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Do me a favour. I want you to close your eyes, picture your business’ average customer and answer these four questions:

Where are they from?

How old are they?

What type of lifestyle do they lead?

What do they want MOST from your product?

Got it? Perfect. Let me be the first to congratulate you on taking the first step on your journey to market segmentation mastery. It’s not always easy, but it is VERY rewarding.

At its heart, market segmentation is about identifying meaningful ways that you can group customers within your market. That means your segmentation criteria has to be easy to measure and intimately linked to the market’s purchasing behaviours. Each grouping is then called a ‘segment’.

Obviously, most businesses aren’t going to be able to serve every segment they identify. The power of performing market segmentation lies in allowing you to identify the largest possible number of potential customers to which your business can effectively cater. With this information, you can alter your offering to cater to more segments, or you can make your current segments more loyal by better serving them. These two processes are called targeting and positioning respectively, topics we’ll cover in the coming months.

So how do we segment a market?

The Big Four

There are more ways to segment than there are stars in a moonless night sky, but they all fall under four broad categories: Geographic, Demographic, Psychographic and Behavioural segmentation. The questions I asked earlier are examples of these key variables.

Geographic segmentation focuses on the lay of the land. How many people live there? What’s the climate like? How does the terrain effect daily life? Someone purchasing a car in the city might look for a vehicle that’s easy for park, whereas a rural customer may want something rugged that handles well off-road. The larger the area you cater to, the more important geography becomes.

Demographic segmentation seeks to understand customer circumstances. What generation are they part of? What’s their ethnic background? How much money do they make? What’s their gender?  Demographic market segmentation data is easy to acquire, as the Australian Bureau of Statistics has done all the work in collating it for us.  

Psychographic segmentation is the intersection between psychology and demographics (hence the name). Here, we seek to understand customer mindset. Take two 15-year-old caucasian boys from the same neighbourhood: Dolph and Sylvester. Both of them attend the same acting class. Dolph wants to star in movies when he grows up, and he knows the competition is fierce, so he knows he has to hone his skills. Sylvester doesn’t want to act; he just likes how many pretty girls are in the class. Although they share many similarities, their reason for enjoying the class is completely different.

Behavioural segmentation or as I like to call it ‘the nitty gritty’ segmentation. The other criteria will tell you all about the customer’s context, but behavioural segmentation relates to the way the interact with your product. What do they value most in the product? How loyal are they to brands in your market? How price sensitive are they? How much do they use the product?

I want to do a market segmentation analysis; how do I get started

It’s simple: Market Research. There’s lots of free, or cheap resources out there that can give you insanely comprehensive insights into your market and your customers. We’ve listed a few technologies on our Facebook and LinkedIn, and of course there’s the aforementioned ABS, but in the end, you’re going to want some professional help.

So much of what we do at Olivetree Marketing revolves around knowing our clients’ customers back to front, inside and out. It’s how we’ve helped so many other small businesses surpass their goals.

We’ll do the same for you. Click the link to get in touch.