Decoding the Four Types of Market Segmentation, with Examples

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Market Segmentation

Market segmentation is something that needs more attention from marketers. The current era has been provided with an astonishing landscape of advanced retail platforms. And as such, excessive competition among retailers calls for smarter methods of amassing customers and gaining their loyalty. Targeting customers requires a good understanding of their characteristics, buying patterns, and so on, which can be assessed by segmentation. Market segmentation also aids you in creating effective advertising campaigns and improve market opportunities.

You can gain purchase over market segmentation by learning all there is to know about it, under the following headings:

  1. What is meant by market segmentation?
  2. Why is market segmentation essential? 
  3. The various types of market segmentation
  4. Creating an effective market segmentation strategy
  5. Utilizing market segmentation to create improved advertising campaigns

What is meant by market segmentation?

It is essentially a process by which you divide a target market into certain smaller, defined categories, on the basis of different customer behaviors. It differentiates the customer base into different groups based on characteristics such as interests, needs, or location. This is what is termed as market segmentation.

Why is market segmentation essential?

Market segmentation holds an essential place in the retail world. It allows marketers to understand their customers better, identify their needs and expectations, and assess how these needs can best be met with their products or services. The main advantage of market segmentation lies in the fact that it aids you in focusing your efforts and resources, to reach target audiences that will help you gain a valuable customer following. It is also essential for developing improved marketing strategies and executing them to achieve set goals.

The Benefits of market segmentation:

The following are some of the key benefits of market segmentation and what it can do to boost your business. 

  1. Helps in creating marketing messages that will have a higher impact
    You must first know your audience, before trying to come up with a strong marketing message or campaign. Market segmentation allows you to get a better read on your target audience. By doing this, the use of vague and generic language, that generalizes and speaks to a wide consumer range can be avoided. Rather, a more targeted and direct message can be composed, which reaches a specific consumer base, according to their specific wants and needs.
  1. Aids you in identifying the best and most effective tactics for marketing your product or service
    A huge variety of marketing tactics are available, and as such, it might pose a dilemma as to what to choose. You might not know what tactic would work in attracting the most number of customers for your service. But, by applying market segmentation strategies, you can figure out which approach would work best for you. Only when you get to know the consumers you are targeting; will you be able to develop effective ways to reach them and come up with better solutions.
  1. Helps you in designing advertisements that are hyper-targeted
    Digital advertising is the in-thing now. Especially, customizing and personalizing these digital adverts according to the target consumer base demographics, such as age, gender, location, likes and so on. All this data about your target audience can be collected only through market segmentation. Targeted digital ad campaigns go a long way in influencing people to purchase your product.
  1. You can attract the right crowd and even convert quality leads
    When your marketing strategy is on point, you can attract the best quality of customers and even convert prospective consumers into regular buying customers. The lead quality can vary depending upon the strategy you use for lead generation and also based on the products you sell. Market segmentation allows you to identify the best possible strategy for this and helps you amass the right customer base.
  1. Makes your brand stand out compared to your competitors
    When you are highly specific in targeting consumers and meeting their needs, you brand will stand out from other rival brands. Customers always look for brands that are consistent at meeting their expectations and demands and market segmentation offers you this leverage.
  1. Development of deeper and stronger customer bonds
    This is absolutely essential in order to have a loyal customer base. Customers tend to be loyal to brands or services that have been personalized to meet their individual needs. Brand loyalty will not only earn you a faithful customer following but they will also become product or brand advocates. Such deep and meaningful customer bonds can be formed only by applying techniques of market segmentation.
  1. Aids in identifying underserved niche markets and improves opportunities
    Any market that caters to a huge group of consumers is bound to have some areas or niches that are underserved. It’s your duty to identify these niches and use them to your advantage by analyzing and assessing their needs and providing new services or products. Only when you apply market segmentation will you be able to identify these areas of deficit.
  1. Keeps you on track
    Market segmentation helps you keep your goals and objectives in check and prevents you from losing sight of them. It helps in preventing distractions that would push you away from your target audience.

The various types of market segmentation

Market segmentation has been classified into four types based on four basic characteristics. 

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

These market segmentation types further have several sub-categories under each type, according to which the target customer base is classified.

Geographic segmentation:

This is the simplest form of market segmentation, where customers are classified according to geographic borders.

