Explanation and Exploration of 8 Market Segmentation Types

Various market segmentation methods enable businesses to gain a deeper understanding of their target audience, leading to the development of more impactful messaging, products and marketing strategies.

Knowing the appropriate market segmentation techniques and when to apply them empowers companies to make well-timed and informed decisions about target market segmentation. So, if you have chosen to segment your market, we will elaborate on the diverse approaches to assist you in achieving success.

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Let’s start with the basics:

Define Market Segmentation:

Market segmentation is the process of breaking down a larger market into smaller groups based on specific characteristics and behaviours. The primary objective is to identify target audiences that share common traits, needs or preferences, which aids in the implementation of more effective marketing strategies. Here are the main points:

• Breaking down a larger market into smaller, more similar groups.
• Focused on shared characteristics, needs, behaviours or preferences.
• Marketing messages and strategies for target market segmentation.
• Optimises resources, maximising return on investment (ROI).
• Helps explore potential growth areas.
• Facilitates product development and customisation to meet customer demands.
• Keeps businesses agile in response to changing market trends and customer preferences.

Types of Market Segmentation

There are four primary types of market segmentation: demographic, behavioural, firmographic and psychographic. However, with technological advancements and evolving consumer expectations, it’s crucial to explore all available methods for segmenting your market. To aid you in this endeavour, we have provided a detailed explanation of eight ways to segment a market.

Even if you have already segmented your market based on specific parameters or common characteristics, it’s beneficial to take a step back and consider that a comprehensive audience analysis often requires a combination of tactics in the digital age.

Importance of Market Segmentation:

Market segmentation strategies play a crucial role in modern business strategies for the following reasons:

• Targeted Marketing: Through market segmentation, businesses can identify distinct customer groups with similar characteristics and needs. This enables them to customise marketing messages and strategies for each segment.
• Customer Understanding: Understanding the diverse needs and preferences of different customer segments allows companies to develop products and services that precisely cater to those demands.
• Resource Optimisation: By focusing marketing efforts and resources on the most relevant segments, companies can avoid wasteful spending and maximise the impact of their campaigns. This efficient resource allocation results in improved return on investment (ROI) and overall profitability.
• Market Expansion: Market segmentation helps unveil new opportunities and untapped market segments. Identifying emerging trends and target audiences enables companies to expand into previously unexplored markets, increasing their growth potential.
• Competitive Advantage: Well-defined market segmentation strategies provide a competitive edge by distinguishing companies from their competitors. When customers feel understood and catered to, they are more likely to choose a company over its rivals.
• Product Development: Segmentation aids in creating and refining products tailored to the unique requirements of different customer groups. This ensures that offerings align closely with customer expectations, resulting in higher acceptance and demand in the market.
• Market Adaptation: Markets are constantly evolving, and customer preferences change over time. Market segmentation allows companies to stay agile and responsive by identifying shifts in customer behaviour and adjusting strategies accordingly.

Market segmentation is a powerful tool that empowers businesses to gain deeper insights into their customers, make informed decisions and develop effective marketing strategies.

Who is your Target Audience?

Demographic segmentation is analysing the characteristics of the audience based on easily identifiable factors such as:

• Age
• Gender
• Ethnicity
• Income Level
• Marital Status
• Family Size
• Education Level
• Location

This type of market segmentation is often the starting point when creating customer personas. Although geographic segmentation is closely related, it is sometimes treated as a separate category.

Using demographic segmentation helps businesses determine how to target marketing efforts or services to specific individuals or groups. It provides valuable insights into how different groups of people respond to various messages, products, or services.

Market Segmentation Example: If a company aims to target a particular age group with a specific product or service, demographic segmentation can assist in identifying the right audience and customising messaging accordingly.

This segmentation strategy is especially advantageous for B2C companies. By understanding the demographics of their target audience, these companies can increase their chances of success by delivering offerings that truly resonate with their customers and prompt them to make a purchase.

Behavioural Segmentation

Behavioural segmentation offers valuable insights into consumer actions and behaviours. By analysing buying patterns, preferences and interactions, companies can tailor products, services and marketing messages to specific customer segments. It also aids in identifying which customers are most likely to respond positively to campaigns or promotions.

This segmentation approach involves an ongoing process of collecting and analysing behavioural data, which reveals important details about consumers, including their:

• Purchasing Habits
• Browsing Behaviour
• Brand Interactions
• Engagement with Competitors
• Buying History and Brand Loyalty.

Market Segmentation Example:

An e-commerce site or retailer might segment customers based on the channels or devices they use to access the site, while a gaming site could segment based on the frequency of purchases or which competing gaming sites users visit.

• One behavioural market segmentation example is categorising customers according to their purchase frequency, creating segments like monthly, quarterly or annual purchasers.
• This deeper understanding of the various customer types helps companies adapt their marketing and product offerings to meet specific needs and preferences.

Firmographic Segmentation

Firmographic segmentation focuses on understanding the types of companies that are potential buyers, which is particularly relevant for B2B (business-to-business) companies. Unlike demographic or market segmentation behavioural that deal with individual characteristics, firmographic segmentation delves into the character of the business itself.

To effectively engage with other companies as buyers, thorough company research is essential. This involves analysing factors such as the industry, company size, revenue, location and historical background of potential customers.

Market Segmentation Example:

A company might choose to segment its customers based on their revenue size. This approach allows them to categorise companies with higher revenues as high-value segments, while those with lower revenues fall into the low-value segment. As a result, the company can allocate its resources and tailor marketing efforts more effectively to suit the needs and characteristics of each segment.

