Small-to-medium businesses (SMBs) may be small by name, but they make up 90% of all businesses. This large proportion of businesses know just how hard it can be to maintain a successful brand; it requires passion, self-discipline, and leadership. It also requires strong market knowledge and the ability to adapt to the changing needs of modern consumers. 

A new study has found that retailers, many of them small businesses, are struggling to keep up with the rapidly changing technological landscape that has increased consumer demand for personalisation and omnichannel experiences. Only 12% of those surveyed felt they were “very effective” in delivering personalised experiences to their customers, a stark finding when we consider that 72% of consumers say they only engage with personalised messaging.  

How can small businesses learn to cope better with the changing tides of consumer markets and adapt to deliver the personalisation that customers crave? Market segmentation strategy is the answer.  

What is Market Segmentation?

Market segmentation is the process of dividing customers or audience members into groups based on shared interests and characteristics. Segmentation is used by marketers who want to break down large amounts of customer data into smaller, more manageable chunks so that they can better understand each group’s needs and personalise their experience accordingly.

There are four main types of data that B2C small business marketers use to create segments: 

1. Demographic data

The simplest and most freely available form of data used for segmentation is demographic data; this includes name, age, gender, income, marital status, education, etc. 

2. Geographic data

You could logically assume that geographic data covers the physical location of a customer; however, it incorporates much more. There are five elements at play here: location, climate, urbanicity, language, and culture.

3. Behavioural data 

The actions that your customers take speaks volumes; whether it’s viewing a particular product page over and over or opening an email six times but not taking action, you can determine a lot about the marketing a person will respond to from their behavioural data. 

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Source: McKinsey

4. Psychographic data 

Our final data point digs even deeper into the psyche of customers than any other type of segmentation data. Psychographic data takes its cues from psychological theories and helps you to discover who your customers really are; their likes and dislikes, opinions and lifestyles, motivations, and perceived values. 

For those small businesses operating within the B2B marketplace, there is another specific data point where you should focus your attention known as firmographic segmentation. Firmographic data groups firms, organisations, non-profits, or government agencies based on their descriptive characteristics. 

These descriptive factors include: 

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Modern technology has made it easier than ever for small businesses to collect insightful and essential data from customers to get to know them better and serve them with more personalised experiences.

Before we go any further, let’s consider a few of the benefits that a small business would enjoy if they integrated market segmentation into their marketing strategy

Benefits of Market Segmentation for Small Business 

  • Develop a deeper understanding of your customers
  • Optimise your user experience (UX)
  • Break into new markets 
  • Improve customer retention

Segmentation Strategy that Works for Small Business

Lifecycle Segmentation 

When customers set out to solve a problem they are experiencing, they embark on a journey to discover the product or service that will help them. That journey can either lead to your brand or your competitor’s brand – one way to increase your odds of winning their favour is being sympathetic to the unique stage of the customer journey. 

Studies have shown that 76% of customers prefer to receive content unique to their stage in the buyer’s journey; this is where lifecycle segmentation comes into play. By grouping your audience members into segments based on their current lifecycle, you can deliver a personalised experience to each customer group that both informs and delights. 

There are five stages of the modern consumer’s buying journey, and each requires different types of content, delivered at the right time to the right customers:

1. Awareness

Potential buyers who are new or have little knowledge of your brand. The awareness segment requires content that educates, e.g., blogs, E-books, digital ads, videos, podcasts, etc.

2. Consideration

Consumers who have a list of products and brands that may solve their problem, including yours; they are weighing up the pros and cons of purchasing from your brand. The consideration stage requires content that highlights the beneficial features of products and why they excel over their competitors, e.g., case studies, FAQs, product demos, etc.

3. Decision

Consumers who are showing sustained interest in your products or services and need a final persuasive presentation of the superiority of your product. The decision stage requires content that deepens the relationship between consumer and brand, encourages trust and reinforces decision-making confidence, e.g. customer reviews, discounts, tutorials, etc.

4. Retention

Those who have made one or more purchases whose custom needs to be retained through careful customer support. During the retention stage, customers respond well to onboarding content such as follow-up and support calls, product-related recommendations, in-app or email tips, loyalty schemes, etc.

