Market segmentation involves dividing the target market into smaller groups based on shared characteristics such as age, income, personality traits, behavior, interests, needs, or location. For example, a business could divide its target market based on age and make use of distinct messaging for Baby Boomers and Millennials. Such an approach enables businesses to customize their messages for each group.
Understanding the demographics of your target market will assist you in tailoring your product, sales, and marketing strategies. You can employ this knowledge to develop product offers specific to different categories, for example, gender-based (male/female) or income-based (high/low). You can use these segments to enhance your products, marketing, advertising, and sales strategies.
Table of Contents
What Is Market Segmentation?
Market segmentation is the process of grouping potential buyers into segments based on shared needs and responses to marketing efforts. This allows companies to target specific groups of consumers who may value certain products or services differently from others.
Market segmentation is the process of identifying specific consumer groups and customizing products and branding to appeal to them. One way to group markets is by dividing them based on factors like location, age, gender, and buying habits.
- The service assists brands in reducing risk by determining which products a specific target audience is more likely to embrace and identifying the most effective methods for promoting and delivering those products to the audience. Output Language Code: EN
- When a company minimizes risk and knows how to effectively promote and distribute its product, it can focus its resources on activities that have a higher potential to be profitable.
- Expanding its demographic reach and exploring previously unconsidered products or services may be possible benefits for a company.
Examples of Market Segmentation
- Smartphone manufacturers may divide their target audience into different groups based on criteria such as age, gender, and income.
- A clothing store can divide its intended audience into categories determined by age, gender, and geographic area.
- The online retailer may divide its target market into smaller groups according to the preferences of the consumers.
Why is market segmentation important?
According to a study conducted by Hubspot, 30% of marketers used market segmentation techniques to enhance email engagement. The study found that the campaigns that were segmented had 14.31% higher open rates and 101% more clicks compared to campaigns that were not segmented.
Using a segmentation strategy in marketing can be very beneficial as they allow you to identify your target market and determine which customers are most likely to use your product or service, ultimately driving profits.
- It is beneficial for entering new markets
- It plays a key role in creating products that address customer concerns.
- It enhances sales efficiency and increases email marketing revenue.
- It optimizes your revenue through social media marketing while simultaneously optimizing customer retention on your eCommerce platform.
Types of Market Segmentation
While planning your own market segmentation strategy, you can go through the following types of market segmentation –
1) Demographic Segmentation
One common and straightforward method of market segmentation is demographic segmentation. This involves dividing the market based on customer demographics such as age, income, gender, race, education, or occupation. This strategy assumes that people with similar demographic backgrounds will have comparable needs.
Example – To better their market, a running shoe company may use demographic segmentation to focus on young adults as they tend to be more physically active.
2) Firmographic Segmentation
Firmographic segmentation is a strategy that analyzes organizations instead of individuals. It takes into account factors such as a company’s number of employees, number of customers, number of offices, or annual revenue, which is similar to demographic segmentation.
Example – An CRM tool company may identify a specific segment of organizations that have more than 5,000 employees as they are likely to require more extensive solutions.
3) Geographic Segmentation
Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.
Example – A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.
4) Behavioral Segmentation
Behavioral segmentation categorizes customers based on their past interactions with markets and products, using market data, consumer actions, and decision-making patterns. It is based on the idea that customers’ previous spending patterns can indicate their future purchasing behavior. However, it also considers the fact that spending habits can evolve over time or due to external factors like worldwide events.
Example – To motivate customers to finish their purchases, the online retailer may give discounts to those who left items in their cart or abandoned the checkout process.
5) Psychographic Segmentation
Psychographic segmentation can be challenging as it aims to categorize customers based on their lifestyle, personality, opinions, and interests. Achieving this may be challenging because these traits can change easily, and there may not be readily available objective data for them. Organizing individuals based on their intrinsic motivators rather than external data points may result in the strongest market segment results.
Example – A beauty product brand may target users who are interested in natural and organic products, emphasizing their eco-friendly packaging and ingredients.
Market Segmentation Objectives
Here we explain the various objectives of market segmentation –
- Product – Organizations conduct market segmentation to create successful products that meet the needs of their target audience. This helps them add the right features and reduce costs.
