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Home » Marketing » What is the Need for Market Segmentation? Key Practices & Benefits

What is the Need for Market Segmentation? Key Practices & Benefits

August 31, 2023 | By Hitesh Bhasin | Filed Under: Marketing

Understanding the need for market segmentation is an important step for any business. Segmenting the market involves dividing a large group of potential customers into smaller, more manageable groups based on shared characteristics.

Market segmentation can be incredibly useful in reaching out to your target audience and delivering personalized messages that will resonate with them. By understanding who you are targeting, you can better tailor your services and create content that speaks to their needs.

Table of Contents

  • What is Market Segmentation?
  • 10 Reasons Behind the Need for Market Segmentation (Why Use Market Segmentation)
    • 1) Precision in Marketing
    • 2) Better Customer Understanding
    • 3) Efficient Resource Allocation
    • 4) Competitive Advantage
    • 5) Improve Product Development
    • 6) Enhance Customer Retention
    • 7) Increase Profitability
    • 8) Better Communication
    • 9) Foster Customer Relationships
    • 10) Innovation and Growth
  • What types of Market Segments can a Company have?
    • 1) Geographic Segmentation
    • 2) Demographic Segmentation
    • 3) Psychographic Segmentation
    • 4) Behavioral Segmentation
  • How to Start Market Segmentation?
  • What are the Benefits of Market Segmentation?
  • Most Trending Market Segmentation Practices for 2023
  • Market Segmentation Examples
    • Conclusion!

What is Market Segmentation?

Market segmentation is the process of dividing a large group of potential customers into smaller, more manageable groups based on shared characteristics. This allows businesses to better target their messaging and create marketing campaigns that will be effective in reaching out to their desired audience.

Marketing strategies specified for a specific market segment help companies create strategies for improving their services and products. By dividing customers into segments, you can better measure how effective your marketing campaigns are in reaching out to them. You can also gain insights into what strategies and tactics work best for each segment.

An example of a market segmentation strategy is when a company targets its services to people who are between 25-35 years old. This allows them to create content and marketing campaigns that will be tailored specifically for this age group, rather than trying to appeal to everyone.

10 Reasons Behind the Need for Market Segmentation (Why Use Market Segmentation)

When I started the business of distributing Blue Star Depp Freezers and Water Coolers, I found that segmenting the market into different groups is essential.

Market segmentation helped me in understanding my customers better and targeting them towards the right kind of campaigns so that I can increase sales. Here are 10 reasons why market segmentation is important:

1) Precision in Marketing

Market segmentation allows businesses to target their messages precisely. Rather than adopting a one-size-fits-all approach, they can tailor their offerings and communication to specific segments, improving the overall effectiveness of their marketing campaigns.

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2) Better Customer Understanding

Understanding your customer is key to any successful business. Through segmentation, a business can better understand the needs, desires, and behaviors of its target market, thereby enhancing customer satisfaction and loyalty.

3) Efficient Resource Allocation

With the right segmentation, you can ensure your resources are allocated effectively. Marketing budgets can be used optimally, targeting those segments that are most likely to yield a return on investment.

4) Competitive Advantage

Market segmentation can also provide a competitive advantage. Understanding the unique characteristics of your market segments allows you to offer tailored products or services that meet their specific needs, differentiating your business from competitors.

5) Improve Product Development

By understanding the different segments, businesses can improve their product development process. They can develop products that specifically cater to the needs and preferences of each segment.

6) Enhance Customer Retention

Customer retention is often enhanced when a business can meet its customers’ specific needs. Market segmentation allows for this by enabling businesses to identify the unique needs and wants of different customer groups.

7) Increase Profitability

Customizing your offering to meet the needs of different market segments can lead to increased sales and profitability. Each segment will perceive a higher value in products or services tailored to their specific needs.

8) Better Communication

Through segmentation, you can communicate more effectively with your target market. You can tailor your marketing messages to resonate more deeply with each specific segment.

9) Foster Customer Relationships

Market segmentation can help foster stronger customer relationships. By understanding and meeting the unique needs of each segment, businesses can build deeper and more meaningful relationships with their customers.

10) Innovation and Growth

Finally, market segmentation can be a springboard for innovation and growth. By identifying new segments or spotting unmet needs within existing segments, businesses can explore new product development opportunities or enter new markets.

