In sales and marketing, we are repeatedly told that categorising your audience into distinct groups is a must. But what are the benefits of market segmentation? Is it really worth putting resources into?
The science of categorising and classifying is known as taxonomy. This is not to be confused with taxidermy, which is about stuffing dead animals with sawdust or something.
The desire to categorise appears to be an innate need, built into all living beings by natural selection. Our ancestors needed to categorise things so that once one fast animal with sharp teeth has chased them up a tree, they could avoid all pacey, sharp-toothed animals. The benefit to them was an increased ability to climb trees and more continuing to be alive.
In the modern business world, the benefits are less binary. So we’ve listed out the top ten advantages to market segmentation.
What is market segmentation?
Market segmentation, also known as customer segmentation, is the process of identifying and researching distinct audience segments within your total addressable market.
Once you’ve segmented your market and have a handle on the different cohorts, you can solidify these in the minds of internal teams by producing customer profiles. Our guide to B2B buyer personas can help there too!
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The top ten benefits of market segmentation
Without further ado, here are our top ten benefits of market segmentation.
Develop consumer insights
I’m putting this benefit first because ultimately everything else feeds into this. Rule one of business: know thy customer.
There are many benefits of market segmentation but they all result from one thing: you understand your customers better. Every department in your company can then focus their efforts on reaching the different audience segments.
Your marketing campaigns focus not on what you can do, but what you can do for them. Your R&D and product teams get to work solving the problems specific to that target customer. Your sales team know how to speak to them; they know which other products or services compete for that niche.
By knowing specific sections of your audience better, research and development and product teams can begin to develop features, services, or new products aligned to this knowledge.
Not only can they increase the stickability of existing clients, but they can add to your offering in a way that makes your brand stand out from the competition.
Improve marketing results
Using market research to align your product roadmap to key customer segments, and you’ll have a better product. A more focused marketing strategy will allow you to speak to the right people about that improved product.
And that means better marketing results.
Win higher quality leads
If one of the benefits of customer segmentation is more effective marketing, one of the effects of that is higher quality leads.
If you practice lead scoring, you can monitor the fruits of your segmentation strategy, as your increasingly targeted marketing brings in more relevant prospects. You can also compare different audience segments and track lead rates, number of pitches, time taken to close deals (lead to sale), and closed won deals.
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Drive higher ROI
Better marketing and higher quality leads adds up to better ROI.
One of the primary benefits of market segmentation is this: by examining the data of different segments, you can move resources and spend toward targeting those with a higher customer lifetime value, driving higher ROI.
Identify niche markets
Segmenting markets can also reveal niche market segments which you hadn’t previously considered.
These untapped audiences can be identified and researched as you identify your B2B market segments. Further research, analysis of any available behavioral data (eg social and web analytics), and small scale testing can reveal if this is a viable market to approach.
Discover if the audience is big enough
…but not too niche. If you start identifying a potential target audience, you would benefit from pausing long enough to work out just how big the segment is. It may be the perfect fit, but if a group is too small the return on investment may not be worth going after them specifically.
We have a free market mapper tool – you plug details of who you are targeting and it gives you a breakdown of the number of contacts in that audience, the makeup of industries, and company sizes.
Improve customer retention
A consequence of having a more informed product roadmap, better marketing and higher quality leads, is you probably drive up your customer retention rates (and therefore their lifetime value).
Signing customers who are a better fit, and you understand better, means they are more likely to get value from your product or service, and therefore stick around longer.
Brand loyalty and referrals
Not only will they stick around longer, but they are also more likely to become brand ambassadors. And while brand ambassadors are nice for the dollars paid into the business and the glowing reviews they leave, there is an added benefit.
Advocates allow you to develop a referral marketing strategy. The leads that come from your happy customers convert at a higher rate and have a higher customer lifetime value.
Differentiate your brand
Perhaps an underappreciated benefit of market segmentation, understanding your customers allows you to better connect with audience segments. Once you understand exactly what it is that connects you to them, what they value most, you can double down.
Meet their needs and market to them better than your competitors, and you’ll start to differentiate your brand as the go-to provider for that niche.