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4 Types of Market Segmentation

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4 Types of Market Segmentation

Uploaded by

Tshegofatso Julius
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© © All Rights Reserved
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4 Types of Market Segmentation:

Real-World Examples & Benefits


Published: Dec 6, 2022

GET STARTED

Market segmentation is the foundation of any successful long-term


marketing strategy.

To get maximum value from your marketing budget, get to the heart of your
customers’ shopping motivations by splitting your market into subgroups –
then you’ll be in a stronger position to serve your customers’ unique needs.

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


from segmented, targeted and triggered campaigns. So, if your marketing
campaigns are falling flat, do more market research to understand what
makes your customers tick across each segment.

One of the reasons market segmentation techniques drive more revenue for
your business is because they can help you deliver personalized customer
experiences. That’s why the best personalization tools let you segment your
audience so you can:

 Drive more email and SMS leads


 Lift website conversion rates
 Improve average order values
 Increase customer lifetime value

In this blog, I’ll walk you through the four main types of market
segmentation:

1. Demographic
2. Psychographic

3. Geographic

4. Behavioral

And I’ll also cover:

 Transactional segmentation
 Technographic segmentation
 Generational and life stage segmentation
 Firmographic Segmentation
 8 benefits of market segmentation

What is market segmentation?


Market segmentation is a technique you can use to divide your customer
base into subgroups based on shared characteristics, such as age, income,
hobbies and location. The aim of segmentation is to tailor marketing efforts
to your ideal customer profile (ICP), i.e. the customers most likely to buy
your product or service.

For example, a customer at an organic food shop is likely to have some or all
of these characteristics:

 Gender: Male or Female


 Age: 25-44
 Income: $100,000+
 Life stage: Home owner, no children
 Interests: Healthy eating, sustainability, sport

Rather than wasting your budget on campaigns that target a broad section
of the market, use messaging that resonates with a market segment made
up of customers with those attributes. You should also consider which
channels are likely to drive the highest engagement.

For this hypothetical organic food shop, a Pinterest campaign marketing


products with sustainable ingredients would be a strategic way to appeal to
potential customers. Why Pinterest and not another social channel? Well, not
only do 9 out of 10 Pinners browse the social media platform for purchase
inspiration, it’s also used by up to 80% of Millennial women and 40% of
Millennial men.

Why is a market segmentation strategy


important?
According to Bain and Company, businesses that tailor strategies to
customer segments generate yearly profit growth of 15% vs 5% for
businesses that don’t. In short, market segmentation can drive significant
growth.

Segmentation techniques are major profit drivers because they help you
define your target market and qualify customers as users of your product or
service. You can then provide the personalization that 73% of shoppers now
expect from brands – sending the right message, through the right channel,
at the right time.

Market segmentation also helps you to:

 Enter new markets


 Build products that solve customer pain points
 Streamline sales processes
 Drive more revenue from email marketing
 Drive more revenue from social media marketing
 Increase eCommerce customer retention

4 Key market segmentation types &


examples
1. Demographic segmentation: The who

Widely used by D2C ecommerce brands, demographic segmentation is one


of the most simple yet effective kinds of segmentation. You can use
demographic segmentation to split your audience and create customer
personas based on objective information, such as:

 Age
 Gender
 Income
 Level of education
 Religion
 Profession/role in a company

For example, if you segment your audience based on your customers’


income, you can target them with products that fall within the constraints of
their budget. If you’re a small business or new to ecommerce, this is a
straightforward type of segmentation with three key advantages:

 It’s easy to collect information


 It’s simple to measure & analyze
 It’s cost-effective

Luxury goods manufacturer Montblanc worked with Yieldify to present a


selection of offers across their website. They lifted conversions by 118% with
a Father’s Day deal offering a free gift to customers spending over £200 – a
threshold that took the spending expectations of Montblanc’s target
audience into account.

2. Psychographic segmentation: The why

Psychographic segmentation is the process of grouping people together


based on similar personal values, political opinions, aspirations and
psychological characteristics.
For example, you can group customers according to their:

 Personality
 Hobbies
 Social status
 Opinions
 Life goals
 Values and beliefs
 Lifestyle

Because these characteristics are subjective, psychographic is a harder


segment to identify – but it’s also the most valuable. The best places to
gather data for psychographic segmentation are through your audience
analytic tools and social media, but you should also use surveys, interviews
and focus groups to strengthen your customer understanding in this
segment.

Through psychographic segmentation, you can get a deep insight into your
customers’ likes, dislikes, needs, wants and loves. You can then create
marketing campaigns that resonate with their psychographic profile.