What types of Market Segments can a Company have?

Types of Market Segments

Type of SegmentationGeographical SegmentationDemographic SegmentationPsychographic SegmentationBehavioral Segmentation
DefinitionDivides the market based on geographical areas.Divides the market based on quantifiable population characteristicsDivides the market based on shared personality traits, values, attitudes, interests, and lifestyles.Divides the market based on user engagement, usage rate, pattern of use, purchase behavior, and loyalty.
Key FactorsClimate, cultural preferences, economic statusAge, gender, income, occupation, education, and family status.Personal values, lifestyles, attitudes.User engagement, purchase behavior, loyalty
ExampleA clothing brand selling different clothing lines in tropical versus cold climates.A baby care product company targeting audiences with newborns or toddlersA luxury travel agency targeting individuals who value experiences over possessions.A software company targeting highly engaged users with premium features.
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Different types of market segmentation that a company may try to target with its marketing efforts are-

1) Geographic Segmentation

Geographic segmentation is based on the physical location of the customer. This could be as broad as continents, countries, or regions, or as specific as states, cities, or neighborhoods. It considers factors such as climate, cultural preferences, and economic status. For instance, a clothing brand might sell different clothing lines in tropical versus cold climates.

2) Demographic Segmentation

Demographic segmentation is one of the most common forms of market segmentation, dividing the market based on quantifiable population characteristics. This includes factors like age, gender, income, occupation, education, and family status. For example, a baby care product company would target audiences with newborns or toddlers.

3) Psychographic Segmentation

Psychographic segmentation divides the market based on the shared personality traits, values, attitudes, interests, and lifestyles of consumers. It’s about understanding what your customer’s day-to-day life looks like, their personal values, and how they see themselves. A luxury travel agency, for instance, might target individuals who value experiences over possessions and have the financial means to take several trips each year.

4) Behavioral Segmentation

Behavioral segmentation is based on user engagement, usage rate, pattern of use, purchase behavior, and loyalty. It’s about understanding how consumers interact with products and why they do it. For example, a software company might segment its market based on user engagement levels and target highly engaged users with premium features.

How to Start Market Segmentation?

Market segmentation is a powerful tool for marketing success, but it can be daunting for companies to get started. The key is to start small and focus on the customer data that you already have at your disposal.

Start by analyzing customer behavior and trends to gain insight into what motivates customers and how they interact with your product or service. This will give you an idea of the different types of customers that exist and can help you begin to identify potential market segments.

Some of the steps of market segmentation strategies are-

1. Define Your Target Audience: Start by understanding who your current customers are and what motivates them to purchase or use your product or service.

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2. Gather Data: Once you have a better understanding of the customer profiles that exist, gather as much data as possible on these customers to gain further insight into their needs and preferences.

3. Analyze the Data: Use the data you gathered to identify potential market segments and develop strategies for targeting each one.

4. Develop Segmentation Strategies: After identifying your market segments, develop segmentation strategies to reach them with tailored messaging and offers that are optimized for their needs.

5. Implement Your Strategies: Once you have developed effective segmentation strategies, you can implement them across all your marketing channels.

By leveraging marketing segmentation strategies, companies can create more targeted and effective campaigns that will ultimately lead to greater customer engagement and loyalty.

This will also help to reduce customer acquisition costs by providing a better return on investment for each campaign. In addition, it will allow companies to tailor their products or services to the specific needs of their customers and build long-term relationships with them.

What are the Benefits of Market Segmentation?

The market segmentation process is an indispensable tool in any marketing strategy, allowing businesses to target their products more effectively. Some of the key benefits of market segmentation are-

1. Better Targeting and Positioning: Market segmentation companies allow businesses to target and position their products more effectively by understanding the needs of different customer segments.

2. Increased Profitability: Through segmentation, businesses can customize their offering based on the unique needs of different market segments, leading to increased sales and profitability.

3. Improved Customer Retention: By focusing on enhancing customer satisfaction and meeting their needs, businesses can increase customer loyalty and reduce customer churn. Connecting with target audiences as per their consumer behavior helps in improving retention.

4. More Effective Communication: Clear and efficient communication between businesses and customers fosters better understanding, minimizes misunderstandings, and improves overall customer experience.

