The Importance of Market Segmentation

Market segmentation can help you to define and better understand your target audiences and ideal customers. As a business, this allows you to identify the right market for your products and then target your marketing more effectively. Similarly, publishers can use market segmentation to offer more precisely targeted advertising options and to customise their content for different audience groups.

Say, for example, you’re a marketer who’s advertising a new brand of dog food. You could split an audience into segments based on whether they have a dog. You could then segment that audience further based on what kind of dog they have and then show them ads for food formulated for their dog’s breed. A publisher could use this same information to show content about dogs to people who have or like dogs.

Market segmentation allows you to target your promotional activity to the right people in the right way, rather than targeting your entire audience with a generic message. This helps you increase the chances of people engaging with your ad or content, resulting in more efficient campaigns and improved return on investment (ROI).

Types of Market Segmentation

There are many different kinds of market segments you can create. Below are the four main methods of market segmentation. You can also create more niche segments within the types below.

1. Demographic segmentation

Demographic segmentation is one of the most common forms. It refers to splitting up audiences based on observable, people-based differences. These qualities include things like age, sex, marital status, family size, occupation, education level, income, race, nationality and religion.

Segmenting a market according to demographics is the most basic form of segmentation. Combining demographic segmentation with other types can help you to narrow down your market even more. One benefit of this kind of segmentation is that the information is relatively easily accessible and low-cost to obtain.

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.

Automotive companies often segment their audience by income and market different makes and models of cars to each segment. One company may have a luxury brand, an economy brand and a mid-range brand.

2. Behavioural Segmentation

You can also segment your market based on consumers’ behaviours, especially regarding your product. Dividing your audience based on behaviours they display allows you to create messaging that caters to those behaviours. Many of the actions you might look at relate to how someone interacts with your product, website, app or brand.

Some types of behaviours to look at include:

• Shopping habits: You might consider a users’ online/offline shopping habits to understand the readiness or preparedness to purchase, and where they prefer to purchase.
• Actions taken on a website: You can track actions users take online to better understand how they interact. 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 categorise 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 categorise customers based on how loyal they are to your brand and tailor your messaging accordingly.

Behavioural data is useful because it relates directly to how someone interacts with your brand or products. Because of this, it can help you market more effectively to them.

3. Geographic Segmentation

Geographic segmentation, splitting up your market based on their location, is the first basic pivot towards a secondary segmentation. However businesses using geographical and basic demographic segmentation to target online audiences will discover the high level of competition on this level.

Dividing a market according to location is critical if you need to target an ad to people in a specific area, such as if you’re advertising a small local business. However to increase return on investment further campaign based targeting is required. By using demographic age and geographic location as your primary segmentation within an facebook ad set your ad will be bidding for space on the timeline of your audience against high numbers of other businesses. Therefore further segmentation is highly recommended.

4. Psychographic Segmentation

Psychographic segmentation is similar to demographic segmentation, but it deals with characteristics that are more motive 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.

Other Methods of Market Segmentation

Demographic, psychographic, behavioural 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. 

• Online behaviour: How your customer acts online, are they comfortable purchasing online or do they prefer to research online and purchase via a shop front. What devices do they use when either researching or purchasing and is your business online ready for this customer.
• Value segmentation: By aligning your product to your customers values increases the likely hood of conversion to purchase. Further to this by identifying the lifecycle stage of your customer you can position your product to met their current needs.
• 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.
• Lifestage segmentation: You can also segment your market into groups based on where they are in their lives. Going to uni, getting married and having children are examples of key life events to consider. People at different stages of life need different things.
• 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 also significantly impact purchasing behaviours.