Market Segmentation

Understanding Different Market Segments

Topic Outline:
Introduction to Market Segmentation

● Definition and importance of market segmentation

● challenges of segmentation
● Relationship between market segmentation and targeting
● Demographic segmentation (age, gender, income, etc.)
● Psychographic segmentation (lifestyle, interests, values, etc.)
● Behavioral segmentation (usage patterns, purchasing behavior, etc.)
● Geographic segmentation
Course Overview:
The Market Segmentation course provides participants with a comprehensive
understanding of the concept and application of market segmentation in
marketing strategy.

Participants will learn how to divide a broad market into distinct segments
based on common characteristics, preferences, and behaviors.
Market Segmentation
Definition I: Market segmentation is a marketing strategy in which selected
groups of consumers are identified so that certain products or product lines
can be presented to them in a way that appeals to their interests.

Definition II: Market segmentation is the process of dividing a broad and

heterogeneous market into distinct subsets or segments that share common
characteristics, preferences, and behaviors. These segments are created
based on identifiable and measurable criteria, such as demographics,
psychographics, geographic location, or behavioral patterns.

Market segmentation is an extension of market research that seeks to

identify targeted groups of consumers to tailor products and branding in a
way that is attractive to the group.
Understanding Market Segmentation
Companies can generally use three criteria to identify different market
segments:

● Homogeneity, or common needs within a segment

● Distinction, or being unique from other groups
● Reaction, or a similar response to the market
Importance of market segmentation
● Better ROI from marketing

According to research from SALESmanago, 77% of marketing ROI comes from

segmented, targeted and triggered campaigns.

● Set your omnichannel strategy

The deep insights you glean from a strong market segmentation process will help you set
an omnichannel strategy that better addresses your customers’ needs. For example, if a
high percentage of your customers are from Gen Z, tailor your messaging across all
channels to speak to their cultural and social reference points.

● Build customer loyalty

Market segmentation helps you build the personalized journeys your customers are
craving. According to Accenture, 79% of consumers are more loyal to brands that use
personalization tactics.
● Reach new markets

Segmentation helps brands identify gaps in the market. For example, world-renowned
camera company Canon took a 40% share in the low-end digital camera market by
spotting an opportunity to sell cameras to children without smartphones.

● Reduce customer acquisition costs

The insights you glean from creating segmented customer personas will make your
marketing campaigns more effective. That can be said for both D2C and B2B brands.For
example, insurance giant Metlife set annual savings targets of $800 million after
streamlining its sales process to consider the behaviors and attitudes of each customer
segment.

Build better products

● With a clearer understanding of who your customers are, you can create products that
better serve their needs, desires and expectations.
Challenges of market segmentation
● Cost
Segmentation is an investment. Splitting your market into groups means you’ll
have to do some things, for instance, marketing campaigns, multiple times in
different ways.
● Understanding that people can belong to multiple segments
It’s easy to fall into the trap of thinking that each potential customer belongs
solely in one specific segment.
● Keeping segments precise
Segmentation only works when segments are clearly defined and distinct from
one another. If your segments are too broad and vague, you’ll lose out on
many of the benefits of market segmentation because you’re unable to tailor
your approach precisely enough.
 ● Selecting the right segments to focus on
It can be easy to overlook some potentially promising groups when segmenting your
market.
For example, you might disproportionately target one segment that makes up a
significant section of the market when another might be a more natural fit for your
product.
● Embedding the segmentation in your organization
When people try to anticipate the difficulties in running a segmentation, the
research approach is often the first to come to mind. But the real challenge for many
organizations is in embedding the segmentation.
Relationship between market segmentation and targeting
Market segmentation and targeting are closely interconnected and
interdependent concepts within the realm of marketing.

While market segmentation involves dividing a broad market into distinct

subsets or segments based on common characteristics, preferences, and
behaviors, targeting focuses on selecting specific segments as the primary
recipients of a business's marketing efforts.
Types of market segmentation
There are various types of market segmentation that businesses can employ to
categorize their target audience into distinct groups.
1. Demographic Segmentation: The who
Demographic segmentation is one of the simple, common methods of market
segmentation. It involves breaking the market into customer demographics as
age, income, gender, race, education, or occupation. This market
segmentation strategy assumes that individuals with similar demographics will
have similar needs.