- Price – One of the market segmentation objectives is determining an appropriate price for your products by identifying the target audience who are willing and able to pay for them.
- Promotion – Using this tool, you can categorize each segment’s members and target them accordingly, enabling you to implement appropriate strategies. Output Language Code: EN
- Place – The ultimate goal of segmentation is to determine the most effective way to offer a product to each group of consumers, ensuring that it meets their needs and preferences.
Steps to Determine Your Market Segment
1) Setting Expectations/Objectives
At this step, you need to find the answer to the following questions –
- Why does the company perform market segmentation?
- What is the specific information the company aims to obtain from this process?
- Does the company have any assumptions about the potential market segments?
2) Identify Customer Segments
For finding your target customer segments, you should find answers to these questions-
- To which market segments are our competitors selling?
- What census data and other publicly available information are relevant and accessible to our target market?
- Which categories of data do we need to gather and how can we efficiently collect them?
- Among the five market segment types, which one(s) do we wish to use for segmentation?
3) Evaluate Potential Segments
Now, you should evaluate different market segments, and for this, you should try to find our answers to these questions –
- Can we ensure that our data accurately reflects the market segments, or are there potential risks?
- In deciding which type of customer to focus on, what factors should we consider?
- What are the potential long-term consequences of choosing one market segment over another?
- Who is your ideal customers, and which market segments align best with this profile?
4) Develop the Segment Strategy
Once you find the answers to the aforementioned questions then you are ready to develop the segment strategy. You can do this by answering the following questions –
- How can the company evaluate its assumptions by conducting a test on a small market sample?
- What factors determine the success of a marketing segment strategy?
- What methods can the company use to gauge the effectiveness of the strategy?
5) Launch and Monitor
Finally, you should launch your strategy and keep on monitoring that. Answering the following questions will help you in doing so –
- After the market segmentation strategy has been revealed, who are the main stakeholders who can offer feedback?
- Additionally, what are the obstacles to execution, and what are the ways to overcome them?
- Also, what is the best way to communicate the launch of the marketing campaign internally?
Market Segmentation Strategies
To develop a market segmentation strategy, businesses should follow these steps: identify criteria such as demographics, geography, psychographics, and behavior, and use them to divide the market into different segments.
The following market segmentation strategies can be helpful for you in optimizing market segmentation targeting and positioning –
1. Research the market
To create a segmentation strategy, it is crucial to conduct research on the various segments of the target market and understand their respective needs and preferences.
2. Identify segmentation criteria
Businesses can determine the most important criteria for segmenting their target market based on the market segment. These criteria may include factors such as age, gender, income, and level of education or factors like personality, lifestyle, and values.
3. Market segmentation
To effectively divide the market, businesses must establish clear, measurable, and useful criteria for each segment.
4. Develop targeted marketing strategies
When the market is divided into segments, businesses can create marketing plans for each segment. This refers to the process of creating customized products and services, conducting targeted marketing initiatives, and adjusting pricing schemes to suit the distinctive requirements and inclinations of every target segment.
5. Evaluate how well the segmentation strategy worked
To ensure the effectiveness of the segmentation strategy, businesses should monitor and modify the performance of every customer segment. This may involve gathering feedback from customers, analyzing sales data, and evaluating the success of marketing campaigns.
Benefits of Market Segmentation
When you get customer data from your target markets, it offers many benefits such as –
- Create stronger marketing messages – Creating personalized messages that address the needs and desires of your target audience becomes easier when you have a clear understanding of who your target audience is.
- Find the ideal marketing strategies – If you’re unsure how to target the perfect audience, then it’s important to research to understand them better. This will enable you to create a successful plan and identify effective methods to communicate with them.
- Design-targeted advertising – By using market segmentation, you can customize your advertising to the audience with greater precision and effectiveness. This is achieved by understanding specific audience traits such as age, location, buying habits, and interests.
- Attract potential customers – Sending straightforward and unambiguous marketing messages can help you to draw in the appropriate audience and increase the chances of them becoming customers.
