Market segmentation — definition, types, and examples
If you’re a marketer or business owner, you know that segmentation is an effective way to expand your market and reach new customers.
But even if you understand market segmentation, sometimes you need a little inspiration to start doing it yourself. In this article, we’ll explore the key segment types with real-world examples to jump-start your company’s foray into market segments and help you improve your overall marketing efforts.
This post will cover:
- What is market segmentation?
- Types of market segmentation
- Demographic segmentation
- Examples of demographic segmentation
- Psychographic segmentation
- Examples of psychographic segmentation
- Geographic segmentation
- Examples of geographic segmentation
- Behavioral segmentation
- Examples of behavioral segmentation
- Firmographic segmentation
- Examples of firmographic segmentation
- Benefits of market segmentation
- Frequently asked questions (FAQ)
What is market segmentation?
Market segmentation is the practice of grouping customers together based on shared characteristics — including demographic information or common interests and needs. It’s a strategy for dividing a large, broader target audience into specific groups to create tailored and personalized marketing campaigns.
A market segment refers to the individuals who are grouped together based on their shared characteristics. The idea is that these people have similarities as consumers and respond similarly to marketing efforts. So companies need to communicate to them in a particular way, rather than just messaging their audience as a homogenous whole.
Businesses segment their market in different ways. Market segments should be based on extensive research of their potential customers’ demographics, lifestyles, needs, personalities, and more.
Types of market segmentation
There are various types of segmentation that help businesses market to their target audience groups. We’ll go over the five main types of market segmentation and provide examples of each one.
Demographic segmentation is grouping customers based on data points like age, gender, marital status, occupation, and more. It’s essentially the “who” segment of your market. This is the most common type of segmentation because it’s easily identifiable. Demographic segmentation can help you understand the individuals that make up your audience and how to target your marketing efforts to them.
Demographic segmentation is typically sorted by characteristics like:
- Level of education
- Family size or status
- Professional occupation or role in a company
Examples of demographic segmentation
Demographic segmentation provides objective information on who is interested in your product or service. While it’s best to use other methods of segmentation as well, demographics provide an excellent starting point for marketers to group their audience.
Here are a couple examples of how demographic segmentation can be used:
Brooks Running Shoes and Dick’s Sporting Goods partnering on empowerment. Brooks and Dick’s are great real-life examples of using demographic segmentation to capture customer interest. The companies partnered to celebrate National Girls and Women in Sports Day with their “Empower Her” collection. It included a variety of women’s shoes and clothing, including products with phrases like “Dream Chaser” and “Respect Her Run.”
HelloFresh targeting female social media users. Lots of different people use meal delivery subscriptions, and marketing efforts often focus on making dinner prep easier for busy young professionals or families. But HelloFresh wanted to specifically target its primary market segment. Knowing its audience was 80% women and primarily between the ages of 30 and 50, HelloFresh created a female-oriented influencer campaign that produced buzz on foodie social media.
Demographic segmentation provides excellent initial information, but to understand the customer thought process, you need to use other segmentation methods too.
Psychographic segmentation is the “why” segment of your market. In this segmentation, you analyze how your audience thinks and create a strategy targeted toward customers’ attitudes and beliefs. These groups will likely have similar psychological characteristics, personal values, aspirations, and political opinions.
Companies generally divide psychographic segments based on:
- Hobbies and interests
- Life goals
- Lifestyle choices
- Social or political views
- Values and beliefs
Examples of psychographic segmentation
Psychographic segmentation is more difficult to segment because it’s more subjective. Social media analytics can be a helpful tool, but you should also plan to conduct interviews and surveys and hold focus groups to gather all the information you can about your audience.
Here’s an example of psychographic segmentation:
Marvel Studios marketing toward movie fanatics. Marvel creates engaging social media posts that generate excitement and anticipation for its upcoming films. The studio posts countdowns to the days leading up to the movie and includes clips likely to pique its audience’s interest. Marvel can market to people based on their interests in comic books, superheroes, film, and more.
This segmentation is what makes customers who they are. But who they are can be influenced by other factors, such as where they are.
Geographic market segmentation
Geographic market segmentation is the “where” segment of your market. In this type, customers are segmented based on their geographic location. These people will live in the same city or state — perhaps even in the same zip code — and are likely to have similar attitudes, needs, and cultural preferences based on their geography.
Companies generally separate geographic segments by:
- Climate region
- Population density
- Rural, urban, or suburban setting
Examples of geographic market segmentation
Geographic segmentation works best for companies that are trying to focus their efforts on a particular area. It could involve simple changes, such as adapting product offerings or the language used in marketing to fit the main language of a region or slang that would typically be used in one area.
