Market segmentation: What it is & Types & Examples
Market segmentation is the key to any long-term marketing plan that works.
To maximize your marketing budget, you should determine why your customers buy from you by dividing your market into subgroups. Then, you’ll be better able to meet their unique needs.
Market segmentation techniques can help your business make more money because they can help you give customers more personalized experiences. Because of this, the best tools for personalization let you divide your audience into groups so you can:
- More email and text message leads
- Increase the number of sales on your website
- Improve average order values
- Increase the customer lifetime value
In this article, we will learn what market segmentation is and how it allows you to correctly direct your marketing efforts to the right audience to ensure the success of your business.
What Is Market Segmentation?
When trying to reach customers with a marketing message or ad campaign, targeting the right market with the right message is essential — If you aim too broadly, your message might reach a few people who end up becoming customers, but you’ll also reach a lot of people who aren’t interested in your products or services. When your messaging isn’t optimized for your audience, you’ll end up with a lot of wasted advertising dollars.
Market segmentation can help you to target just the people most likely to become satisfied customers of your company or enthusiastic consumers of your content. To segment a market, you split it up into groups that have similar characteristics. You can base a segment on one or more qualities. Splitting up an audience in this way allows for more precisely targeted marketing and personalized content.
The Importance of Market Segmentation
Market segmentation can help you to define and better understand your target audiences and ideal customers. If you’re a marketer, this allows you to identify the right market for your products and then target your marketing more effectively. Similarly, publishers can use market segmentation to offer more precisely targeted advertising options and to customize their content for different audience groups.
Say, for example, you’re a marketer who’s advertising a new brand of dog food. You could split an audience into segments based on whether they have a dog. You could then segment that audience further based on what kind of dog they have and then show them ads for food formulated for their dog’s breed. A publisher could use this same information to show content about dogs to people who have or like dogs.
Market segmentation allows you to target your content to the right people in the right way, rather than targeting your entire audience with a generic message. This helps you increase the chances of people engaging with your ad or content, resulting in more efficient campaigns and improved return on investment (ROI).
Other Methods of Market Segmentation
Demographic, psychographic, behavioral, and geographic segmentation are considered the four main types of market segmentation, but there are also many other strategies you can use, including numerous variations on the four main types. Here are several more methods you may want to look into.
- Value segmentation: Some businesses will split up a market based on the “transactional worth” of their customers — how much they’re likely to spend on their products. To determine a customer’s transactional worth, you can look at previous purchase data such as how many purchases they make, how often they make purchases, and the value of the items they purchase.
- Lifestage segmentation: You can also segment your market into groups based on where they are in their lives. Going to college, getting married, and having children are examples of key life events to consider. People at different stages of life need different things. For instance, soon-to-be college students may need apartment furniture. New parents will be looking to purchase baby food.
- Seasonal segmentation: Similarly to how people buy different products in different periods of their lives, people also buy different items at different times of the year. Major holidays such as Christmas and Hanukkah also significantly impact purchasing behaviors.
Types of Market Segmentation
Market segmentation is the process of breaking up a large market into smaller groups of customers with similar needs, traits, or ways of behaving. There are 5 types of market segmentation. Below, we describe each of them:
1. Geographic segmentation
Geographic segmentation consists of creating different groups of customers based on geographic boundaries.
The needs and interests of potential consumers vary according to their geographic location, climate, and region. So, geographic segmentation is valuable. Understanding geographic segmentation allows you to determine where to sell and advertise a brand and where to expand a business.
2. Firmographic Segmentation
Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company’s number of employees, number of customers, number of offices, or annual revenue.
3. Psychographic segmentation
Psychographic segmentation consists of grouping the target audience based on their behavior, lifestyle, attitudes, and interests.
To understand the target audience, market research methods such as focus groups, surveys, interviews, and case studies can successfully compile psychographic segmentation conclusions.
4. Behavioral Segmentation
Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers’ prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.
5. Demographic segmentation
Demographic segmentation divides the market through different variables. Demographic segmentation includes age, gender, nationality, education level, family size, occupation, income, etc.
Demographic segmentation is one of the most widely used forms of market segmentation since it is based on knowing how customers use your products and services and how much they are willing to pay for them. Surely demographic segmentation is very important.
What Is Market Segmentation? 5 Benefits of Market Segmentation
Examples of Market Segmentation
Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.
Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children’s movie themes.
A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer’s marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.