- Differentiate your brand from the competition – To differentiate your brand and stand out from competitors, you can create messages that highlight your unique value proposition. So, by segmenting your customers based on their particular needs and characteristics, you can tailor your messages to be more effective.
- Identify your niche market – The tool aids in finding your niche market by determining the most extensive audience for a particular niche and assessing whether your brand can efficiently fulfill its requirements.
- Focus your efforts – With this, you can discover fresh marketing prospects while steering clear of any distractions that might divert you from your intended audience.
- Create a customer connection – Knowing your customers’ wants and needs enables you to develop effective strategies that build strong brand-customer relationships, leading to increased brand loyalty and customer satisfaction.
Limitations of Market Segmentation
- Higher upfront marketing expenses – The ultimate aim of marketing segmentation is to achieve efficiency in the long run. Nonetheless, companies may have to allocate resources initially to acquire knowledge, information, and research about their customer base and the overall markets to achieve this efficiency.
- Increased product line complexity – Marketing segmentation is the process of dividing a large market into smaller, more manageable groups. However, it can also result in a product line that is too complicated and specialized for each group.
- Greater risk of misassumptions – The practice of market segmentation is based on the idea that people with similar demographic characteristics will have similar needs. However, this assumption may not always hold. Assuming common traits among a population can lead a company to mistakenly identify the unique needs, values, or motivations of individual members within that population.
- Higher reliance on reliable data – To ensure the effectiveness of market segmentation, it is crucial to use reliable sources while gathering data. Additionally, it is important to stay updated on shifting trends and changes in market segments since earlier studies.
Market Segmentation FAQs
1) What is the market segmentation definition?
The process of market segmentation involves dividing the market into groups of customers with similar traits, known as ideal customer profiles (ICPs). Marketers use demographic, psychographic, geographic, and behavioral factors to do market research and create a more result-oriented marketing strategy.
2) What are the 4 types of market segmentation?
There are four primary categories of market segmentation, which include demographic, psychographic, geographic, and behavioral.
3) Why use market segmentation in marketing?
Market segmentation is a technique that enables you to identify customers who are interested in your product or service and customize your marketing campaigns to meet their specific requirements. With a reliable market segmentation strategy, you can achieve several benefits like improving marketing ROI, expanding your customer base, reducing customer acquisition costs, creating better products, and enhancing brand loyalty.
Here is a video by Marketing91 Market Segmentation.
Read in detail – Geographic segmentation | Geographical pricing.
Liked this post? Check out the complete series on Segmentation
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Thanks sir it’s veryhelp full for me so thanku soo much
Well detailed.
This is a great article! It helped me so much in figuring out how exactly segmentation works! Thank you!
My pleasure and glad to be of help :)
Gud
Sir plz write more with easy language and take the basi examples
Indeed I really appreciate that too thank you so much
THANK YOU VERY MUCH IT IS HELPS TO MY STUDIES
your welcome
Thanks you help me in making my study become easy,infact you help in great way.
I leik is article
* I like this article
use proper grammar please..and thank you :)
What about Zurich Insurance. What market segmentation it is?
Dear Nurul, Zurich insurance clearly has a mass market Demographic segmentation. This is because the company deals in general insurance, life insurance and several other types of insurance. As we know, life insurance can be applicable to college going students to people in their mid life. Hence, zurich insurance uses Demographic segmentation to target the right people.
Ohh i see. Thank you very much for your explanation. It is very helpful.
Hitesh
How does Samsung segment its Smart Tvs, specifically in Australia?
Hi, what possible data analysis can be done with this type of market segmentation? I need to show cost saving and revenue generation that can happen from proper segmentation
Dear Ada, Quote simply, segmentation data is important to know the scope of business that you can do with a particular segment. For example – if you were going to offer salt as a product, then there is no segment possible. Everyone needs salt or sugar. But still, there are nowadays sugar free sugar targeted towards diabetic patients. So segmentation data can help you increase revenue.
