Market segmentation — the process of breaking your market into segments according to factors like needs, past behavior, and more — is essential if you want to gain a clear understanding of your customers and target them effectively.

Companies that use market segmentation successfully can access a whole range of benefits. Segmented marketing performs significantly better, and many of the world’s most successful brands have rigorously segmented their markets for decades.

However, market segmentation is also wrought with challenges. Depending on the scale, it can be a major operation requiring many resources and work. In this article, we’ll look at five main challenges facing companies as they conduct market segmentation and how to mitigate them.

Why market segmentation is so important

Market segmentation allows you to divide your market into smaller groups, which has many powerful benefits. Here are some of the main advantages:

Market segmentation gives you greater focus.

You can target the right groups with the right products by segmenting your market. The alternative is taking a one-size-fits-all approach, targeting a vast range of different people with the same product and marketing message, which is far less likely to convert any given person.

With segmentation, you can use a different strategy for each group, tailoring your approach so your customers get more choices and a higher chance of getting what they want exactly — or at least much closer to what they want, as you can offer.

Market segmentation can give your brand a stronger identity.

Brands and products that try to appeal to everyone often satisfy nobody. Look at highly successful brands like Coca-Cola and McDonald’s — they know who they are appealing to and the needs they want to meet, and they don’t try to pretend otherwise. Nobody is drinking a coke or eating a Big Mac to be healthy or lose weight; they do it for taste and convenience.

These brands can forge a strong and memorable brand identity by focusing on specific segments of the market and their specific needs: in this case, people who want a refreshing and tasty beverage on the go and people who want fast, convenient food. They’re not trying to appeal to healthy gym-goers or people looking for an expensive sit-down meal, so they can focus their marketing and product range exclusively on their true target market. This allows them to build a clear and unmistakable brand.

Market segmentation reveals opportunities for innovation.

Segmenting your market can illuminate new areas for innovation that you may have missed otherwise. You’ll notice ideas for new products, tweaks you can make to existing lines, and new campaigns to create.

When you divide your market into smaller segments, you’ll notice that some groups demand specific things. If you treat your entire market as one block, these distinctions can easily get lost in the noise.

Market segmentation provides more accurate and targeted marketing.

When you segment your market, you can speak to your customers in each respective group more directly. This allows you to create marketing campaigns and use channels that are much more tailored to your audience.

For example, some customers might respond exceptionally well to TikTok content, whereas it may completely miss others. Segmenting your market helps you avoid wasting money by targeting the wrong people, so you can optimize your marketing budget and maximize results.

Market segmentation can help expand your brand’s reach.

Entering a new market is fraught with challenges. Segmentation can help you hone in on a target audience when launching your brand in a new market to give you a better chance of success. Segmentation allows you to target consumers with precision. You can then tailor your approach to the specific customer groups in that country rather than simply using the same strategies you used in a different place.

Get regular insights

Keep up to date with the latest insights from our research as well as all our company news in our free monthly newsletter.

The challenges of market segmentation

Market segmentation, while incredibly useful, can be challenging to conduct and implement. Here are some of the main challenges you’ll likely encounter when segmenting your market, with our top tips on how to overcome them:

#1 Cost

Segmentation is an investment. Splitting your market into groups means you’ll have to do some things, for instance, marketing campaigns, multiple times in different ways. This can be more time-consuming and expensive than running a campaign aimed at a single market.

There is no way to avoid this challenge. The cost of market segmentation will always be an investment, but if done right, the extra revenue you will generate from targeting the segments that represent the best opportunities for your brand will more than pay for the initial investment.

#2 Understanding that people can belong to multiple segments

It’s easy to fall into the trap of thinking that each potential customer belongs solely in one specific segment. However, this is an oversimplification.

Imagine you’re selling a brand of wine. One of your segments might be wine connoisseurs who enjoy drinking at bars with friends. Another segment might be those who drink to unwind at home.

One person could fall into both of these segments, depending on factors like the time of the week and their current social schedule. People are individuals, and their habits and desires can change based on their environment and mindset.

Bear this in mind when approaching a segmentation, particularly in FMCG, and consider segmenting based on occasions, asking people about different scenarios to ensure their diverse needs are represented.

#3 Keeping segments precise

Segmentation only works when segments are clearly defined and distinct from one another. If your segments are too broad and vague, you’ll lose out on many of the benefits of market segmentation because you’re unable to tailor your approach precisely enough.

To ensure your segments are narrow and clear enough, it helps to create detailed personas for each one. A persona is a fictional profile that encapsulates the core qualities of each segment, including their needs, behaviors, and motivations, based on initial research. The purpose of personas is to bring to life the segments and demonstrate how they differ from one another.

For example, if you’re selling a brand of bottled water, one of your personas might be “Healthy Harry” who buys water to drink during workouts or sports events. His persona profile would contain a range of information, from what motivates him to what he’s looking for in a product. The more detail, the better — this helps you create precise and tailored segments.

#4 Selecting the right segments to focus on

It can be easy to overlook some potentially promising groups when segmenting your market.

For example, you might disproportionately target one segment that makes up a significant section of the market when another might be a more natural fit for your product.

Remember, the benefit of segmentation is that it can enable you to be incredibly precise and personalized in your approach. This means that even when targeting segments that make up smaller proportions of the market, you will still see significant returns.

It’s essential to take your time in this phase of the segmentation process to ensure you identify the right market segments, or you’ll risk missing out on some lucrative avenues for growth.

#5 Embedding the segmentation in your organization

When people try to anticipate the difficulties in running a segmentation, the research approach is often the first to come to mind. But the real challenge for many organizations is in embedding the segmentation. This is crucial if the segmentation is to drive change and growth for the business.

A segmentation is only as powerful as its internal champions. Fail to get stakeholders on board in the beginning, and you’ll have a tough job getting people to harness the segmentation to inform strategic decisions and realize the resulting benefits.

We recommend taking an active approach to stakeholder management, making this a crucial element of the study’s design. Start with stakeholder interviews to secure buy-in to the project, then keep these people involved throughout the process.

Toward the end of the project, visual outputs can bring segments to life and keep them front of mind when stakeholders are making decisions.

Workshops can also be a valuable tool for taking the segmentation and using this to inform your strategy.

Market segmentation is a powerful tool for businesses. It allows you to improve your product range, tailor your marketing, and increase your chances of connecting with customers and growing your brand.

Although the process can be challenging, it’s well worth taking the time to anticipate the potential barriers and work around them. At Kadence, we help companies of all kinds with market segmentation, mitigating the challenges while boosting their chances of success. Contact us to find out more about how we can help you do the same.