sub-segments. For example, one of Wells Fargo’s primary objectives is to acquire more Millennial customers and they create ads and TV spots to that end.
Segmentation is not just about advertising, it’s for product creation as well. Wells Fargo keeps creating targeted products for its different market segments. While all of these are not going to produce the same level of profitability, some of the products will produce enough profit to offset the losses.
For example, the Consumer Banking and Lending sector is the arm of Wells Fargo which provides loan services to individuals and small businesses. It grew by almost 2% YOY from $8.47 billion to $8.65 billion between Q1 2020 to Q1 2021. The sector accounted for 46% of Wells Fargo Q1 2021 total revenue.
On the other hand, the Commercial banking sector, which offers loan products to private, family-owned and publicly traded businesses saw a small growth decline. It declined by 12% between Q1 2020 to Q1 2021, from $2.5 billion to $2.21 billion.
Practical Takeaway: Segmentation allows you to create targeted products for different markets. In this way, it allows for experimentation. When one segment/product declines, another segment/product could create enough profit to offset the loss.
3. Apple’s iPhone – Psychographic segmentation
In the highly competitive smartphone industry, Apple has found a way to set its iPhone apart by creating products targeted at its ideal customer. The company has spent years of research to understand a particular type of tech consumer. These are people willing to spend more money on tech products to access advanced features, premium design and quality. With its consistent marketing and product updates, Apple shows its commitment to meeting these needs.
The smartphone provider keeps investing R&D to introduce new features that cannot be copied anywhere else, setting it apart from other phone companies.
Practical Takeaway: Apple doesn’t just market to their target customers, they keep researching what the tech needs of middle class and high end tech consumers are, and then keep experimenting with new features to meet these needs. Continuous research and testing is an important part of marketing.
4. Coca Cola – demographic segmentation
The primary target of Coca Cola is younger customers between the ages of 10 and 25, and a secondary market composed primarily of people aged 25 to 40.
While the company targets the above market segments due to their love for tasteful drinks and intense flavors, it tries to expand its market share by creating as many variants as possible. For example, health conscious consumers might love its diet cola and zero sugar drinks. Kids and teens might like Sprite and Chivita. Older consumers might prefer Schweppes ginger ale or Costa Coffee.
Practical Takeaway: While Coca Cola has every customer as a target, it has specific target consumers in mind as it creates products. It also keeps improving its products based on current trends.
5. Kathmandu – geographic segmentation
Kathmandu Holdings is a leading manufacturer of travel gear, adventure gear, outdoor gear, exercise gear and sustainable materials.
The company operates in New Zealand and Australia with three main arms: Kathmandu, Rip Curl and Oboz. Kathmandu is known for outdoor clothing, accessories and gears while Oboz handles outdoor footwear that can withstand diverse terrains and harsh weather conditions. Rip curl is the arm of the brand that deals with surf clothing, wet suits and watches.
Since its headquarters are in Australia and New Zealand, it understands the needs of its market more than other outdoor apparel brands.
Practical takeaway: Kathmandu is currently one of the top sportswear brands in Australia, Europe, South America, North America and South Africa. Since 2015, the company has changed its marketing messaging to push itself as an adventure brand rather than a winter clothing brand. Over time, your brand’s marketing messaging might need to change to fit the scope of your products.
Market segmentation is more than creating buyer personas to store away. It influences everything your brand does – your goals, products, marketing. Knowing how to segment your audience effectively helps you understand their needs and how to better serve them.