Marketing leaders today are being asked to deliver ambitious outcomes for their companies in complex and volatile business environments. The strategic choices they make about where to play and how to win will determine whether or not they succeed.
Two foundational elements of a solid marketing strategy are segmentation and targeting, but from conversations with marketers and other departments, it seems these activities are often misunderstood and undervalued. It’s worth revisiting these two concepts as marketers look ahead at plans – and budgets – for 2024.
Why should we do segmentation and targeting?
Segmentation is about mapping the marketplace and being really clear about who the potential audience is. Targeting, which is one of the first acts of strategy, is about choosing which segments we will focus on with our activity for the year ahead. This is done sequentially – first you map the marketplace, then you choose your target audience.
It’s a way to bring some order to the chaos we encounter when we move from marketing in theory to marketing in the real world.
While your customer base will have some similarities, they’re not homogeneous – different people want different things from your products or services – from quality and speed of delivery to price point, experience and more. Treating your customer base as one group, with the variables averaged out, will lead to bland products and ineffective marketing.
Once you acknowledge the differences between your customers, you can create products and services – and market them – in ways that resonate with each group.
And not all segments are equal in terms of value to the company. To make the biggest financial impact for the company, you’ll want to focus your efforts on the most profitable groups. This will help you direct your resources and budgets toward the activities that will positively impact the bottom line.
What is segmentation?
So segmentation is about creating a map of the market and grouping different customers based on shared, identifiable attributes. The important thing to remember is that the segments must be significantly different from each other. If two groups have only surface-level differences, you don’t have true segmentation.
When you’re doing this activity, be sure to concentrate on relevant attributes to your organisation. Your segmentation should be tied to the company’s strategic goals: is your firm trying to reduce customer churn, extend a strong brand into a new product category, adapt the product to meet changing customer needs? Demographics and psychographics are unlikely to give you the information you need for knowing who to focus your activity on.
Look for patterns in your customers’ actual buying behaviour as to which benefits or features matter most. Identify which customers are willing to pay more for your product or service.
Use qualitative research methods to explore underlying motivations and quantitative methods to understand competitive strengths and vulnerabilities.
The essential elements of segmentation
- Measurable: you need concrete numbers around the market’s size, key characteristics, purchasing power and preferences – this is one of the elements that’s often missing but it’s an essential piece that helps you know which segment will be most profitable to target.
- Substantial: the segments must be large enough to provide a return on the investment required to convert them .
- Accessible: you need to be able to get in front of the segments easily and efficiently.
- Differentiable: your segments must be different from each other in some significant way or in how they respond to your marketing efforts or interact with your product.
- Actionable: you need a practical and cost-effective way to attract and convert the customer segment.
Ways to segment the market
In a B2B environment, you’re looking first for the different needs customer groups have or different benefits that they are seeking. This is only available through customer research – ideally speaking with customers directly, but you can also speak to the sales team or customer service team as they interact with customers daily.
Then you can overlay descriptive profile characteristics that can help you further identify who these customers are and how to reach them. This might include:
- The industry or vertical that your product is relevant for
- The type of organisation that you want to work with (ie. public or private)
- The size of the organisation (in terms of employees or turnover)
- The geographical location
- The usage behaviour (whether they are light users or heavy users of the product)
It’s also incredibly important in B2B to consider the buying committee and the different needs and purchasing criteria that each person has. The most effective marketing strategies will have tailored content that can address the most common needs and add value during the pre-purchase stage.
Segmentation isn’t a one-and-done activity; your customers’ needs, desires and behaviours are constantly changing, as are market conditions, so reviewing and revising your segments to stay relevant annually is a worthwhile exercise.
Once you have identified the potential segments you could go after, you’re ready to choose your target audiences.
What is targeting?
Professor and Marketing Week columnist, Mark Ritson, calls targeting the first act of strategy. It’s about choosing which groups you will pursue this year and crucially, which ones you won’t.
It’s a strategic activity because it’s about narrowing your focus, your time, your money and your efforts on fewer things that will deliver more impact.
When it comes to choosing your segments, you can be led by factors like:
- The size of the segment
- Whether the segment is growing, staying the same, or shrinking
- The profitability of the segment
- The competitive forces at play with a particular segment
- The capabilities of the business
These considerations and the choices you make are the strategic part of marketing.
How should we think of targeting today?
There are often shifts in marketing theory that we run after – we started with mass marketing through print, radio and television; then we became obsessed with the ability to narrowly target people through digital media channels. Then, research coming out of the Ehrenberg-Bass Institute showed us that we’d gone too far down the rabbit holes and has since pushed us back toward sophisticated mass marketing – going after all the category buyers (as opposed to broadcasting to the general population).
The truth, of course, lies somewhere in between. There is a place for both sophisticated mass marketing and a place for targeting specific segments.
And we find this approach through Les Binet and Peter Field’s work The Long and Short of It.
With brand building activity, marketers should work to reach as many of the category buyers as possible. This is about laying down long-term emotive memories, linking the brand to specific buying triggers/category entry points and reminding people that you exist to solve a problem they may encounter in the future.
Binet and Field recommend, on average, that 60% of the marketing budget is spent sowing seeds for the future. But there are variations for each situation and their follow up book Effectiveness in Context sets out how that split should vary depending on a number of factors.
Your short-term sales activation should take up the other 40% of your marketing budget, where you’ll be more specific in who you’re talking to, in your positioning / key messaging, and in your calls to action. You’re serving behavioural prompts to the people that are most likely to take action now.
Putting targeting into practice
Once you’ve identified the target segments that you’re going to address in the coming months, it’s time to start building out your marketing activity for them.
A good place to start is to map out their customer journey across the entire funnel, paying particular attention to their buying triggers, what channels they use to research and engage, who else they listen to and what pain points or benefits matter most to them.
Next, you need to do a content audit with that particular segment and user journey in mind. Do you have the right thought leadership, tactical blogs, landing pages, videos, case studies, spec sheets and calculators that will meet their needs at every step of the journey and move them onto the next one?
Work with subject matter experts within the business and partner with external key opinion leaders to create content that is compelling and valuable. And don’t forget that you want to address the broader buying committee, not just one specific job role.
Once you have the content, distribute it across both organic and paid channels where you know your audience spends time. Use the profile characteristics to help with the paid media targeting options, but as third party cookies are phased out, it’s even more important that you tailor your creative to that segment so they will notice and engage with it.
Going back to the basics with your segmentation and targeting will help ensure you have a strong foundation for your marketing plan and you can remain focused with your activities.
If you want to discuss your marketing strategy with one of our strategists, get in touch today.