Market Segmentation Method

Segmentation is the process of dividing markets or customers into distinct groups with common needs and characteristics. It provides a deeper understanding of both your current customer and your potential customers. Segmentation tools enable marketers to group businesses into segments by selecting various business signals that comprise each segment.

Once you create segments, you can target each with a unique marketing mix tailored to their common characteristics. This contrasts with the alternative spray and pray approach, which uses the same product and marketing mix for everyone.

There are two types of segmentation, which is customer and market segmentation. The purpose of customer segmentation is to provide a data driven understanding of your customers. Effective customer segmentation can empower you with a granular view of the characteristics shared among your best customers, which enables you to make better decisions about how to identify future prospects. Customer segmentation utilizes the historical performance and customer data in your internal CRM to show you who buys and who doesn’t, which marketing campaigns are most effective and which prospects should be prioritized over others.

Market segmentation informs your decisions about marketing and product development. It shapes where you build new marketing campaigns, which new products you offer, and how you plan for growth. Market segmentation requires external data sources and can help you determine your TAM, or Total Addressable Market analysis, market penetration, and largest market opportunities.

By using both customer and market segmentation you can gain a deeper understanding of your customers, your market potential, and the specific segments with the highest likelihood to convert. For most teams, these two processes are done separately due to data silos and fragmented tools. However, if you are able to run these analyses simultaneously, the results from your customer segmentation can inform how you segment the market, which removes the guesswork of trying to understand where to focus your marketing resources.