Psychographic Segmentation

Psychographic segmentation aims to uncover the underlying motivations behind why your target audience makes purchasing decisions. Identifying these motivations is essential for effective marketing strategies. Various factors can influence why customers choose to buy from you, including:

• Lifestyle
• Values
• Beliefs
• Interests and Hobbies
• Political orientation
• Goals

It’s important to focus on the psychographic factors that are relevant to your industry. For instance, let’s consider a market segmentation example of how psychographic segmentation could be applied to a market of luxury car buyers:

• Aspirational: This group aspires to own a luxury car and is highly influenced by luxury car advertisements.
• Sophisticated: These customers possess a deep knowledge of luxury cars and prefer to invest time in researching and evaluating their options.
• Traditional: This segment prefers a more classic look and feel for their luxury cars and is often guided by word-of-mouth recommendations.

Understanding these psychographic segments enables companies to tailor their marketing efforts to resonate with the unique preferences and motivations of each group, thus increasing the chances of connecting with their target audience effectively.

Transactional Segmentation

Transactional segmentation focuses on how customers conduct their transactions during online shopping and eCommerce experiences.

• It involves analysing various transaction-related data points, including payment methods, purchase values, coupon or special offer usage and transactions based on product categories or popular items.
• This type of segmentation proves valuable in optimising pricing strategies and gauging customer retention rates.
• An effective approach to transactional segmentation involves studying customer purchase history.

Market Segmentation Example:

If you run an apparel retail business, you can examine the types of items that customers frequently purchase and create segments based on these patterns. These segments might include customers who predominantly buy dresses, those who prefer purchasing pants or others who purchase a diverse range of items.

Technographic Segmentation

Technographic segmentation involves categorising customers based on the technology they utilise. There are several ways to conduct technographic segmentation.

Market Segmentation Example:

One approach is to segment customers according to the operating systems they use. As a software company, you might categorise customers based on whether they use Windows, Mac OS, Linux, Android or other operating systems. Additionally, you can segment customers based on the specific software or devices they use.

Seasonal Segmentation

Seasonal segmentation involves dividing target markets based on peak periods of interest, which can go beyond just weather or holidays. It considers cultural, sports, or political events that evoke human interest and influence purchasing behaviour.

Although not applicable to every business, certain industries like travel, accommodation, finance, and retail are significantly affected by seasonal trends.

This type of market segmentation offers several advantages, including:

• Increased focus: By directing efforts towards specific customer segments during times of the year, businesses ensure that the right message reaches the right audience at the most opportune moment.
• More effective targeting: By delivering more relevant and timely content, companies can better target consumers and improve customer engagement.
• Improved budgeting and resource allocation: By strategically planning and allocating budgets and resources, businesses can focus on promotions with the potential to yield the best results.
• Increased efficiency: Streamlining marketing efforts allows for a more efficient process, saving time and resources.
• Increased profitability: Targeted offers and campaigns lead to higher profits as they resonate with customers and meet their specific needs during peak periods.

Learn More: Market Research

Benefit Segmentation

Benefit segmentation revolves around categorising customers based on the specific benefits they value. While it shares some similarities with behavioural segmentation, it stands as a distinct approach.

Market Segmentation Example: A company may segment its customers according to their preferences for specific benefits, such as loyalty rewards or discounts. They might have a loyalty program that offers discounts or rewards to long-time customers or those who have reached a certain spending threshold. Simultaneously, they could have a separate program catering to customers who prioritise free shipping or early access to new products.

Another perspective on benefit segmentation is understanding the perceived value a product offers to a customer.

A notable market segmentation example can be found in the supplement sector. Suppose a company provides a range of health supplements, including those for weight loss, muscle gain and anti-aging. In this case, the company can segment customers based on the specific benefits they seek, ensuring that they have a readily available market for products offering similar advantages.

Selecting Different Types of Marketing Segmentation

Selecting the most suitable market segmentation type hinges on understanding your business and overarching goals. To aid you in this decision-making process, follow these three market segmentation tips:

• Carefully evaluate the characteristics of your target audience, the advantages of your products or services, and the specific objectives you wish to accomplish.
• Analyse your market data thoroughly to identify the most effective characteristics to use for segmentation.
• Once you have pinpointed the most relevant characteristics, create a segmentation strategy that aligns with your business objectives and goals.

Here are Some Marketing Segmentation Mistakes to Avoid:

Avoid rushing through the segmentation process. Ensure that you complete each step thoroughly before moving on to the next one with these market segmentation tips:

• Don’t forget to optimise your market segmentation strategy continuously.
• While creating the initial strategy requires effort, remember that markets are dynamic.
• Stay informed about emerging markets, shifts in consumer behaviour and preferences and potential competition.
• Regularly measure performance and make necessary changes.
• Adding too many factors and metrics to refine targeting can result in numerous tiny categories.
• Focus on actionable insights that have a significant impact on your business.
• Never ignore the importance of data in marketing segmentation.
• Analyse your audience thoroughly, identify natural groupings, and conduct market research to validate your findings against industry standards.

Conclusion

For effective marketing research, reliable data on your competitors and the market is crucial. While readily available secondary information exists, its freshness can often be lacking, rendering any analysis potentially irrelevant and outdated.

Dynamic market data changes the game, enabling companies to transition from a reactive to a proactive approach. In times when businesses need to achieve more with fewer resources, market segmentation becomes invaluable in identifying growth opportunities and exploring potential channels for focused efforts.

Traffic Radius provides the means to focus on the most relevant segments for your business, extracting actionable insights and market segmentation guide to inform your strategy and enhance your segment analysis.

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• Analyse the performance of specific topics, categories, brands or lines of business on any website.
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