How Businesses Find Their Ideal Customers
Have you ever wondered how big and small companies build their customer base? With billions of potential customers in the world, how do businesses decide who to market to? Marketing includes all of the activities a business undertakes to identify customers’ problems, needs, and wants, as well as to promote, sell, and deliver products. Customer data helps marketers determine which customers to serve, which products to offer, and how to market those products effectively and profitably. While larger companies may use mass marketing to reach broad audiences, many businesses rely on market segmentation to identify the customers who are most likely to purchase their products.
Digital Marketing:
Today, much of this work takes place through digital marketing, which uses websites, email, social media, mobile apps, and other online technologies to connect with customers. Over the past two decades, many businesses have shifted marketing budgets away from traditional advertising, such as newspapers, magazines, radio, and television, toward digital platforms. Digital marketing allows businesses to reach both global audiences and highly targeted customer segments with personalized messages, often at a lower cost than traditional advertising.
What is Market Segmentation?
Market segmentation is the process of dividing potential customers into groups, known as market segments, based on shared demographic and psychographic characteristics. By grouping customers with similar needs, wants, preferences, and lifestyles, businesses gain a better understanding of how their products fit each segment. This allows marketers to create more personalized campaigns, improve customer engagement, and use their marketing budgets more efficiently.
It is essential for marketers to define the total market for the product that is trying to be sold. Purchasing needs and patterns are two important factors that need to be considered. An example for the total market for a book on newborn babies can be estimated by gathering the total number of women who range in the average age of birthing children.
Once the market is defined, marketers are able to segment it further and break the full campaign off into segments. When choosing the segmentation criteria, it’s important to understand human behavior. Factors such as demographics, geographic area, and psychographics are the three main characteristics to focus on when determining how to market to each segment. Once the criteria is defined, the company then develops segment profiles. A segment profile puts the general characteristics of consumers in the specific segments that may contain age, behavior pattern, and gender. After the segments are created, the company will assess the potential profitability that can come from each segment and then selects them for targeting.
Consumer needs and wants are also influenced by social and cultural trends. Changes in demographics, cultural values, and lifestyles can cause demand for products to grow, decline, or shift over time. For example, an aging population may increase demand for healthcare products, while growing interest in sustainability has encouraged many companies to develop environmentally friendly products. Businesses that recognize these trends and adjust their products and marketing strategies are more likely to remain competitive and profitable.
By putting the target market into segmented groups, marketers can be more efficient with their time – potentially saving money on campaigns. This is a more cost effective way for the company to market their business.
Tools of Market Segmentation
Demographic Segmentation
Demographic Segmentation is the most important criterion for measuring a target market. Marketers usually have good ideas about how big different demographic segments are based on measurable statistics, which can easily be retrieved from the census bureau online. Once they know the size of each demographic, they can use polling data to find the specific tastes and preferences of each group. Groups are usually defined by:
- Age
- Gender
- Income
- Marital status
- Education
- Race
- Religion
For example, a liquor company may want to target based on what different age groups prefer to drink. They would set up a poll that suggests the people under the age of 54 prefer beer and anyone over that age prefer wine. This can also be broken down further by splitting the age groups by gender.
Geographic Segmentation
Geographic Segmentation is the process of segmenting a market based on location. Depending on the scope of the business and where it is located, and what type of people they’re trying to attract will determine the geographic segment. This can be done by segmenting by:
- Neighborhood
- Zip code
- Area code city
- State/Province
- Region
Geographic segmentation relies on the assumption that groups of customers in a specific area may have specific product and service needs. For example, pool servicemen focus on suburban areas that are more likely to have a pool. They can further narrow this by focusing on suburban areas with larger elderly populations, who are more likely to be wealthy and not capable of cleaning pools themselves.
Psychographic Segmentation
Psychographic Segmentation divides the target based on socio-economic class, personality, and lifestyle preferences. There is a scale that is used and it ranges from the highly educated being at the top, all the way down to the uneducated and unskilled at the bottom. Marketers use this type of segmentation to figure out consumers based on their education, economic status, social status and working class. some categories include:
- Upper middle class where occupations are in upper management, administrative or professional jobs
- Middle class where occupations can be professional but in intermediate management
- Lower middle class where occupations are supervisory, clerical, lower management and junior professionals
- Skilled working class which includes occupations as skilled manual laborers
- Working class which included semi and unskilled manual workers
- Lowest level which are prisoners, widows, widowers, low-grade workers.
Psychographic segmentation is based on the theory that the choices that people make when purchasing goods or services reflect their lifestyle/socio-economic class. Through these classes, market segmentation works to advertise a product within a certain area of people’s interest. They might advertise entry-level jobs to prisoners who were just released from jail.
Target Markets
The segmentation tools above help businesses identify their target customers—the buyers who are most likely to purchase a product because of their wants, needs, and preferences. By combining demographic, geographic, and psychographic information, marketers can determine which customer groups offer the greatest opportunity for success. For instance, a business that sells high-tech baby supplies would likely target millennials or other age groups that are most likely to have young children. The business might further narrow its target market to higher-income households living in urban areas where technology is widely used. By focusing on customers who are most likely to purchase the product, businesses can spend their marketing budgets more efficiently and avoid wasting resources advertising to consumers who are unlikely to be interested.
Campaigns Per Market
Sometimes, marketers have to use different marketing techniques, and campaigns for the same product. If a company is trying to sell a smart phone and they want everyone to buy it but the company has to connect with everyone through different campaigns. The way this is done, is by segmenting the market by different demographics, customer profiles, psychographics and geographic. For instance, creating a segment based off of millennials, teens, adults, and the elderly, the company is able to develop different marketing techniques to target each group and get them to buy the product. Showing that the smart phone is user-friendly may help target the elderly because it may be harder for them to learn new technology. Showing the teenager all the tech features will draw them in, while broadcasting that the smart phone is a great learning tool will allow adults to purchase them and use it as a tool for their children. Smart strategies use different campaigns for different market segments for the same product, trying to hit the features that each market is most interested in.
Customer Profiles
After identifying a target market, businesses often create customer profiles. A segment profile describes the characteristics of an entire market segment, while a customer profile is a fictional description of one representative customer within that segment. A customer profile combines demographic and psychographic information with the customer’s wants, needs, preferences, buying habits, and other characteristics to help marketers better understand who they are trying to reach.
For example, if a company sells socks that are manufactured in America and donates a portion of every sale to charity, its target customers may value supporting domestic manufacturing and charitable causes. A customer profile might describe a 35-year-old professional who prefers purchasing American-made products, shops online, values socially responsible companies, and is willing to pay slightly more for products that align with those beliefs. Developing customer profiles helps businesses design products, branding, pricing, advertising, and communication strategies that appeal to their target customers. This targeted approach is generally more effective and less expensive than trying to appeal to everyone.