Some examples of geographic market segmentation:

Classifying the target audience based on;

  • Country
  • City
  • Urban or rural areas
  • ZIP code
  • Climatic conditions
  • A radius around a specific location

Geographic market segmentation can be done based on boundaries such as a country or a specific ZIP code, or based on the type of area with respect to the climate or urbanization.

One such example for this type of segmentation would be that of a vehicle dealer. Vehicle dealers would target the city-living urban population, who are more likely to purchase a vehicle for their everyday commute, rather than the rural customers. Similarly, hilly and mountainous terrain or snowy regions will call for car dealers that sell vehicles more suited for those regions, instead of luxury car brands.

Demographic segmentation:

This is the most commonly used type of market segmentation and also one that is exceedingly popular. It simply employs demographic statistics of a target group to establish the differences among them. Two types of broader target groups have been described, namely, B2C (business to customer) and B2B (business to business) groups. Demographic segmentation further categorizes these groups based on certain defined characteristics.

Some examples of demographic market segmentation are:

Classifying the target audience based on the following factors, targeting B2C audiences:

  • Age
  • Gender
  • Ethnicity
  • Income
  • Education
  • Location
  • Family situations

An example of B2C demographic market segmentation would be that of luxury brands such as Gucci or Prada, which mainly target consumer groups based on their income range. They focus their strategies on the groups which earn higher incomes, in a targeted approach.

B2B audiences can be classified based on features such as:

  • Type of industry
  • Size of the company
  • Function of the job

A classic example for a B2B demographic segmentation would be that of a marketing platform brand. Now, this brand would target marketing managers working in large companies with a big employee base, who would be responsible for making purchase decisions.

Information on the demographic characteristics are generally statistical and factual and as such are easy to analyse with the help of different sites or tools for market research.

Behavioural segmentation:

As the name indicates, this type of market segmentation focuses on the behavior of the customers.

Some examples of behavioural market segmentation are as follows, classifying the target audience on the basis of;

  • The purchasing habits of a consumer
  • The spending habits of a consumer
  • User status
  • Interactions between brands

Behavioural market segmentation focuses on studying the buying patterns and behaviour of their customer base. It aids in understanding their attitude towards buying and spending and thereby facilitating a target market that would increase their loyalty to your product or service.

An example for a B2C behavioural segmentation would be a luxury car dealer mainly targeting customers who have purchased high-end vehicles in the past few years.

A B2B marketing strategy would be to focus on consumers who have shown interest in their webinars or subscribed to their newsletters and such.

Psychographic segmentation:

Psychology plays an important role in people’s decision-making processes. Psychographic market segmentation classifies target audiences based on their personality traits and characteristics.

Some examples of psychographic market segmentation are classification of the consumer groups based on the following criteria:

  • Personality trait
  • Attitude
  • Interest
  • Values
  • Lifestyle
  • Beliefs
  • Motivations
  • Priorities

These factors are all subjective and vary from person to person and are hence more difficult to assess. This type of market segmentation requires extensive research to understand individual behaviour and develop an appropriate target market.

For example, a B2C segmentation strategy would be again that of a luxury car brand, that focuses its product on a target audience that is not only rich, but also values quality and gives importance to status.

A B2B strategic segmentation would be marketing platforms targeting their services towards marketing managers that are looking to improve their team’s productivity drastically.

Creating an effective market segmentation strategy

Now that we have gotten answers to what you mean by market segmentation, why it is of utmost importance and the four types of market segmentation, its time to understand how this information can be put to good use practically.

The following strategies will help you dissect your customer base and also aid you in finding new marketing niches and opportunities, to further grow your business.

1. Doing an analysis of your existing customer base

The first thing you need to do is to start your market segmentation process by strategically analyzing your already existing customer base.  This will work wonders in improving your market by understanding your customers better and thereby being equipped with the ability to offer improved services. It also helps you to identify the existing trends, which offers you some amount of leverage.

The following market research questions will guide you in your research on market segmentation strategies:

Conducting customer interviews:

Conduct interviews with your current customer base; both existing and past customers and identify ideal customers, prospective buyers and quality leads. You must make sure to ask questions that provide details about all the four types of market segmentation.

Interviewing the sales team:

The sales team is the one that spends the maximum time with the customers, and as such, they’re an excellent resource. They’ll be able to provide valuable information regarding shopping trends or general behavioural characteristics of your customers.

