What is the advantage of audience segmentation?
All companies are divided into two categories: those who segment their target audience and those who can barely make ends meet 🙂 This may be too categorical, but there is a lot of truth in it. It is difficult to successfully develop new products, build competent communication with customers and make the right decisions if you do not know:
- what products and services your customers need;
- what arguments should be used for which target audience segments;
- which consumers bring you more money and which ones you don’t make.
Segmentation allows you to divide consumers into groups according to a given criterion, and then for each group to develop a product, advertising, offer special terms of service, etc.
In this article, we’ll talk more about how segmentation helps shape marketing and create effective ads, but it can be used for other purposes as well.
To begin with, it is important to understand the problem that you want to solve with the help of target audience segmentation. Let’s say you want to build effective communication with different types of buyers who are at different stages of the sales funnel. Moreover, it is important for you to understand which of these categories brings more money. Then you need:
- Divide target audience into categories depending on the interest in your product.
- Find out the buying motives of each category.
- Describe what the selection process looks like for each category: what stages do buyers go through, what arguments convince people to buy your goods and services, what kind of doubts they have, etc.
- Analyze which categories of the target audience are more profitable for the company, for whom you should spend your advertising budgets.
It is convenient to correlate audience segmentation with the path that the buyer goes from the emergence of a need for a product and its choice to using the product and repeated, if lucky, sales.
According to this logic, consumers can be divided into 3 large groups:
- Potential clients. This group includes all people whose problem, in principle, can be solved by your product, but who have not yet moved to the stage of the transaction.
- Customers in the buying stage. These are people who are actively looking at goods and services or are negotiating but have not yet become buyers.
- Customers who have made a purchase. This includes everyone who has bought something from you.
Of course, each of the groups can be segmented further, if such a division is appropriate. For example, see which of those who made a purchase continues to buy from you, and which groups bring more money, but this will be discussed later. Data sources and segmentation criteria
For each group, the main segmentation criterion can be identified, which can be used to cut off. For example, companies, when identifying potential customers, often try to be guided by socio-demographic criteria, but it would be a mistake to segment them based on social demographics alone. Wall-paper is not bought by people of 25-60 years old, they are bought by people who make repairs, and it does not matter how old they are and what their gender is.
Methodology for analyzing the collected data for stage 1
The collected information will help to understand which of the three groups deserves more attention. For example, if you have a lot of buyers who bought and disappeared (and your area involves repeated sales), then it is worth analyzing:
- what is wrong with the product if people do not return;
- how to build communication with missing customers (make an e-mail newsletter, start sending SMS with an invitation to update a manicure, etc.)
If many representatives of the target audience get stuck at the stage of the transaction but do not buy, then it is necessary to invest resources there. This could be boosting ads, developing more compelling landing pages or presentation materials, analyzing the work of the sales department, or improving a product.
Finally, the analysis of potential consumers will help to assess the market size in terms of the number of buyers and in terms of money.
Stage 2. Motivation to buy
It is very useful to segment your audience based on purchase motives. The more accurately you get into the pain of the target audience, the more effective advertising will be, the better sales managers will be able to convince customers. It is important to know buying motives for the first two categories: potential customers and those who are at the stage of the transaction (in general, the motives of these two groups for one product will be similar, but in the second category they are usually more detailed).
For segmentation, it is important to take into account that the motives for choosing the same product can be seriously different for different target audience groups. For example, advertisements for contact lenses can be built around a product and advertisements like “Eye comfort. The first pair of lenses is free. ” And you can analyze situations when people need eye lenses, for example:
- Photographers need lenses because it’s impossible to photograph with glasses.
- Athletes are most likely uncomfortable playing sports with glasses.
- People who read a lot often have vision problems.
Each of these groups has a different motivation for choosing lenses that can be used in advertising, which is why it is so important to present a portrait of your audience well.
The criterion for segmentation can be:
- the need that prompts the consumer to choose goods and services. For example, you can buy a hamburger to satisfy your hunger, or you can buy a hamburger to reward yourself for a tough day.
- an event at which a product becomes in demand. For example, you need athletic shoes for the new school year or a new suit to interview for a new job.
