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Segmentation - what it is and case studies

What is the segmentation?

segmentation Mar 10, 2021

By Nick Bottai - Co-Founder/Director @ The Marketing Leaders Ltd.

 

What is segmentation?

Segmentation, or better Segment, comes from a Latin word, segmentum "a strip or piece cut off, a cutting, strips of coloured cloth” and adopted in the English language in the 17th century.

It means a section, a part of something. Segmentation is the act of dividing something into small chunks.

When we study marketing and branding, we learn that we can’t sell the same thing to everyone. We need to tailor our product, service and communication to the people who might be interested in it, who we call potential customers. Altogether, these people form the potential market for that specific product/service.

But again, trying to address all these people could be a waste of resources.

Let’s start with an example. If you have to prepare a strategy to attract tourists in Australia, the potential market is everyone that is at least 18-year-old who does not live in Australia. It’s pretty huge. You need to find smaller segments so you can decide, for example, which places and activities to advertise.

When “The Australian Tourist Commission (ATC)” decided to promote the international tourism, they had to decide who were the potential customers they wanted to reach. To do so, they divided (segmented) the market in 3 segments:

  • independent adventurers aged 25-34 (primary market)
  • young independent travellers (YIT’s) aged 18-24 (secondary market)
  • independent adventurers aged 45-65.

(source https://businesscasestudies.co.uk/targeting-a-market-segment/)

In this way, they were able to reach their potential customers in different and more effective ways, for example offering outdoor activities and adventures to the first two segments and hotels, cities and amenities to the third one.

This is the segmentation.

In this example they used a demographic criteria.

There are 4 common types of market segmentation:

  1. Demographic
  2. Psychographic
  3. Geographic
  4. Behavioural

Demographic: who are they? It includes age, gender, ethnicity, income, level of education, religion, profession/role in a company.

Psychographic: why are they important? It includes personality traits, hobbies, life goals, values, beliefs, lifestyles.

Geographic: where do they live? Country, region, area, city, postal code.

Behavioural: how are they different from others? Spending habits, purchasing habits, browsing habits, interactions with the brand, loyalty to brand, previous product ratings.

There are many others segmentation possibilities,

according to channels, product, campaign, purpose and so on. For example, in eCommerce it could be useful to segment based on the recurring buying, or the amount spent.

And much more: needs-based, volume, transactional… there are no limits and you just need to be creative; use your data and find the best segment that suits your needs.

Speaking about “no limits”, do you remember the watch brand “Sector”? It is an Italian company, founded in the 1973. In the 80s it became famous due to its rebranding and positioning campaign: “Sector no limits”, targeted to sportive men. Can you guess which segmentation(s) did they use?

Spoiler alert: Reb Bull liked a lot the Sector strategy!

The segmentation has been always used even if people didn’t know they were doing it. However, we can say the differentiation and then segmentation first appeared in the 1920s when manufacturing companies started to differentiate their product for different segments of the market. In the 80s the digital era started. Internet was close to be a reality and PCs were already a big market, like software companies. Segmentation was (and is) used but for some realities it was not as effective as could have been. Alan Cooper, a software developer and user experience specialist, developed the concept of “persona” in 1983 to answer a simple question: How do users interact with this?

From that day the “persona” has been studied, improved, developed and massively used. Oh yes, I forgot to mention it. The first persona name is Kathy.

What is a persona?

It’s a personification of a segment, of a specific customer. It’s been used to give data a face, to make them alive. The first persona was made to research and study the user experience. Nowadays we can prepare different types of persona, each one aimed to a specific purpose.

The “buyer persona” is a representation of a person that has specific traits, has a name and a face. It gives information (from the segmentation process) and attitudes, which help to understand what the best channel could be, communication, tone of the voice to use when speaking with him/her and the segment he/she represents.

Personas are extremely relevant when it comes to understand the buyer journey, but we’ll speak about this next month.

To make it more practical, let’s analyse a case study.

Lego: do you know this brand?

