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Ultimate Guide to Market Segmentation

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Table of Contents

01

What is segmentation?

Segmentation in marketing refers to the process when you aggregate customers into specific groups based on common needs. These segments respond similarly to your marketing campaigns. 

There are two types of segmentation in marketing: Market Segmentation and Customer Segmentation. 

While both segmentation may follow the same process they differ in their fundamentally.

02

What is the difference between customer segmentation and market segmentation?

Customer segmentation and market segmentation differ in the following ways:

Market Segmentation: 

As mentioned above in the market segmentation definition, market segments are categories of customers within the whole market. Market segments are those customers who share similar needs or behavior in the whole market. 

Market segmentation enables a company to figure out which product is likely to attract a share of a target market. It can help you target only those market segments who are likely to become satisfied customers for your brand. 

Customer Segmentation: 

Customer segmentation on the other hand is the process of categorizing customers within your customer base depending on their needs, interests, gender, or behavior. 

Customer segmentation enables you to learn about your customer so you can personalize offers according to their needs. 

Customer segmentation enables you to deliver a more personalized experience to your customers and maximize customer lifetime value and ROI. 

03

What is Market Segmentation?

Market Segmentation Guide1

Market Segmentation involves grouping of prospective customers into segments based on their similar needs and characteristics. Companies use market segmentation to target segments of customers who appreciate certain products and services differently than others do. The companies then target these segments to brand their products and services in a way to attract them. 

There are four types of market segments you can create: Demographic, Psychographic, Behavioral, and Geographical. 

It helps companies figure out which products are more likely to succeed in the market and thus minimize risk. Companies can thus focus their resources on marketing campaigns which are likely to bring profit by producing ROI. 

According to Bain & Company, companies with better market segmentation strategies earned 10% higher profit than those whose strategy wasn’t useful and effective over 5 years.

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Example of Market Segmentation

The main purpose of conducting Market Segmentation is to help a company tailor its products and advertise messages according to the segments of consumers. 

For example, a sports-shoe company tailors their shoes and their brand message based on segments such as athletes, gym-goers, fashion-conscious men, and women. 

A snack company markets their products by targeting older customers with traditional brands, health-conscious with healthy brands, and young customers with products popular among the age group. 

This implies that companies use their market intelligence collected from each segment of customers to brand their products to appeal to the target consumer base.

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Why is Market Segmentation important?

The most crucial reason for the importance of  Market Segmentation is that, by segmenting people into categorical groups, you can focus on retaining and acquiring customers. Also, it helps you direct your resource and market efforts on earning better revenue and achieves your business goal. 

Segmenting customers will help you in customer retention. Tailoring perfect messages which appeal to the customers will help you earn their approval. Understanding what your customers want can help you capture them at the beginning of their journey by providing them excellent service and experience. This will increase the likelihood of staying with your brand and continue purchasing. 

It can help you reach potential customers. Understanding different segments of customers can help you learn the needs, expectations, or issues faced by customers. This can help you explore new market efforts (new products/services or rebrand) and attract new customers. As a result, you appeal to potential customers and are more likely to convert them into paying customers. 

It helps you stand out among competitors. Creating messages that are more specific to your customers and products that best meet your customers’ expectations can make you different from competitors. With market segmentation, you can find your unique selling point, which can make you stand out instead of blending in the sea of brands.

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06

Types of Market Segmentation

Market Segmentation Guide2

You can divide market segments into four types. We have explained all the four main types of market segments below.

  • Geographic Segmentation 

Geographic segmentation involves segmenting consumers based on where they reside. Customers may be segmented by country, state, city, or area so that they can be better understood, and marketing efforts can be targeted accordingly. 

These are a few examples of the ways in which geographical segmentation is used to segment target audiences:

    • Based on Season: People in colder countries create a demand for different kinds of products relative to those in warmer countries. In cold countries, people want products like warm clothing and warm beverages. In warmer countries, there’s a higher demand for summer wear and cold foods such as ice cream and milkshakes.
    • Based on Type of Region: Based on the type of region and their culture, organizations have to adapt their marketing strategies to appeal to the local market.
    • Based on Entry into New Regions/Markets: Organizations use geographic segmentation to launch their product/service in a new geographical location. They do so to study local customers so that they can adapt to their wants and their culture, and be able to compete with local businesses. 
  • Demographic Segmentation

This type of market segmentation categorizes the target market based on specific variables such as age, gender, income, and education. This allows organizations to understand customer behavior accurately, allowing them to target customers more effectively.

These are a few ways in which customers are segmented demographically:

    • By Gender: Gender-specific products are very common, from clothing to shampoos and soaps, marketers tailor marketing strategies based on gender. This is because men and women often have different needs and preferences.
    • By Age: Products are often targeted to customers based on their age, and the generation they were born in, as their preferences will vary due to these variables.
    • By Income: Income is an important variable to take into account while segmenting as it affects pricing strategies. Higher-income segments will be targeted differently by marketers and lower-income segments will be targeted differently.
  • Psychographic Segmentation

Psychographic segmentation is a market segmentation technique that divides a target population based on psychological traits that influence consumption habits. 