5. Foster Customer Relationships: Building strong and lasting relationships with customers helps businesses create a loyal customer base, leading to repeat business and positive word-of-mouth recommendations. So, when you segment a market after doing proper market research, it increases your chances of enjoying better brand loyalty.

6. Innovation and Growth: Embracing innovation and continuously seeking growth opportunities allows businesses to stay competitive, adapt to changing market trends, and expand their customer base.

Most Trending Market Segmentation Practices for 2023

Market segmentation is one of the most important strategies for businesses to stay ahead of their competition. Here are some of the practices that are trending in 2023:

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1. Increasing Use of Digital Marketing: With the rising number of digital users, businesses are focusing more on digital marketing to reach out to target customers. This includes leveraging SEO, Social Media Marketing, and other digital media platforms for creating personalized campaigns tailored toward different customer segments.

2. Micro-Segmentation: With micro-segmentation, businesses can tailor their products and services to smaller groups of consumers based on their distinct needs and preferences. This helps them build a deeper understanding of customer behavior, which in turn leads to more successful and targeted campaigns.

3. Rising Adoption of Viral Marketing & Content Marketing: Viral marketing and content marketing are gaining traction due to their cost-effectiveness in reaching wider audiences. Businesses create eye-catching viral videos or content that can be shared across multiple online platforms for maximum visibility.

4. Rapid Growth of Web 2.0 Strategies and Social Networking Sites: The internet is increasingly becoming a powerful tool for achieving success in marketing campaigns and strategies. Businesses are leveraging Web 2.0 strategies to engage with customers, track their online behavior, and increase customer loyalty. Additionally, social networking sites such as Facebook and Twitter allow businesses to reach out to their target markets directly.

Market Segmentation Examples

Some of the examples that emphasize the need for market segmentation include:

1. Facebook Ads: Businesses can target their marketing campaigns to user segments based on demographics, interests, and behaviors.

2. Google Ads: With Google Ads, businesses can create customized ad campaigns that are tailored towards different customer segments based on various criteria such as age and gender.

3. Retargeting: Retargeting is a powerful tool for getting customers back who have abandoned shopping carts or shown interest in a product during their last visit. Retargeting campaigns allow businesses to re-engage with customers by targeting them with specifically tailored ads based on their behavior and interests.

Conclusion!

To sum it up, market segmentation is essential for businesses today as it helps to identify customer segments and create targeted marketing campaigns that will be more successful in achieving the desired outcomes.

It provides a more detailed view of the entire market and helps businesses to develop effective strategies based on psychographic market segmentation.

By understanding customer segments better, businesses can create content that resonates with their target markets and increases the chances of success for their marketing campaigns.

Liked this post? Check out the complete series on Segmentation

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  4. Six reasons for Market segmentation
  5. Criteria’s for market Segmentation
  6. How market segmentation influences decision making
  7. Beginners guide to Market Segmentation
  8. What is the Purchasing Process? Definition, Steps & Modern Practices for 2025
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  10. Survey Design – Meaning, Importance and Best Practices

About Hitesh Bhasin

Hitesh Bhasin is the Founder of Marketing91 and has over a decade of experience in the marketing field. He is an accomplished author of thousands of insightful articles, including in-depth analyses of brands and companies. Holding an MBA in Marketing, Hitesh manages several offline ventures, where he applies all the concepts of Marketing that he writes about.

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Comments

  1. jincy says

    better in bullet points

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STP Marketing Module 1 to 3
Module 1: Introduction
  1. Market Segmentation
  2. Market Segmentation
  3. Segmentation Targeting And Positioning
  4. Need For Market Segmentation
  5. Reasons For Market Segmentation
Module 2: Exploring Market Segmentation
  1. Advantages Of Segmentation
  2. Limitations Of Segmentation
  3. Criteria’s For Market Segmentation
  4. Steps Of Market Segmentation
  5. Market Segment
  6. Segments
  7. Types Of Customer Segment
  8. Choose A Market Segment
  9. Segment A Business Market
  10. Segmentation Strategy
Module 3: Types of Market Segmentation
  1. Types Of Market Segmentation
  2. Demographic Segmentation
  3. Geographic Segmentation
  4. Psychographic Segmentation
  5. Behavioral Segmentation
  6. Benefit Segmentation
  7. Lifestyle Segmentation
  8. Geodemographic Segmentation
  9. Usage Based Segmentation

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