What is Market Segmentation? Types, Benefits and Examples

Using various types of market segmentation enables you to target customers based on unique characteristics, create more effective marketing campaigns, and identify market opportunities.

What Is Market Segmentation?

The process of dividing a target market into smaller, more defined categories is known as market segmentation. It divides customers and audiences into groups based on shared characteristics like demographics, interests, needs, or location.

The Four Types of Market Segmentation

Market segmentation is based on four factors:

• Demographic segmentation
• Psychographic segmentation
• Behavioral segmentation
• Geographic segmentation

Multiple sub-categories further classify audiences and customers within each of these types of market segmentation.

Demographic Segmentation

One of the most popular and widely used types of market segmentation is demographic segmentation. It is statistical information about a group of people.

Examples of Demographic Market Segmentation

• Age
• Gender
• Income
• Location
• Family Situation
• Annual Income
• Education
• Ethnicity

Whereas the examples above are useful for segmenting B2C audiences, a company may use the following to classify a B2B audience:

• Company size
• Industry
• Job function

Because demographic information is statistical and factual, it is usually relatively easy to discover when conducting market research on various websites.

A vehicle manufacturer selling a luxury car brand is a simple example of B2C demographic segmentation. This company would most likely target a higher-income audience.

A brand that sells an enterprise marketing platform is another B2B example. This brand would most likely appeal to marketing executives at larger corporations who have the authority to make purchasing decisions for their teams.

Psychographic Segmentation

Psychographic segmentation divides audiences and customers into groups based on factors related to their personalities and characteristics.

Examples of Psychographic Market Segmentation

• Personality traits
• Values
• Attitudes
• Interests
• Lifestyles
• Psychological influences
• Subconscious and conscious beliefs
• Motivations
• Priorities

Because they are subjective, psychographic segmentation factors are slightly more difficult to identify than demographics. They are not data-driven and necessitate investigation to uncover and comprehend.

For example, a luxury car company may decide to target customers who value quality and status. While the B2B enterprise marketing platform may be aimed at marketing managers who want to boost productivity and demonstrate value to their executive team.

Behavioral Segmentation

While demographic and psychographic segmentation are concerned with who a customer is, behavioral segmentation is concerned with how the customer behaves.

Examples of Behavioral Market Segmentation

• Purchasing habits
• Spending habits
• User status
• Brand interactions

Behavioral segmentation necessitates knowledge of your customers’ actions. These activities could be related to how a customer interacts with your brand or to other activities that occur outside of your brand.

In this segment, a B2C example could be a luxury car brand targeting customers who have purchased a high-end vehicle within the last three years. The B2B marketing platform might prioritize leads who have registered for one of their free webinars.

Geographic Segmentation

Geographic market segmentation is the most basic type of market segmentation. It classifies customers based on their location.

Examples of Geographic Market Segmentation

• ZIP code
• City
• Country
• Radius around a certain location
• Climate
• Urban or rural

Geographic segmentation can refer to a specific geographic boundary (such as a city or ZIP code) or to a specific type of area (such as the size of city or type of climate).

A luxury car company may choose to target customers who live in warm climates where vehicles do not need to be equipped for snowy weather as an example of geographic segmentation. The marketing platform may concentrate its marketing efforts in urban, city centers where their target customer is likely to work.

How to Create a Market Segmentation Strategy

You now understand what market segmentation is, why it is important, and what the four types of market segmentation are. It’s time to put this knowledge to use.

Use the market segmentation process outlined below to learn more about your target audience and discover new marketing and product opportunities.

1. Analyze your existing customers

If you already have customers, begin your market segmentation process by conducting an audience analysis. An audience analysis enables you to learn more about your customers and identify trends within your current customer base. Use these market research questions to direct your investigation.

Interview your customers.

Interview current and past customers, ideal customers, prospects and leads, and go straight to the source. In order to fill in the details of all four types of market segmentation, ask questions.

Interview your sales team.

Use your sales team as a resource if they spend a lot of time working with customers. Interview them to discover commonalities or trends that they frequently observe while working with your customers.

Refer to your business data.