Like many others historical brands (Lego was founded in 1916), Lego had to deal with new technologies and found the best way to communicate with its customers and potential customers all over social media.

The task was “easy”: create a community to transform customers to brand advocates.

Segmentation played a fundamental part in the strategy.

What segmentation criteria to use?

How many segments?

(if you want to test your skills, try to write your segments and then go on reading to find out if you could have been a great strategist)

The choice was to segment the market into 6 different categories:

  1. Lead Users—people LEGO actively engages with on product design
  2. 1:1 Community—people whose names and addresses they know
  3. Connected Community—people who have bought LEGO and [have] also been to either a LEGO shop or a LEGO park
  4. Active Households—people who have bought LEGO in the last 12 months
  5. Covered Households—people who have bought LEGO once
  6. All Households—those who have never bought LEGO

(source https://ccs.instructure.com/courses/1396406/pages/case-study-2-dot-1-legos-market-segmentation-strategy)

In terms of number, the point number 1 contains the fewest members, while the point number 6 the biggest number. However, “the first three personas represent the most fertile ground for social media interaction because of their deeper involvement with the brand”.

As a result, Lego grew ever since, and today is the market leader in the toy market. According to its former Global Community Relation Specialist Jake McKee, the ability to use at their best the new technologies and connect with the most valuable resource for a company, its customers, has been the best strategy ever and determined the growth of Lego.

The connection with its customers, helped Lego not only to escalate the market and establish as one of the most famous brands in the world, but helped the company in developing new products as well.

Clearly, a brilliant case study that demonstrates the importance of building a brand, the importance of communicating and listening to your customers, the importance of… segmentation!

A personal case study now: how the segmentation determined the success of an Hotel

Several years ago, in September, I was called to work for an hotel in Marina di Massa. They needed to raise their awareness and increase the bookings.

The approach started from the analysis of the branding and the channels. The very first priority was to rebrand the hotel, with a new online image.

With the team, we followed these steps:

Analysis:

  • Hotel: family run hotel. Customer care was and is at the centre of their strategy and everything reflecting that, from the furniture to the food served.
  • Market: Mainly families, both Italians and European. Booking online in March and April
  • Competitors: many competitors, some of them with a very strong brand awareness and reputation online
  • European market: Germany and UK were the top 2 nationalities to book in that area
  • Customers’ behaviour: they look for something fun but not too much, a place to go where they could find restaurants and markets, going out for a walk, and connected with other cities and place to visit.

When the situation was clear, we started segmenting the market. That was the first thing we did because everything else depends on that, on the customers we wanted to speak to.

After analysing the data at our disposal, we decided to segment our market into three main categories:

  • Families with children
  • Couples aged 60+
  • Foreign managers living in the city for 1-year projects

But it was not just like that. The first segment was taken into consideration from March to August. Then from September to February the segments 2 and 3.

In this article, I’ll just speak about the first segment. What we did to attract segment 1?

  • New website, with booking functionalities.
  • Photoshoot of rooms, food, breakfast, surrounding areas, seaside. This step included a young model to feel the people looking at the website “living” the experience themselves. The pictures included a… bicycle.
  • The hotel is close to the sea, but if you have children, you can’t walk with a lot of beach stuff, plus children for 10 minutes. Using the car is a nightmare because of the lack of parking slots. The solution was to provide branded bicycle with children seats for free to the customers (and the bicycle was used in the photoshoot).
  • Section on the website with the closest cities, amenities, events to visit and attend.
  • Booking and TripAdvisor registration in February with a mailing campaign to tell previous customers we were on those channels and to leave their feedback.

It was a success, a big one. The decision to register on booking and TripAdvisor in February with the email campaign resulted in being first on the 2 channels in March and April (peak of the bookings) because the customers gave the hotel 5 stars. The website visits raised by 1000%; people called to ask if the bicycles were available and if the rooms and food was really like that. Customers enjoyed their staying, the rooms and the facilities, including the bicycles and took pictures and posted on their social media organically.