- the trigger that started the purchase process. It often happens that a person realizes the problem, for example, wants to lose weight, but does nothing about it. And then some event (the girl’s contemptuous look, shortness of breath, employer’s demands) make him act.
Data sources for market analysis and segmentation can be:
- Search queries;
- situations that consumers describe when contacting the company;
- insights obtained from in-depth interviews with buyers;
- competitive analysis data.
Sherrington’s 5W method is a good fit to organize information on the shelves. It is often used to quickly segment target audience. The methodology assumes answers to 5 questions:
- What – what products are you selling?
- Who – who is your customer?
- Why – why does a customer need to buy a product, what problem/task does he solve?
- When – when does a person need a product?
- Where – where does the purchase take place? (the last question is not always relevant)
There is such a roofing material. His target audience consists of two groups:
- These are people who are building a house from scratch.
- Summer residents who already have a house, but the roof is leaking.
The motives of each group will be different, which means that each will need to build its own communication.
Stage 3. Stages of the transaction
The stage of the transaction can be viewed as a stand-alone stage, which will be different for each segment. For example, a potential target audience should be interested in a product, consumers who are at the buying stage should be turned into real buyers, and those who have already bought should be motivated to make repeat purchases or leave a good review.
Suppose a company is building log cottages, here’s how it can do segmentation by stage of the transaction.
Naturally, depending on the specifics of the business, the stages will differ, and depending on the business tasks, they can be segmented in more detail. The idea is to help company employees: marketers, sales department, service department – to identify the needs of a person and lead him from stage to stage.
An online clothing store for children can develop segmentation for regular customers based on the age of the children. To do this, you need to indicate in the CRM at what age the clothes were originally purchased. And for each group of consumers to make their own advertising campaigns or letter chains. So, after 3 months, the mother of a newborn is offered clothes for six months of age, and for children of 6 years old – clothes for a first-grader.
Methodology for analyzing the collected data for stage 3
For segmentation purposes, it is convenient to use the Hunt Recognition Ladder. Using this technique, you can analyze the customer journey from product recognition to product use. Let’s see how this technique can be used to sell the Marilyn Marketing Automation Platform:
- Lack of awareness. Let’s say you haven’t heard anything about Marilyn and about advertising automation systems in general, but at the same time, you set up contextual and targeted advertising or run an agency that provides such services. And so you needed to know how to segment your target audience, you googled this article and just found out about Marilyn.
- Interest. There are more and more advertising campaigns, there is no longer enough time to manage them and conduct high-quality analysis. You start to think about how to optimize your efforts and look closely at the possibilities of automation, and then you interesting article comes across…
- Search for a solution. Then you come to the conclusion that automation systems are a good solution and you want to know more about them. And immediately you find an excellent case, where the capabilities of automation systems are well shown, and you also find out that automation will help you save more than 80% of the time on performing routine tasks (this is confirmed by the experiment ).
- Comparison and selection. You start comparing different automation systems, reading reviews and testimonials. Communicate with technical support to make sure that the chosen system will solve your problems.
- Confidence in choice and completion of the transaction. You find yourself requesting free demo access to finally test your chosen solution.
- Hold. If you liked the system and the technical support answered all your questions, we just have to improve the product, add new useful features to it and delight you with a cool newsletter.
Stage 4. Average bill and LTV
All previous segmentation methods were aimed at developing effective communication. However, when customers are attracted, it is important to understand which ones are the most valuable to you and focus your efforts on them.
The most correct way to do this is to measure LTV (Lifetime Value). The indicator determines the total profit that the client has brought for the entire time of cooperation with your business. There are different ways to calculate LTV.
Data sources and segmentation criteria
The criterion for segmentation can be a choice:
- Cost of purchases for the period for each buyer
Information for segmentation can be taken from:
- 1C, management accounting services
To predict and calculate LTV, you can use cohort analysis. Using this method, you can segment your target audience into groups and see how their behavior changes, for example, which advertising campaigns bring more sales, even if deals are made with a long delay. You can learn more about cohort analysis read this article…
RFM analysis allows you to analyze the customer base in the context of three aspects: how much money buyers spend in a specific period, how often they make deals, and how long ago they made the last one. This allows you to understand the value of each customer for the company and create strategies for each of the groups: on whom to spend efforts, who to stimulate with discounts, to whom to make new offers, etc.
