What Is Market Segmentation? (With Types And Benefits)

By Indeed Editorial Team

Published 28 April 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Market segmentation is the strategy that helps a business owner and marketer understand customers and their requirements. By segmenting a market, a company can reach its target audience and develop products or services that meet customers' requirements. If you want to improve a company's marketing strategy and effectiveness, learning more about market segmentation can be beneficial. In this article, we answer “What is market segmentation?”, understand its types with examples, explore a few benefits and discover key characteristics of good market segmentation.

What is market segmentation?

The answer to the question, “What is market segmentation?” is that it is a strategy that you can use to separate your target market into smaller groups or segments based on demography, purchase behaviour and location. This strategy helps a business understand the customers and their requirements. Segmenting a market can help you understand the target market better and develop strategies to connect with the audience. Market segmentation works by dividing the audience into different groups based on common characteristics. These groups or segments are small and manageable, making it easier to build different marketing campaigns for different groups.

Segmentation can help you understand that some customers are more likely to purchase than others. This is because customers prefer receiving personalised and targeted messages over generic messages. When you create a marketing strategy based on segmentation, the chances of running a successful marketing campaign are high.

Related: Marketer Job Description: Skills And Responsibilities

Types of market segmentation

Using different types of market segmentation, you can target customers based on unique characteristics, create effective marketing campaigns and find more opportunities in the existing market. The four types of segmentation are:

Demographic segmentation

Demographic segmentation sorts or breaks the potential customers based on characteristics, such as education, gender, age, income, family size, nationality and occupation. This segmentation is popular because a company can identify potential customers using various research methods. For instance, you can target potential customers using demographic segmentation based on their annual income. This ensures that you do not waste the marketing budget to attract people who cannot afford a product or service. Another example of demographic segmentation is an adult diaper company that focuses its product line on people above 50-55 years of age.

Example: A bike manufacturer wants to increase sales among people above 40-years by developing a product line for these local customers. In this case, the company segments the target market using age and geographic location. The bike manufacturing company can segment the audience based on adults with a specific income range. Once the bike manufacturer identifies the target market's characteristics, they can develop products and create marketing strategies that appeal to this segment.

Related: How To Become A Market Research Analyst: A Complete Guide

Behavioural segmentation

Behavioural segmentation focuses on how a customer act. This segmentation divides the target market by considering the decision-making patterns and behaviour of the customers. Concentrate on the customer's spending, browsing and purchase habits to effectively group customers using behavioural segmentation. For instance, a cricket kit manufacturer focuses on customers who regularly interact with cricket tournament organisers on social media. A business-to-business (B2B) company focus on customers who have signed up for free e-book. Segmenting customers based on purchase behaviour can help you understand when the marketing strategy might be more effective.

Example: A working professional uses the services of a cab-sharing app to commute from office to work and from work to office Monday through Saturday. On Sunday, the professional has some free time and instead of taking a cab to the nearby shopping complex, the professionals choose to walk. The cab-sharing app can provide discounts on Sundays to incentivise usage on days the customer does not use the app by understanding the customer's behaviour.

Related: Customer Satisfaction: How To Measure And Tips For Improvement

Geographic segmentation

Geographic segmentation is one of the easiest because it identifies and groups customers based on their physical location. Different ways a customer can segment based on geography include region, country, city, postal code, distance from a specific location, city and even climate a customer experience. Being aware of the customer's location can create effective marketing and advertising strategies. Geographical segmentation is an essential aspect of seasonal segmentation, which can empower you to market season-appropriate products to customers.

Example: A luxury car company might choose to target customers who live in warm climates because vehicles at these places do not require equipment for snowy weather. The company might focus their marketing efforts around city centres and urban centres where they are likely to be effective. They can also target international markets where the climate is warm and customers have the purchasing power to buy a luxury car.

Psychographic segmentation

Psychographic segmentation is an advanced type of segmentation that primarily categorises the target market based on various psychological aspects, such as values, aspirations, opinions, motivations, lifestyle and personality traits. Large markets like the fitness market can use psychographic segmentation to sort their customers into categories of people who care about healthy living. Such psychographic segmentation identifies the differences between purchasers, enabling marketers to create micro-consumer profiles. Psychographic segmentation factors are more challenging to discern because they require extensive research and are subjective.

Example: By using psychographic segmentation, the marketing team of a mobile manufacturing company can divide the target market based on the social status and lifestyles, personality and attitudes of the customer.

10 benefits of segmenting the market

Segmenting the market serves the following benefits:

  • Distinguishes a company: When a company delivers a more personal message to customers, it can help them differentiate themselves from the competition. Segmenting a market can distinguish a company because it helps them address a customer's specific requirement.

  • Enhances customer loyalty: Usually, customers are loyal to companies that understand their requirements and provide a logical solution. When you know what the customers want, you can send messages that resonate with them.

  • Attracts quality leads: Delivering a targeted message can attract quality leads. These leads are more likely to convert into customers because they show interest in buying your products.

  • Improves conversion rates: Targeted messages have a better response rate that can grow a business. Over time, this strategy uses fewer resources and focuses more on providing services or products that a customer requires.

  • I**mproves product development:** As segmentation allows you to understand a customer's preference and behaviour, it helps develop products or services that fulfil a customer requirement.

  • Engages the customers: Market segmentation is an effective tool in making customer engagement more manageable for businesses. It allows you to group smaller target markets, understand what motivates and inspires customers and create content and marketing strategy based on it.

  • Creates market opportunities: By segmenting a market, you can identify and recognise potential market opportunities. A market segment where customer satisfaction is low with other brands is the opportunity area to establish a brand.

  • Ensures efficient use of resources: When you know which customers to target and market, you can make efficient and streamlined use of your resources. You no longer spend your time and energy on customers who are less likely to buy.

  • Improves pricing: Market segmentation can allow you to optimise the prices of the product and services depending on the disposable income of a specific segment. You can set prices depending on how much a customer is willing to spend.

  • Enhances sales and revenue: Market segmentation allows a company to personalise marketing products and services. As a result, you can sell the products and services to an audience that needs them.

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Characteristics of good market segmentation

After segmenting a market, ensure that every segment is:

  • Substantial: A good market segment contains enough people who want to purchase your product or service. A segment that lacks potential customers would not be worthy of the marketing money you spend on them.

  • Accessible: Ensure that you can engage with your segment using various communication channels. For instance, when targeting younger adults, you can use various social media platforms.

  • Measurable: Create a segment for which you can predict spending habits. For instance, if you are selling a year-round product, ensure that your audience has the purchasing power to spend throughout the year.

  • Attainable: When creating segments for a company selling high-end products, ensure that your customers have an interest in the product and can afford them. You may find a segment that appreciates quality products but cannot buy the product.

  • Unique: Some crossovers into your segmentation are likely to occur, especially with location and behaviour. Apart from small cross-overs, a successful segment is distinct from other identified segments.

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