A Comprehensive Guide to Target Market Segmentation

Target market segmentation is an approach to marketing that every digital marketing agency should master.

So, if you have been pondering how to start digital marketing agency or how to take marketing for your clients to the next level, learning how to divide a broad market into distinct subsets should be one of your first steps.

This article will provide you with an overview of what target market segmentation is, what its benefits are, how to implement it, and what the future of target market segmentation looks like.

What Is Target Market Segmentation?

Let’s begin by defining a target market. This is the collective of all individuals who have an interest in the products or services that your agency’s customers have to offer.

One of the imaginary scenarios could help illustrate what the target market is. A marketing agency that works with real estate agencies, one of the best niches marketing agencies can choose to specialize in, needs to figure out what the target market for a rental multifamily housing provider based in Saskatchewan is. 

Broadly defined, the target market would be Saskatchewan residents with an income that qualifies them for the providers’ rental costs.

The target market segment strategy breaks down a larger market into smaller, more manageable segments based on specific criteria such as demographics, geographic location, psychographics, behavior, and firmographics.

In the imaginary scenario, for a rental multifamily housing provider in Saskatchewan, demographic segmentation could yield the following market segments:

• Individuals in their 20s and 30s who are starting their careers and prefer the convenience of living close to work and urban amenities.
• Families with children who need larger living spaces, access to good schools, parks, and family-friendly amenities. 
• Older adults seeking low-maintenance living arrangements. They may look for quiet neighborhoods, accessibility features, and community activities tailored to their interests.

Related: Audience targeting and why it’s important gives valuable insights into how you could enhance your target market segmentation strategy with audience segmentation.

The Fundamentals of Target Market Segmentation

The goal of target market segmentation is to facilitate product development, inform the overall business strategy, and enable more precise and effective marketing.

For example, target market segmentation can help a managed IT services provider boost its target account selling. 

Let’s say a managed IT services provider serves small and medium-sized businesses (SMBs) and healthcare facilities.

SMBs often require cost-effective IT solutions that can scale with their growth. They need robust cybersecurity, reliable IT support, and efficient cloud services to compete with larger businesses. A marketing approach that would speak to this market segment could highlight cost savings, scalability, and robust support tailored for SMBs.

Tip: Read Content Marketing: How To Speak To Your Audience for ideas on how to create marketing content that resonates with your market segments.

Healthcare facilities require HIPPA-compliant IT solutions to manage patient records, support telehealth services, and ensure operational efficiency.

Tailored marketing messages could highlight compliance with healthcare regulations, the importance of data security, and the role of IT in improving patient care.

Types of Target Market Segmentation

1. Demographic Segmentation

Demographic segmentation divides the market based on variables such as age, gender, income, education, and occupation. 

For example, Vendasta's Marketing Services can provide valuable demographic insights to help tailor your Facebook or Google Ads campaigns effectively.

2. Geographic Segmentation

Geographic segmentation is based on the location of the target market segments, including factors like country, state or province, city, and climate. A retail business might target ads for winter clothing to customers in colder regions. 

Tip: You could partner with Vendasta to leverage their white-labeled local SEO software.

3. Psychographic Segmentation

Psychographic segmentation considers lifestyle, values, interests, and personality traits that are common among the individuals in each of the target market segments.

This approach helps create marketing messages that resonate on a deeper emotional level. Surveys and social media audience analysis can help your marketing agency get a deeper insight into your clients’ audience.

4. Behavioral Segmentation

Behavioral segmentation is based on the behaviors that customers in each market segment display. These behaviors include purchasing habits, brand interactions, and product usage. 

For a managed IT services provider, market segments could include:

• New Adopters 
• Heavy Users 
• Occasional Users 
• Cost-Sensitive Clients 
• Loyal Customers 

5. Firmographic Segmentation (for B2B)

Firmographic segmentation is used in B2B marketing. The most common types of segments are based on company size, industry, and revenue.

Key firmographic factors include:

• Industry
• Company Size
• Location
• Revenue
• Ownership Structure
• Growth Stage

Steps to Implement Target Market Segmentation

Start by clearly defining the market you want to target to promote your client’s products and services. 

Then determine the criteria you will use to segment the market by using surveys, polls, focus groups, and interviews, as well as by performing competitor analysis. 

With the help of digital analytics tools, divide your overall market into smaller, distinct segments that share common characteristics.

Create detailed buyer personas for each market segment. These personas should reflect needs, preferences, and behaviors that are common in each market segment.

The process of identifying your client’s target market and segmentation doesn’t end there. Once you’ve mapped out the market segments, assess each one in terms of its viability.

Ask critical questions, such as: 

• Does my client have a strong digital presence to reach this market segment effectively?
• Is this market segment sufficiently different from others, or would the marketing strategy work better if the market segment was merged with other segments?
• Is this market segment too broad or too narrow?

Develop and implement marketing strategies tailored to each market segment. 

Benefits of Effective Target Market Segmentation

Improved Product Development

Effective market segmentation informs product development by providing insights into the specific needs and preferences of different market segments. 

For example, a tech company can develop different versions of a software product tailored to beginners, intermediate users, and experts. 

More Efficient Marketing Spend

Target market segmentation enables marketing agencies to allocate their marketing resources more effectively. Instead of a broad, one-size-fits-all strategy, marketing agencies can create more personalized and impactful marketing campaigns.

