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4 Types of Market Segmentation: Real-World Examples & Benefits

Published: Dec 6, 2022

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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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