Some products are targeted explicitly towards a specific demographic. One

personal care company, for example, might make two deodorant products —
one labeled as men’s deodorant and one labeled as women’s deodorant.

There are numerous ways to gather demographic data. One way is to ask your
customers directly. This can be time-consuming, but getting the information
directly from customers will help ensure its accuracy.
Behavioral Segmentation: The how
You can also segment your market based on consumers’ behaviors, especially regarding your
product. Dividing your audience based on behaviors they display allows you to create messaging that
caters to those behaviors. Many of the actions you might look at relate to how someone interacts
with your product, website, app or brand.

some types of behaviors to look at include:

● Online shopping habits: You might consider a users’ online shopping habits across all sites, as
this may correlate with the likelihood they will make an online purchase on your website.
● Actions taken on a website: You can track actions users take on your online properties to
better understand how they interact with them. You might look at how long someone stays on
your site, whether they read articles all the way to the end, the types of content they click on
and more.
● Benefits sought: This refers to the need a customer is trying to meet by purchasing a product.
● Usage rate: You can categorize users based on usage rate. Your messaging will be different
depending on whether someone is a heavy user, medium user, light user or non-user of your
product.
● Loyalty: After using a product for some time, customers often develop brand loyalty. You can
categorize customers based on how loyal they are to your brand and tailor your messaging
accordingly.
Geographic Segmentation: The where
Geographic segmentation is the process of grouping customers based on where they live
and where they shop. People who live in the same city, state or zip code typically have
similar needs, mindsets and cultural preferences.
The real advantage of geographic segmentation is it provides an insight into what your
customers’ location says about a number of geo-specific variables, such as their:
● Climate
● Culture
● Language
● Population density – (urban vs rural)
As with all market segmentation methods, you’ll need to analyze your data to understand
how each factor influences your customers’ shopping behavior. For example, people living in
colder climates are likely to be in the market for winter clothing and home heating
appliances.
You can also identify consumers based on the characteristics of the area they live in, such as
its climate, the population density and whether it’s urban, suburban or rural. Identifying
characteristics can require you to get more specific since one county could have rural,
suburban and urban areas.
Psychographic segmentation: The why
Psychographic segmentation is the process of grouping people together based on similar
personal values, political opinions, aspirations and psychological characteristics.
Psychographic segmentation is similar to demographic segmentation, but it deals with
characteristics that are more mental and emotional. These attributes may not be as easy to
observe as demographics, but they can give you valuable insight into your audience’s
motives, preferences and needs. Understanding these aspects of your audience can help
you to create content that appeals to them more effectively. Some examples of
psychographic characteristics include personality traits, interests, beliefs, values, attitudes
and lifestyles.
For example, you can group customers according to their:
● Personality
● Hobbies
● Social status
● Opinions
● Life goals
● Values and beliefs
● Lifestyle
Other Methods of Market Segmentation
Demographic, psychographic, behavioral and geographic segmentation are
considered the four main types of market segmentation, but there are also many
other strategies you can use, including numerous variations on the four main types.
Here are several more methods you may want to look into.
Value segmentation: Some businesses will split up a market based on the
“transactional worth” of their customers — how much they’re likely to spend on their
products. To determine a customer’s transactional worth, by looking at previous
purchase data such as how many purchases they make, how often they make
purchases and the value of the items they purchase.
Firmographic segmentation: Business-to-business (B2B) companies may use
firmographic segmentation to divide up the businesses in a market. This is similar to
demographic segmentation with individual consumers but instead looks at the
characteristics of companies that may become customers. Examples of data to look
at include industry, revenue, number of employees and location.
Generational segmentation: Businesses may segment consumers by generation and
group them into categories that include Gen Z, Millenials, Generation X, Baby Boomers and
the Silent Generation. These generations are believed to share certain preferences,
behaviors, personality traits and beliefs. Of course, not every member of a generation is the
same, but generational segmentation can give you some additional insight into your
audience.
Lifestage segmentation: You can also segment your market into groups based on where
they are in their lives. Going to college, getting married and having children are examples of
key life events to consider. People at different stages of life need different things. For
instance, soon-to-be college students may need apartment furniture. New parents will be
looking to purchase baby food.
Seasonal segmentation: Similarly to how people buy different products in different periods
of their lives, people also buy different items at different times of the year. Major holidays
such as Christmas and Hanukkah also significantly impact purchasing behaviors.
Questions?