Your company most likely has a wealth of data that can assist you in getting to know your customers. Find trends in behavioral segmentation using your customer relationship management tools and point-of-sale systems. Take data that shows how much customers spend, how frequently they visit your store, and what products and services they purchase.

Use your website analytics.

Your website also contains data that can assist you in learning more about your target audience. Google Analytics can be used to find information about all four types of market segmentation. You can learn about customer behavior, for example, by looking at which pages users visit, how long they stay on the site, and which referral sites directed them to your site.

2. Create a buyer persona for your ideal customer

You’ll have a good idea of who your current customers are once you’ve completed an audience analysis. Next, use your data to create a buyer persona that describes the exact type of customer you want to attract.

A buyer persona is a fictionalized representation of your ideal customer. It enables you to clearly visualize the person to whom your brand is attempting to appeal. Knowing who you want to collaborate with will help you find the right market segment opportunities.

3. Identify market segment opportunities.

Start looking for market segment opportunities once you have a buyer persona that describes your ideal customer.

A market segment opportunity is a trend that can inspire new marketing strategies or products. To locate them, start by asking questions about your brand.

• What problems does your brand solve?
• What problems can you solve better than your competitors?
• What do you know a lot about or excel at?
• Who do you and your team like to serve?

Then, using your audience analysis and buyer persona as a guide, ask questions to uncover opportunities.

• What large segments stick out?
• What customer characteristics or qualities are most common?
• What segments are currently not being served?
• What segments is your brand uniquely qualified to serve?

Identify a few potential market segment opportunities and then conduct research to confirm their viability.

4. Research your potential segment.

Before you launch a marketing campaign for a new market segment, make sure it is a viable option. Investigate the competition and whether or not audiences are interested in your new market.

5. Test and iterate

Don’t go all in right away if you find a new market you want to explore. Create a few campaigns to put your idea to the test.

Experiment with new markets and track your results to see where you can find a sweet spot that resonates with your target audience. Small market changes can have a big impact, so keep going through this process, testing and iterating based on what you learn.

Eight Benefits of Market Segmentation

Market segmentation is important because it allows marketers to focus their efforts and resources on reaching the most valuable audiences and meeting business objectives.

Market segmentation allows you to get to know your customers, identify what is needed in your market segment, and determine how your product or service can best meet those needs. This allows you to create and implement better marketing strategies from the ground up.

1. Create stronger marketing messages

When you know who you’re talking to, you can craft more effective marketing messages. You can avoid using broad, generic language that appeals to a wide audience. Instead, use direct messaging that speaks to your target audience’s needs, wants, and unique characteristics.

2. Identify the most effective marketing tactics

It can be difficult to know which marketing tactics will attract your ideal audience with so many options available. Using various types of market segmentation directs you to the most effective marketing strategies. When you know who you’re trying to reach, you can find the best solutions and methods for reaching them.

3. Design hyper-targeted ads

You can target audiences using digital ad services based on their age, location, purchasing habits, interests, and more. When you use market segmentation to define your audience, you gain access to these specific characteristics, which you can then use to create more effective, targeted digital advertising campaigns.

4. Attract & convert quality leads

Marketing messages that are clear, direct, and targeted attract the right people. You attract the right prospects and are more likely to convert them into buyers.

5. Differentiate your brand from competitors

Being more specific in your value propositions and messaging allows you to differentiate yourself from competitors. Instead of blending in with other brands, focus on specific customer needs and characteristics to differentiate your brand.

6. Build deeper customer affinity

When you understand what your customers want and need, you can deliver and communicate offerings that serve and resonate with them in a unique way. This distinct value and messaging fosters stronger bonds between brands and customers, resulting in long-term brand affinity.

7. Identify niche market opportunities

The process of identifying segments of industries and verticals with a large audience that can be served in novel ways is known as niche marketing. When you segment your target market, you can identify underserved niche markets for new products and services.

8. Stay focused

Targeting in marketing helps to keep your messaging and marketing goals on track. It assists you in identifying new marketing opportunities while keeping you focused on your target market.

Market segmentation assists your brand in defining its target audience and goals. You can get to know your audience, figure out how to better serve and reach them, and discover new markets to enter.