The Different Types of Market Segmentation & Their Benefits
If your company’s marketing efforts are struggling, you may not have taken appropriate measures to identify and understand your customers. You may have a great product and a clever catchphrase, but you’re wasting time and money if your marketing campaigns do not reach your target consumers.
Market segmentation identifies specific consumer groups within the general population, which marketers can target with tailored campaigns. Tailored campaigns, crafted to appeal to the unique characteristics of a specific group, are typically more successful than generic campaigns.
Learn about the market segmentation process, the common segmentation methods, and how using market segmentation can benefit your company’s promotional strategy.
What is Market Segmentation?
Market segmentation is a strategy that helps marketers identify potential customers and understand consumer behavior so that they can craft effective targeted marketing campaigns.
Market segmentation breaks the consumer population down into subgroups based on shared characteristics. Companies can then tailor their marketing efforts to directly appeal to different subgroups of target consumers or use the information to expand their product offerings to fill market gaps.
There are various market segmentation strategies, each yielding unique insights into consumer behavior. Marketers can look at observable demographic information like age or occupation or break up populations geographically. They can also look at how their target consumers behave, what they value, where they shop, and how loyal they are to the brands they use.
Marketing segmentation requires a lot of data, which is typically obtained in one of three ways:
- First-party data: Information obtained directly from your customers. First-party data yields the most accurate and targeted marketing information but can be time-consuming and not always feasible.
- Second-party data: Another business entity’s first-party data. This data comes from web activity, customer surveys, mobile app usage, and social media.
- Third-party data: Data purchased from an entity that did not initially collect the information. Marketers buy third-party data from large data aggregators, which organize massive amounts of data into categories based on industry, demographic characteristics, and consumer behavior.
What Are the 4 Types of Market Segmentation?
The following four types of market segmentation–demographic, geographic, psychographic, and behavioral–are popular, effective ways to identify and understand a consumer population.
Demographic Market Segmentation
Demographic market segmentation splits consumers into groups based on quantifiable, observable metrics like age, occupation, and income.
Segmentation by demographic is one of the most basic and common types of market segmentation. Marketers often pair demographic segmentation with other methods to yield a more specific market segment.
Demographic qualities commonly used in market segmentation include:
- Education level
- Marital status
- Family size
Marketing companies can generally obtain large amounts of demographic data at relatively low costs by asking customers directly or by working with second or third-party data providers.
Geographic Market Segmentation
Geographic market segmentation separates consumers by location, recognizing that consumers in a given area tend to overlap in their wants and needs. Marketers can segment customers by country, state, or zip code or look at the characteristics of a geographic area, such as its climate and population density, to inform their marketing decisions.
Geographic segmentation allows marketers to target consumers in a specific region, which is particularly useful when creating a marketing strategy for local businesses. With insights gleaned through geographic market segmentation analysis, the marketer can craft an appealing campaign that corresponds to the interests, language, and norms of the target region’s unique consumer base.
Segmenting a population geographically also allows marketers to tailor the message of broader campaigns to suit the interests and attributes of consumers in a target location. For example, a clothing company can show ads for cozy winter clothes to audiences in colder climates and bathing suits ads to those in warm or tropical regions.
Psychographic Market Segmentation
Psychographic market segmentation aims to separate consumers based on mental and emotional characteristics such as personality traits, values, beliefs, lifestyles, attitudes, and interests. Understanding consumer motives, needs, and preferences allow marketers to create more effective and appealing content for their clients.
Marketers often employ psychographic segmentation when consumers within a target demographic respond differently to marketing content. The marketer can identify the shared characteristics of the consumers who buy the product and adjust its ads to appeal to other customers with the same characteristics.
For example, an interior design company does a psychographic segmentation analysis and realizes that its signature sofa is being bought by customers who see themselves as environmentally-conscious. To reach potential customers, the company can create ads that emphasize the sofa’s eco-friendly attributes or include other “green” elements in the ad, like indoor plants and natural light.
Behavioral Market Segmentation
Behavior market segmentation divides consumers based on how they relate and interact with a company’s product, website, and brand. Using this method, marketers can create messages that align with how consumers generally behave when they encounter a company’s promotional efforts.
Marketers can track a range of consumer behaviors, including:
- Online shopping habits
- Website actions, such as how long the customer stays on the site, types of content they click, and whether or not they read to the end of articles
- The usage rate of the product
- Brand loyalty
Marketers generally collect this behavioral information through cookies on their website, purchase data from CRM (customer relationship management software), or third-party databases.
Because it is such a broad and complex category, behavioral market segregation is often broken down further into four subcategories: purchasing behavior, benefits sought, usage benefit, and occasion-based (or timing-based) behavior.
What is the Purpose of Market Segmentation?
Market segmentation aims to divide the consumer base into groups with shared characteristics that can be reached with targeted marketing. By identifying segments of the population that share attributes, marketers can streamline their marketing strategy to appeal to that segment’s unique wants and needs.
What Are the Benefits of Market Segmentation?
Market segmentation yields specific insights about customer behavior that allow marketers to craft targeted marketing campaigns. Targeted marketing campaigns are much more successful than generic ones at boosting brand recognition and increasing marketing ROI.
Insights gained through market segmentation can also inform a company’s future project development, as segmentation often reveals needs and gaps in the current market. For example, a demographic segmentation may show that men need a product that you currently only market to women.
Market segmentation also helps a company identify where it needs to expand its marketing efforts. A behavioral segmentation analysis may reveal, for example, that most of your target consumers shop online. The marketer can use that information to reform its strategy to focus on online advertising.
Finally, market segmentation strategies can also inform a company’s other business decisions, such as distribution and pricing. For instance, segmentation can be used to reveal the price structure that maximizes sales while keeping consumers’ content.
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