Sometimes it’s easier to articulate not what characteristics your target customers should have, but the ones by which they do not suit you. Typically, buyers are cut off for two reasons:
- You cannot serve this segment. For example, you don’t have the expertise you need.
- It is not profitable for you to serve a specific group. For example, the acquisition costs are too high.
Filters can be set according to the following criteria:
- By type of buyer. Your product may not be suitable for certain customers. For example, a psychologist may not work with children and adolescents, but provide services only to adults. For example, you do not work with companies whose turnover is less than 1 million rubles per month. Or you only work with b2c companies and don’t work with b2b.
- By geography. You deliver only within Russia and do not work with other countries.
- At the cost of attracting. Send a presentation, call back, write a letter – all this takes the sales manager’s time, and it costs money. If, after a certain number of touches, the client does not turn from potential into a real one, it is more profitable to leave him alone.
- At the cost of service. Not all segments are created equal. For example, for the delivery services of a set of products with recipes, the costs are recouped from the fourth-order, so customers who make 2-3 orders are unprofitable for them.
You can understand that the client is not yours by analyzing user behavior on the site, the history of communication with the sales department in CRM, and data from management accounting services. Use data to the segment from:
- Advertising services
- Web analytics
- Call tracking
- Management accounting service
Initially, the work on audience segmentation and setting up advertising campaigns requires human participation, but when a sufficient amount of data on user behavior on the site is accumulated, then the search for an audience with the desired behavioral characteristics can be provided to algorithms. The system proceeds from the premise that “if someone walks like a duck, quacks like a duck, then this is a duck.” In other words, it analyzes the behavior of people who leave applications on your site, and looks for people with similar behavior, in the hope that they will also leave applications. This tool is called Look-alike; Google, Facebook, and other advertising platforms have it.
Segments can also be geographically based on geolocation data. For example, highlight the audience that lives in a specific house, drives on specific highways, or purchases from specific stores. Check out an interesting example of how Marilyn can increase the potential audience of an FMCG brand in a grocery store chain by 5,000,000 people.
Remember that creating segments is not an end in itself, they are needed to solve specific business problems. Here are two common mistakes when segmenting your audience.
- Make according to the template. Sometimes there is a temptation to use a template from the Internet, but there is a risk of doing pointless work. For example, describe your target audience by socio-demographic characteristics. This, of course, will help when setting up targeting, but it will not help if you need to come up with advertisements for your target audience. It’s best to use in-depth interviews to find real insights from your audience. Therefore, it is more correct to select an individual solution for your task, rather than using ready-made templates.
- Always strive for tight segmentation. This segmentation is easy to do when you want, for example, to classify customers by the number of purchases: made 1 purchase; made 2-4 purchases; made 5-10 purchases. In this case, it is easy to unambiguously assign it to anyone category. But it is not so easy to determine at what stage of making a purchasing decision a user is. He may well simultaneously study the technology of building a house and at the same time hesitate whether to build a house himself or hire a construction company. It’s wiser here to give up trying to tightly tie segments of your customer base to the sales funnel.
You can understand how effectively you managed to segment your target audience by the effectiveness of advertising campaigns. Qualitative elaboration of segments allows:
- Set the exact ad settings: select the necessary keywords, set up targeting, take into account the peculiarities of behavior (for example, people may not buy your product in rainy weather, and it is better to stop advertising on rainy days – Marilyn allows you to do this).
- Make creatives that will fit exactly the needs of the audience. Above was an example where different segments of contact lens buyers were shown to have different motivations. Accordingly, you need to develop your own creative for each segment.
If you use different advertising channels (Google, Facebook), and run several advertising campaigns inside each channel, you will need a tool that will allow you to bring all statistics into one report so that it is easy to analyze which channels and campaigns are working efficiently.
- Segment your audience to launch successful products, set up effective advertising, reallocate resources to those customer segments that bring in more money
- Start by identifying three large segments: potential buyers; clients at the stage of the transaction; current clients.
- It makes sense to work out each of these segments in terms of motivation for buying and stages of buying.
- Relevant customers should be segmented by LTV or the average bill for the period.
- You can assess how well the segments are built by measuring the effectiveness of advertising campaigns. To make your life easier, use automation systems for these purposes.