Some examples of geographic market segmentation include:
McDonald’s adjusting items for individual countries. McDonald’s started out as an American restaurant company, but as it grew to become a global mega-brand and expanded its locations all around the world, it adjusted some of its menu items to match the cuisine of different countries. For example, rather than just the typical burger and fries, there’s the Veggie Maharaja Mac in India, the McSpaghetti in the Philippines, and poutine in Canada.
Climate impacting fashion. One general example of geographic segmentation could be based on weather. If your company sells clothing, your marketing may vary by region. In colder regions you may want to highlight coats and beanies, while in a warmer area tank tops and shorts will be more suitable.
Physical environment has a huge impact on why customers purchase the way they do. It’s also important to analyze how they interact and respond to your brand.
Behavioral market segmentation
Behavioral market segmentation is the “how” segment of your market. This approach examines customer behavior and how people engage with your brand. From this type of segmentation, you can better understand how they may respond to changes in prices, new promotions, and more.
Audiences can be grouped by:
- Spending habits
- Browsing habits
- Interactions with your brand
- Loyalty to your brand
- Product feedback
Examples of behavioral market segmentation
Behavioral segmentation, like the other types, helps you gain a deeper understanding of who your client base is. This category, however, goes beyond noting stereotypical characteristics of the customer and reveals their interactions and spending tendencies.
Some examples of behavioral segmentation are:
Guinness advertising non-alcoholic beer. Guinness is a global brand with a loyal following of beer drinkers, but industry research shows there are millions of people who choose not to consume alcohol. To market to this growing group during the popular Six Nations Rugby Cup, Guinness produced clever ads for its new product “Guinness Clear” with slogans like “Make it a night you’ll remember.”
Amazon honing in on buying habits. Amazon displays recent customer purchases to show shoppers other products they may be interested in. For example, if someone purchased a soccer ball, they may get advertisements on their social media platforms for shin guards, cleats, and other soccer equipment.
Behavioral market segmentation gives businesses a close look into how customers interact with brands and spend their money.
Firmographic market segmentation
Firmographic segmentation is the B2B version of demographic segmentation. It’s the study and classification of B2B customers using information from similar company characteristics. This segmentation type is popular for firms to find businesses that would benefit the most from their product.
Companies generally separate the firmographic segment based on:
- Turnover and profit numbers
- Industry type
- Business size
- Number of employees
- Ownership (public, private, or government)
- Organizational trends (for example, more companies going remote)
- Average sales cycle
Examples of firmographic market segmentation
Most of the market segments detailed in this article focus on B2C marketing, but firmographic segmentation is helpful for B2B companies to create engaging campaigns.
Upwork advertising in New York City. Upwork is a popular platform for companies to hire freelancers. Since New York is one of the largest population centers and business hubs in the world, Upwork created a marketing campaign with digital billboards and other ads prominently placed around the city to attract the attention of businesses that might need freelancers.
There are many reasons why segmentation can create more personalized experiences for each customer. By doing research and keeping up with industry trends, your business can expand its market and improve marketing ROI.
Benefits of market segmentation
Market segmentation provides a number of benefits for businesses. Not only does it help your teams better understand your audience and create the right messaging to attract customers and grow your reach, but it produces a stronger brand image, more efficient use of resources, a higher rate of success, and a better customer experience.
With market segmentation, you can:
- Identify high-value customers and the similarities and differences between different groups of customers.
- Create more personalized communications and more targeted marketing efforts.
- Reach new markets by showcasing your unique product or service and adjusting your messaging.
- Build better brand awareness and stand out by understanding individual customer needs and creating personalized experiences.
- Cut down on wasted marketing dollars by creating more impactful and efficient campaigns.
- Improve your products by meeting specific market expectations based on what customers want.
- Make it easier to learn about your audience and create more cost-effective campaigns in the future.
- Gain better marketing ROI by using existing data to improve the customer experience.
Frequently asked questions (FAQ)
What is meant by market segmentation?
Market segmentation is the practice of grouping customers together based on certain characteristics they may share.
What are the types of market segmentation?
There are four main types of market segmentation — demographic, psychographic, geographic, and behavioral. But there are other types that your business can take advantage of as well, such as firmographic for B2B marketing.
What are the advantages of market segmentation?
Market segmentation helps you establish who your target market is and customize your message for individuals. It allows your business to expand across new markets and improve products to keep up with changing customer needs.
How do you identify market segments?
By becoming an expert on your business, doing extensive industry research, and categorizing people by identifiable characteristics, you can use the information to group potential customers that might be interested in your products or services.
What makes a good market segment?
A good market segment should be easily identifiable and different from other segments. The sample sizes of these segments should be large and able to be assessed for feedback.
Evaluate your marketing software for market segmentation capabilities
Your business can reach new markets by using market segmentation. When you’re ready to get started, evaluate your current marketing software to see how it handles segmentation. If there are gaps, look into a new solution.
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