The 5 Types of Market Segmentation
Savannah Trotter • 9 Nov 2023
Whether you're launching a marketing campaign or releasing a new product, targeting the right market is essential for success.
If your aim is too broad, you'll waste your time and budget on people who would never be likely to buy from you in the first place. But, if your aim is too narrow, you may end up missing out on an audience receptive to your brand or products.
That’s where market segmentation comes into play.
Market segmentation helps you to identify and target the right audience for your brand. Here's how:
What is Market Segmentation?
Market segmentation is the dividing of a broad market into smaller, targeted groups based on shared characteristics, preferences, or behaviors. The purpose is to identify distinct groups of consumers who have similar needs, wants, or behaviors.
For example, let's say you run a beverage company specializing in powdered electrolyte drinks. Your primary product and marketing focus has been on consumers in the health and wellness space, specifically those looking for workout hydration supplements.
But running a market segmentation study would show you something you had missed. It turns out that a significant portion of your customers actually buy your product for music festivals and hangovers. This insight will allow you to begin marketing your product to a whole new audience segment, growing your brand and revenue. (If that sounds familiar, it's because this actually happened to Pedialyte!)
The 5 Types of Market Segmentation and How to Use Them
Demographic segmentation divides your audience based on various demographic factors like age, gender, income, education, occupation, marital status, family size, or ethnicity. For example, a company selling luxury watches might target high-income individuals aged 35-55.
With geographic segmentation, your market is separated based on geographic variables like region, country, city, climate, or urban/rural areas. This allows you to modify your marketing efforts based on the specific customer needs and preferences in different geographic locations. For instance, a beverage company might promote hot beverages in colder regions and cold beverages in warmer climates.
Psychographic segmentation divides your market based on variables like lifestyles, personality traits, interests, values, or opinions. This approach helps you better understand the emotional and psychological factors that influence consumer decision-making. For example, an outdoor apparel company might want to target consumers who consider themselves adventure seekers and environmentalists.
Behavioral segmentation categorizes your customers based on their behaviors. This can include factors like product usage, shopping habits, the benefits they seek from products, and more. For instance, an airline might share different promotional offers to frequent flyers and first-time travelers.
Firmographic segmentation is used within the B2B space to organize customers based on shared company or organization attributes. Factors often include industry, company size, job titles, annual revenue, or company structure. This practice will guide marketing, advertising, and sales strategies for organizations that target a B2B audience.
What are the Benefits of Market Segmentation?
Better Understand Your Customers
Your customer base may be far more diverse than you realize. Market segmentation allows you to get acquainted with each persona (segment) within your target market, allowing you to better cater your strategy to their needs and preferences.
Upgrade Your Marketing
By understanding what your customers want and how they spend their time , you can craft expertly targeted messaging and choose the right platforms for your marketing. Not only does this help you avoid wasting resources on irrelevant marketing efforts, but it enables you to direct your budget toward the personas most likely to convert- improving your ROI.
Improve Customer Satisfaction
When you center the unique needs of your customer segments, you’ll be much more likely to deliver products, services, and experiences that actually align with their wants and needs. In turn, you'll see higher rates of satisfaction, loyalty, and positive word-of-mouth.
Increase Your Sales and Revenue
Product and marketing strategies that target the right audience with the right messaging at the right time drive higher engagement and conversion rates. In turn, this will translate to significant growth in your revenue.
Gain a Competitive Advantage
Your target market isn't yours alone. All of the players in your space are also competing for consumers' attention and money. Using market segmentation to deeply understand your audience's wants, needs, preferences, and intentions will help you find gaps within your market and ways your brand can fill them.
Market Segmentation Tips
While each segmentation technique listed above has an appropriate use case, we do have our preferences.
We live in a post-demographic world.
What does this mean? Well, it means consumers have changed.
But this shouldn't be news to anyone. The way we interact with brands has evolved considerably in the last decade. And that evolution seems to be ongoing.
Consumers continually construct and reconstruct their identities, rebelling against top-down-driven norms handed to them by the advertisements of old.
The clear delineations between people based on age, gender, income, education, or ethnicity are not as useful as they once seemed.
Take, for example, a young woman working in finance with a high level of disposable income and a middle-aged man working in education with a lower level of disposable income. From the outside, it might seem that these two wouldn’t have much in common. However, you may find they share more of the same values, interests, and behaviors than the demographic data alone would suggest.
In this world, where commonality is not defined by demographics, the ramifications of sub-standard consumer segmentation are massive; ultimately leading to mediocre brand messaging, marketing campaigns, and advertising.
If you're interested in digging into this topic further, check out our piece Consumer Segmentation: Maybe You Could Be Doing It Better.
Market Segmentation with SightX
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