Yieldify’s personalization technology helps you create on-site experiences


that capture more psychographic information about your customers. For
example, Heidi, a leading online travel agency, collected information about
their customers’ preferred skiing style with layered lead capture
experiences.
3. 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 use geographic segmentation to solve practical problems. With
Yieldify, global fashion brand Nautica used geo-targeting to show different
customers when they could guarantee Christmas delivery. Customers in rural
areas had to order earlier than urban areas, so Nautica’s delivery countdown
timers adapted according to the customer’s location.

4. Behavioral segmentation: The how


Behavioral segmentation is the process of grouping customers based on
common behaviors they exhibit when they interact with your brand.

For this type of segmentation, you can group your audience based on their:

 Spending habits
 Purchasing habits
 Browsing habits
 Interactions with your brand
 Loyalty to your brand
 Product feedback

Gather this objective data through your website analytics and you can
identify patterns in your customers’ behavior that help predict how they’ll
interact with your brand in the future.

Then you can leverage this hypothesis to provide personalized


recommendations that address your customers needs. For example, Spotify
provides its users with curated daily mixes based on the types of genres and
artists they’ve listened to previously.

At Yieldify, we use behavioral segmentation to deliver highly relevant and


targeted campaigns based on behaviors including:

 Number of sessions to your website


 Number of pages visited
 Time spent on site
 URLs visited
 Page types visited
 Exit intent
 Inactivity
 Shopping cart value
 Campaign history
 Referral source

For example, Petal & Pup tailor their email lead generation messaging for
visitors arriving from Facebook.
Other types of market segmentation with
examples
Demographic, psychographic, geographic, and behavioral are the four pillars
of market segmentation, but consider using these four extra types to
enhance your marketing efforts.

Technographic segmentation

Technographic segmentation groups people based on the technology they


use and how they interact with it. For example, you could segment early
adopters of new tech and target them when you launch a new product to
market.
Alternatively, you could present customers with deals depending on what
device they use to shop online. For example, you could show Apple products
to consumers who use Safari.

Generational and life stage segmentation

Generational segmentation expands on demographic segmentation by


grouping customers based on their generation – Boomers, Gen Z, Millennials,
etc.

You can also segment customers by factors including marital status, home
ownership and number of children.

For example, Bank of America successfully incorporated life stage


segmentation in their digital marketing strategy. They invited customers
using their Family Life Banking program to specify their life stage
circumstances when they signed up. From there, they directed customers to
a microsite designed specifically for that segment.
Transactional segmentation

Using transactional segmentation you can group customers based on their


previous purchase interactions with your brand, including:

 Source of brand discovery – e.g. social media, organic


 Date of most recent order
 Total number of transactions
 Average order value
Firmographic Segmentation

Most of the market segments I’ve discussed focus on D2C brands, but
firmographic segmentation is a tool B2B companies use to create more
impactful marketing campaigns.

Firmographic segmentation is the process of analyzing and classifying B2B


customers based on shared company characteristics, and is similar to how
D2C marketers use demographic segmentation.

Use these 7 factors to create firmographic customer segments:

 Industry
 Location
 Company size
 Status
 Number of employees
 Performance
 Executive title
 Sales cycle stage

8 Benefits of Market Segmentation


1. Better ROI from marketing

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


from segmented, targeted and triggered campaigns.

2. 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.

3. 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.

4. 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.

5. 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.

6. Build better products

With a clearer understanding of who your customers are, you can create
products that better serve their needs, desires and expectations.

7. Higher quality email & SMS leads

You’re more likely to get leads into your email and SMS databases by
adapting your opt-in form according to customer segments. With Yieldify,
American footwear company Rockport drove 30% more revenue per
lead using a segmented approach to lead capture.

8. Drive more revenue from email marketing

Marketers have increased open rates by 14.3% and revenue by up


to 760% using segmented email campaigns.
Build your own market segmentation
strategy
I hope this blog has given you a clear understanding of how you can use
market segmentation tactics to optimize your market strategy. If you want
more information about how you can leverage market segmentation on your
ecommerce website, check out this page on Yieldify’s audience
segmentation capabilities.

Market Segmentation FAQs


What is meant by market segmentation?
Market segmentation is the process of dividing the market into subsets of
customers who share common characteristics. The four pillars of
segmentation marketers use to define their ideal customer profile (ICP) are
demographic, psychographic, geographic and behavioral.

What are the 4 types of market segmentation?


The four main types of market segmentation are:
1. Demographic
2. Psychographic
3. Geographic
4. Behavioral

What are the advantages of market segmentation?


Market segmentation helps you qualify customers of your product or service
and serve them with more personalized marketing campaigns that speak to
their unique needs. A good market segmentation strategy will help you:

– Drive more marketing ROI


– Reach new markers
– Cut customer acquisition costs
– Build better products
– Increase brand loyalty

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