Pull out your business data and use it to your advantage:

Any business will amass a considerable quantity of data pertaining to various aspects of the business. Utilize the tools that are at your disposal to manage customer relationships and also point-of-sale systems to identify behavioural trends pertaining to market segmentation. Go through all the data that is available on customer expenditures, frequency of visit and their types of purchase.

Utilize tools for website analysis:

An analysis of your website will reveal a lot of information on all four types of market segmentation. Website analysis can give you details regarding consumer behaviour based on the frequency of their visit to your site, the types of products they buy, their frequency of purchase, the time they spend on your site, the referral links that led them to your site, their monetary value and so on. This can even provide you with demographic data such as age and gender for demographic market segmentation.

Know the geography of your audience:

You can use several tools to quickly access the location from which your customer base accesses your website. This will aid in geographic market segmentation.

Find out your audience’s interests:

This is very essential to assess the different psychographic segments existing within your customer base. Analysing the categories of products that your customers are interested in will provide you with many opportunities to improve business by offering a customized user-experience to your customers and also finding areas that hinder progress. You can also use certain tools to find out the types of websites your customers use, apart from your own and develop a cluster map of frequently visited sites. All this information will aid you in your research.

Find out what products your customers search for:

The most foolproof method to understand your customers better is to get into their heads. You can do this by utilizing certain tools that will gain you access to the list of websites they frequent and get a comprehensive report on the most-searched products from each site.

2. Develop a buyer persona that will attract your ideal customer base:

Once you’re done with your customer analysis, you will have a clear-cut idea about the things you need to offer your customers, their tastes and preferences. Utilize this data to create a buyer persona that exactly describes the type of audience you are trying to attract. 

A buyer persona is a partly fictional description of your ideal customer, which will clearly depict the customer base you want. This will help you find the right market segment opportunities.

3. Identification of market segment opportunities:

After you’re done with the creation of your buyer persona, start your search for the right market segment opportunities. This is a trend that will allow you to find new tactics for marketing your product or new niches to offer new products in. 

You need to answer the following questions, to be able to identify market segment opportunities.

  • What are the problems that your brand of products can overcome?
  • What are the problems that your brand can solve better than tour rival brands?
  • What are some things you ace at or are your forte?
  • What are the types of customers you want to offer your services to?

Now, refer to your audience analysis and your buyer persona and ask the following questions to find newer opportunities;

  • What are the segments that stand out?
  • What are the most common customer characteristics that you studied?
  • What are the niches or area that are not being served?
  • What are the areas that your brand uniquely serves?

These will help you in identifying some new potential market opportunities. But you need to make sure that they are viable before expanding your business.

4. Conduct detailed research on the newer potential segment uncovered:

Extensive research is required before venturing into a previously unexplored area of business. So, before you decide to launch a marketing campaign for a new market segment, ensure that it is a profitable option. You need to research and find out potential new customers and the competition that exists for that segment.

Assess the audiences’ search interests:

You need to perform a research on keywords used by the potential customer base, to make sure that they’re in fact searching for products that your new market segment will offer. There are several tools available for measuring the consumer interest in the product and to assess the competition that exists. You will have to search for words or phrases that show a lower competition base, to secure a sweet spot.

Conduct research about your competition:

When you find that consumers are in fact showing interest in your new market, conduct research to find out details on the existing competition. This will help you find out what brands are already available so that you can decide whether to compete with them or not. The information you gather from this research will also help you in developing ways in which you can make your brand stand out from the already available ones.

5. Test your idea and repeat:

When you’re done with all your research about a new market segment, make sure that you don’t jump in headfirst. Test out the idea by creating a few advertising campaigns and assess the response you get.

Experiment in different markets and keep a track of all the results. Conduct a comparison to find out the best area for your product, with the most ideal consumer base. You will need to repeat this process over and over, to identify areas of potential improvements and corrections that will help you boost your business. 

Utilizing market segmentation to create improved advertising campaigns:

Market segmentation will give you a crystal-clear idea about target audience characteristics and help you come up with methods in which you can meet your goals. This information will be beneficial in the creation of innovative marketing campaigns for your newer endeavors.

It will also aid in finding new markets that will help your business grow and in finding quality leads to your existing market. You can try and use different types of market segmentation to collect the appropriate data required to start a new business venture or to boost already existing business. Apply the strategies of market segmentation to achieve better results and to boost your business.