Enhanced Customer Satisfaction and Loyalty

When customers feel understood and valued, their satisfaction and loyalty towards a brand increase.

Personalized marketing messages, tailored recommendations, and products designed to meet specific needs contribute to a superior customer experience. 

Competitive Advantage in the Marketplace

Effective market segmentation helps agencies develop unique value propositions that set their clients apart from competitors. A well-segmented market approach can help businesses identify and capitalize on niche markets that competitors may overlook. 

Common Pitfalls and How to Avoid Them

Over-Segmentation

Over-segmentation is when a digital marketing agency divides the target market into too many small segments. This can lead to overly complex marketing strategies, resulting in diluted brand messaging and increased costs without significant returns.

To avoid this pitfall, it is important to prioritize market segments that are large enough and have distinct characteristics that justify their separation.

Neglecting to Update Segments Regularly

Customer preferences and behaviors evolve over time. Continuous monitoring of customer data and market trends, conducting regular audits of your market segmentation strategy, and evaluating the performance of each market segment can help marketing agencies keep their customers on top of current market conditions.

Tools and Technologies for Target Market Segmentation

CRM Systems

Customer Relationship Management (CRM) systems store comprehensive customer data, including demographics, purchase history, and interaction records, providing a rich dataset for market segmentation.

Advanced CRMs offer analytics and reporting tools that help identify patterns and trends within the customer base.

For instance, a CRM can pinpoint a segment of customers who frequently purchase a particular product for marketers to target these clients with related product promotions or loyalty programs.

Survey and Feedback Tools

Surveys and feedback tools can reveal customer preferences and pain points, as well as capture qualitative data about how customers use your agency’s clients’ products or services.

Social Media Listening Tools

Social media listening tools monitor online conversations about your agency’s customers’ brand, competitors, and industry, providing real-time insights into customer sentiments, preferences, and emerging trends.

Data Analytics Platforms

Data analytics platforms, such as Google Analytics, help analyze customer data from multiple touchpoints to identify patterns and trends as well as measure the effectiveness of your market segmentation strategy and marketing campaigns.

Case Studies: Successful Target Market Segmentation in Action

B2C Company Uses Demographic and Psychographic Market Segmentation

In the "Share a Coke" campaign, Coca-Cola replaced its iconic logo on bottles and cans with names that the members of its target audience requested. To run this campaign, Coca-Cola has identified millennials as its target market segment. 

This segment falls both into demographic and psychographic segment types because it targets a specific age range and taps into the millennial desire for unique and shareable experiences. 

B2B Company Leverages Firmographic and Behavioral Market Segmentation

When marketing its AI platform, Watson, IBM segments its target market of healthcare providers based on their size and level of technological adoption to ensure that IBM’s advanced solutions are pitched to organizations capable of integrating and benefiting from AI technology.

IBM also uses behavioral target market segmentation. It analyzes behavior patterns such as the adoption of electronic health records (EHRs) to focus on healthcare providers that already demonstrate a high level of engagement with innovative technologies.

Vendasta’s Success Story

Target market segmentation is a powerful tool that can transform a business’s marketing strategy, leading to increased leads and conversions. An excellent example is the success story of an insurance franchisee supported by Cyrusson, a digital marketing agency that leverages Vendasta's white-labeled tools.

The insurance franchisee faced a significant challenge when their lead flow stopped for about six months. Cyrusson implemented a target market segmentation strategy using Vendasta’s digital advertising tools. 

The results were remarkable. The targeted digital ad campaigns generated more than 10-15 leads per month and numerous phone calls for the insurance franchisee.

Measuring the Success of Your Segmentation Strategy

Here are some key indicators to consider:

• Conversion Rates: Higher conversion rates indicate that your segmentation is effectively targeting the right audience.
• Customer Acquisition Cost (CAC): Calculate the cost of acquiring a new customer within each segment. A lower CAC suggests that your segmentation strategy is efficient and cost-effective.
• Customer Lifetime Value (CLV): Assess the total revenue you expect to earn from a customer. Market segments with a higher CLV are more profitable and indicate successful targeting.
• Engagement Metrics: Track engagement metrics such as click-through rates (CTR), open rates, and social media interactions. High engagement rates imply that your messaging resonates with the targeted segments.
• Churn Rate: Monitor the rate at which customers stop doing business with your agency’s clients. A lower churn rate in specific segments indicates higher customer satisfaction and loyalty.

Future Trends in Target Market Segmentation

Artificial intelligence (AI) and machine learning are revolutionizing target market segmentation by providing deeper insights into customer data and even predicting future customer behaviors based on historical data!

Hyper-personalization powered by AI enables marketers to create websites that adapt content in real-time based on user behavior and preferences, as well as show ads based on real-time analysis of user activities and interests.

As marketing agencies collect and analyze more customer data, ethical considerations, and data privacy become increasingly important. It is no longer negotiable to ensure customers are aware of and consent to their data being collected and used and to implement robust security measures to protect customer data from breaches and unauthorized access.

Implementing effective target market segmentation can transform your digital marketing efforts. By targeting specific segments of your agency’s clients’ markets, you can create more personalized and impactful marketing strategies.