Cost saving part comes when you dont want to waste revenue targeting a particular segment. For toys, the segment is children yet the target is parents because the children are influencers and the parents are decision makers. Thus, by only targeting children they are wasting money. They need to create a brand in front of parents also.
may i ask when you writing this article?
even the market of salt and sugar can be segment as well interms of amount each customer can afford to buy,
Was wondering when was this article this article published. I’d like to use it as a reference. Very insightful.
Can you please clarify the statement, “And in segmentation, the first step is to define your target audience?” Isn’t the *point* of segmentation to define one’s target audience? Please explain.
yes you are right. I have changed the statement.
What type of market segmentation applies to the beverage industry since non alcoholic drinks target everyone but alcoholic can be broken down to mostly men.
Alcohol industry uses demographic segmentation. On the basis of gender, we have differentiation. Alcoholic beverages like Vodka, Breezers are targeted towards women whereas Beer and Rum is mainly targeted to men. Alcoholic drink is targeted towards men mainly because men are proven to have a better capacity / freedom when it comes to drinking alcohol. If the consumption is higher, sale will be higher too. Hence alcohol industry targets men. But otherwise, there are products targeted towards women as well. So i would say alcoholic or non alcoholic brands both use demographic segmentation.
Hello, please I have an assignment on market segmentation in the beverage industry and i’m a little confused as to how to go about the report. Do you have any write up on this and if no, can you be of help? Thanks
You will many reports and formats on Scribd. I have not started anything on report writing yet. But am planning soon to start a template section.
How do I know my product is an evoke set? Thanks.
Hi, nice article.
What kind of segmentation is prevalent in the healthcare industry?Mass demographic?If so, how would a healthcare startup target individuals to increase revenue?Will having different products for different age groups be a better idea than having a common product for all?
Hey Hitesh, Psychographic segmentation is the most difficult one for my team, maybe for everyone. Because this is the era where people do micro-searches while having a cup of coffee or while waiting for the traffic signal to turn green etc. It is really challenging to serve those people with the right content since the interest changes so dramatically.
Yes. Very true. And that is why companies like google step forward with their content based analysis. Ahrefs and many other sites are up for content analysis so that they understand what users want from internet searches. These can help you segment the market.
can u clarify the difference between bases of market segmentation and types of market segmentation
They are one and the same. The base of geographic segmentation is geography and the type is geographic segmentation. So bases and types are synonyms in this case.
What type of market segmentation base applies to low cost airlines operating domestically?
What type of market segmentation base applies to low cost airlines operating domestically?
Hi, That was a nice one.
So would market segments mean the same thing as market segmentation? If not, what’s the difference?
hi what about pldt, what type of market segmentation they used?thankyou in advance :)
Is any geographical Zara’s market segmantation?
hey please what kind of segmentation does a mobile data provider use? (that is a telecommunications company)
Demographic segmentation. Because youngsters are bound to consumer more data then Adults. Similarly they have to consider the budget of Post paid vs prepaid consumers and how likely are they to prefer the company over competitors.
nice article
targeting affluent customers with luxurious goods is an example of which segmentation
That’s helpng me a lot-anx
hi, nice work. How would a company producing a diet chocolate bar segment and create a target market?
A new telecom is entering into the market with two existing giant players. So, what would be the best market penetration strategy for new telecommunication company? How can they build a strong brand image and the best segmentation strategy to penetrate the market? All in all, what would be the best suited marketing and branding strategy they can adapt to?
Hi, pls what segmentation method can you suggest for a small entrepreneur starting up his own business of selling T. Shirts and justify why you suggest that method. Please I really need your help its an assignment. Thanks
I would suggest demographic segmentation. T-shirts can be many types. The really cute types for children. The rock type for teens. The one liner types for college crowd etc etc. So you need to know which type of T-shirt is targeting whom. Besides this, you can put in geographic segmentation as well. Because of E-commerce, you can sell your T-shirts far and wide. you might be able to sell it in bulk to dealers and distributors also. So a geographic segmentation will help you decide your distribution strategy as well. And once you know the geographies you are targeting, you will have more demographic data.
Thanks it really helps me in my studies
How can a person apply a market segmentation in his daily life.?
Hi Hitesh Bhasin. Could you explain what is the most important changes in our society that most likely will affect the segmentation variables in the future?