There are five main segmentation variables and they are:

    • Lifestyle: This type of segmentation categorizes customers based on how they live. For instance, some customers may like to eat healthy and participate in physical activities, while some may not.
    • Attitude: Attitudes are molded based on cultural background and a person’s environment. Different attitudes will result in different spending patterns. 
    • Social Status: People’s social status plays a predominant role in deciding which products they purchase. Different social classes have different preferences while buying goods such as clothes, shoes, food, cars, etc. 
    • Personality: Customers that are segmented based on personality may be segmented based on the following characteristics; extroverted, introverted, creative, friendly etc. Customer personality and purchasing habits are often strongly interrelated.
    • Activities/Interests: This segmentation is based on what activities customers are inclined toward, or on their opinions on certain subjects. For instance, some people enjoy watching shows and movies online while some enjoy watching them on television channels. 
  • Behavioral Segmentation

Behavioral segmentation groups consumers based on their behavior while making purchasing decisions. There are four main types of behavioral segmentation and they are:

    • Usage-Oriented Segmentation: Segments customers based on the number of times the customer uses the product.
    • Loyalty-Oriented Segmentation: This type of segmentation categorizes respondents based on their level of loyalty and the brand’s customer retention rates.
    • Benefit-Oriented Segmentation: When customers are looking to purchase a product, it is because they want to gain certain benefits from that product. This type of behavioral segmentation categorizes respondents based on the benefit they want to receive.
    • Occasion-Oriented Segmentation: This type of segmentation refers to when products are purchased for certain occasions. It may be a one-time purchase or may lead to repeat purchases.

Il existe principalement quatre catégories de segmentation du marché utilisées pour identifier les clients.  

La Segmentation géographique  

  • Les clients sont regroupés en fonction des frontières géographiques. Les clients ont des besoins, des préférences et des attentes différents selon leur situation géographique et leur climat. La compréhension de ces besoins peut aider une marque à déterminer les produits à promouvoir et les groupes auxquels s’adresser.  
  • Par exemple, la restauration de type “fast food” comme Subway et McDonald’s propose des plats en fonction du pays dans lequel ils se trouvent. Ils conçoivent leurs menus pour répondre aux différentes cuisines et préférences des clients du monde entier.  

La Segmentation démographique  

  • C’est la forme la plus simple et la plus courante de segmentation du marché utilisée par les entreprises. L’âge, le sexe, le niveau de revenu, l’éducation, etc., sont quelques-uns des facteurs qui influencent le plus la façon dont nous dépensons notre argent et sur quoi. 
  • Par exemple, des entreprises de vêtements comme H & M proposent des vêtements pour différents groupes d’âge et pour différents sexes.  

La Segmentation psychographique  

  • Elle segmente les clients cibles en fonction de leur style de vie, de leur personnalité, de leurs opinions, de leurs valeurs, etc. Cette segmentation du marché se concentre sur les caractéristiques inhérentes aux clients. 
  • Par exemple, tous les clients n’aiment pas boire du café. Chez Starbucks, vous ne trouverez pas seulement du café, mais aussi des gâteaux, des milkshakes, des bâtonnets de fromage, etc. pour attirer même les clients qui n’aiment pas le café. Cela les rend inclusifs car ils servent chaque segment de la clientèle.  

La Segmentation comportementale  

  •  Elle se concentre sur le comportement du client et sur son processus de réflexion pour la prise de décision. L’attitude du client envers l’entreprise, la façon dont il interagit avec vous sont tous des exemples de segmentation comportementale.  
  • La fidélité à la marque est également un exemple de cette segmentation. Un modèle d’achat constant d’un client d’une entreprise donnée est considéré comme une segmentation comportementale. 
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07

How can you create your Market Segmentation Strategy?

Analyze your market

  • Find out where your brand stands in the current market. You should look through all the services and products you provided and see if your customers need them. How much demand is there for similar services in the market? 

Segment your customers

  • You can choose which segmentation category you are going to use, or you can use more than one category. It is common to use more than one category because it gives in-depth information about the customers. You can find out about more characteristics of the customers and use it as a mix to plan your marketing efforts. 

Know your Target Market

  • Ask questions related to the segmentation categories to your target customers. Understand them and collect thorough information about them. 

Create your segments

  • With all the information collected, you should focus on dividing customers into segments that are distinctive to your brand. 

Test

  •  Analyze and examine the customer segments you have created to ensure that they are accurate and reliable. Test it in your target market and if they are not useful work on the segments again.
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08

FAQs

The four common categories in market segmentation 

  • Demographic segmentation
  • Psychographic segmentation
  • Geographic segmentation
  • Behavioral segmentation

Market Segmentation can help you understand the various groups of people who make your market. The process of market segmentation includes grouping customers with similar characteristics together. Thus, allowing brands to identify these customers and target them for their business.

Market Segmentation Strategy divides your customer base into four categories: demographic, behavioral, psychographic and geographical. The strategy is used to break down the target audience into small and manageable segments/groups.

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