5. Advocacy

Customers who have made several purchases and show brand loyalty that deserves recognition. During the advocacy stage, you should acknowledge your dedicated customers and offer them rewards such as discounts for referrals, share their user-generated content (USG), ask them for feedback via emailed surveys, involve them in product development, etc. 

Re-engagement segmentation

During any stage of the buyer’s journey, consumers may become lapsed and uninterested in your products. It could be that a competitor has offered a better deal and they’re swaying away from your favour, or it could simply be that the challenges of their day-to-day lives have distracted them from their product hunt, and they have forgotten about you. 

Creating a re-engagement segment is a great way to shake up your communication with these types of customers; oftentimes, changing your approach can grab attention and reignite interest in your business. 

You can use behavioural data to inform the enrollment trigger that adds users into your re-engagement segment. For example, if you define un-engagement as a user who has not opened the last 5 of your weekly emails, you can then launch a campaign that aims to bring this customer back to you across a number of channels. 

Enrollment trigger: 0 email open activity for five weeks 

Add to segment: Re-engagement 

Launch workflow: Re-engagement campaign 

Workflow actions: 

  • Launch remarketing Google Display ad 
  • Send push notification including discount 
  • Send an email: Subject: “We Miss You 😭” 

You can also use this re-engagement segment plan when a user abandons a cart on your website; re-engagement is critical at this point as shopping cart abandonment rates can be as high as 69.57%, so you must entice these customers back to make a purchase. 

Price-based segmentation 

If your business offers price-packages or feature-based subscriptions or you have a large inventory of high-to-low ticket items, it can be beneficial to segment your users based on pricing. 

Demographic data can help us to determine which price-bracket or price-based segment a user may fall into, and in turn, which products or services they will be interested in due to their budget. 

One example of a demographic segment that is often incorrectly served with a one-message-fits-all strategy is the millennial generation. Marketers are fast to forget that this demographic group spans over 20 years and includes some of the most diverse consumers the market has to offer. By splitting this generation into segments based on income level, you can focus your marketing efforts on sending high-ticket items to customers who can afford them, and lower ticket items to more budget-conscious customers. 

Price-based segmentation will help you to identify high-value segments within your target market, such as the HENRY demographic within the millennial generation. HENRY stands for High Earning Not Rich Yet and has been recorded as having a purchasing power of approximately $200 million directly, and $500 million indirectly

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Now that you have some ideas of how you can navigate segmentation strategy as a small business, let’s cover some of the essentials that you’ll need to create high-converting customer segments successfully. 

How to create segments for your small business?

Define your objectives

Before you do anything, make sure you know what you want to achieve. Your segmentation strategy has the potential to increase the success of your marketing efforts tenfold; however, if you don’t plan and track your goals and objectives, how will you know which wins are attributed to which activities. We recommend setting SMART goals to help you stay on track with your segmentation strategy.

Develop a segmentation strategy

Who is your target audience? If you can’t answer this question, you’re going to struggle to create accurate segments based on their characteristics. Conduct adequate market research before undertaking any segmentation activities: speak to your existing customers directly and use secondary sources to support your findings with data. It can be beneficial to create user personas for your target audience at this point so that you can visualise and empathise with them as real people with real needs. Finding the segmentation strategy that works for your small business is dependent upon who your customers are, what they need and what type of communication they enjoy. 

Execute your go-to-market (GTM) strategy

Your GTM details the action plan for your small business’ segmentation strategy. Be sure to have considered all of the following areas in great detail before you launch any campaign: 

  • Target market
  • Target audience 
  • Brand positioning
  • Unique selling point 
  • The marketing channels you are going to use

Big data gains big results in the world of modern marketing; don’t think that your small business isn’t big enough to handle it. Market segmentation thrives on the data that you already have access to and utilising it to deliver a personalised experience to your target audience. 

By investing your time in any of the segmentation strategies that we’ve outlined above, your small business can reap great rewards such as increased customer loyalty, higher revenue, and improved UX. 

Author bio: Dominique Daly is a Content Marketing Executive for Hurree – The Market Segmentation Company. Hurree unifies your trusted marketing tools so you can segment, activate and analyse all of your customer data in one place.

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