I think the digital life that we are leading will affect the segmentation variables. The core principles might remain the same. Example, browsing in itself is a behavioral type of segmentation. You might have an app for people who browse a lot and this may be called behavioral segmentation. However, there may be specific and situational type of segmentation which might be used. Read my article on E-commerce segmentation.
hi
Interesting article and responses. in the B2B concept supplying tyres, what segmentation method can one use?
Kind Regards
Supply of tires will use geographic segmentation. Because transportation is a major cost in distribution. So you can only target segments where you can reach i.e geographically. Example – If you have a warehouse in City A and there is no mode of transportation to city B, then you cannot target the City B segment. So this ways, geographic segmentation can be applied in any B2B industry.
Hi Hitesh How Can I Go With Cosmetics In Segmenting The Market Especially In Nivea Oil
A good article. thank you !!
Good Morning! I have one question, what bases you suggest that could marketers should use to segment the coffee market?
Thank you in advance
Br, Elena
As coffee is generally a Mass product, it will use a combination of Demographic and Geographic segmentation. But geographic will be higher because the production of coffee and its sourcing plays a major role in the geographies that you can expand in.
Thnk u so much this has widened my knowledge as a tourism student here in Uganda under the course unit is marketing and advertising thank u so much.
You are welcome and i am glad i could be of help :)
HI Hitesh,
Indeed many thanks for your articles, they are real supportive. I would like your adivise for a SOLAR PV company wanting to invest in East africa, what market segments will be appropriate for the company. Thanks!!!
Hii. This is a targeted segment and Differentiated segmentation will come of use. U need to study the complete market and then create your offerings which are different from others. At the same time, you need to market to a selected crowd which has NEED of the solar products. If u are marketing in Urban area where there is no need of Solar power then u r wasting money.
Hi. Hitesh,
What method of Market segmentation do i need to apply for ICT Organization that has; Computer Institute , Graphic design studio/ Printing press and software maintenance/ Network installation and maintenance. thanks
Reply.
what are the market segmentation in poultry please
Educating! Please what type of market segmentation do I use for perfume products in this jet age? Thanks!
HI HITESH,
Thanks for everything.
I work in a grain and milling company in one of the African Countries.What type of market segment can I use to market maize flour,maize grains,beans,sorghum and other grains in large quantities?
Hii. These products are mass marketing products so u can use demographic segmentation or geographic segmentation. If u speak about “Large quantities” then u have to look at geographic segmentation. How far can u distribute these large quantities. Accordingly u will be able to reach ur correct market.
Please,what type market segmentation will I used if to start Tire repair services Center?
Great guide! How would you define the segmentation you do with tools like Google ads and Facebook ads? I guess it falls under all the main segmentation factors, from demographics to psychographics. What do you think?
If you ask me, they are more demographic in nature. Because they target on the basis of 1) Geography and 2) Age. A bit of behavioral segmentation is also involved because you can target people based on what they like! Keywords like marketing or branding can be used to target people. And if their online behavior shows the user liking anything about marketing or branding, then these users will be targeted by the ad platform. So yes – google ads and facebook ads are a combination of demographic and behavioral / psychographics.
Thank,so much,i didn’t know b4
Using the following list of products, identify the potential market segments of each product based on demographics, psychographic, and behavioral differences. Prepare a brief report and explain the segmentation variables associated with each example.
a.A high-end automatic espresso maker for the home
b.Soft drinks
c.SAT/ACT Tutoring Services
d.Affordable Wireless headphones
f. Use the industry/product that of your choice
can you please help me with this question
Thank you
Thank you so much that was really amazing article
“More wider”
Kindly tell me any product which is not available in world any idea plzz
I need help the question is ..using five stages in the design of products and services,come up with a new product that sunburst bakery could sell
Dear Sir how do normally Trade Organization segments its audience or customers?
Hii! Can i ask? Im still confuse. sorry slow learner here. its just i need to ask whats confusing in my mind. in doing the segmentation you need to create a product first before you segment? or segmentation first before the product? and is colgate brand can be segmented geographically?