Market Segmentation: Everything You Need to Know

May 3, 2023
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Marketing forms an important part of every company's and product's effort to succeed. Through marketing, the firm can successfully create brand awareness and loyalty, engage customers, and drive them toward making a buying decision. Additionally, a good marketing plan is essential to creating and maintaining demand, staying ahead of the competition, and building relevance.

However, marketing is not always an easy undertaking. There is a wide range of factors that will influence your marketing decisions. In particular, the market demographic is so broad that if you do not segment it accordingly, your efforts may not bear any fruits. It comprises consumers of different ages, gender, religions, and so on. Here is a look at market segmentation and how it benefits your business.

What is market segmentation?

Market segmentation is a marketing term that involves splitting or segregating potential buyers into groups or segments that have the same needs and respond in an almost similar way to the marketing message. It is an important approach that companies use to target various categories of consumers.

To properly understand market segmentation, you need to know what these two terms mean – market and segmentation.

When we talk of a product market, we mean the economic marketplace where the final goods and services are traded. Such a market is not just limited to a physical location but rather a commercial environment of a particular economic system.

Segmentation refers to dividing the marketplace into parts or segments that are definable, actionable, accessible, and have growth potential. In other words, a company does not have to target the whole market. Doing so would even be practically impossible due to various constraints like time, cost, and reachability. For that reason, the company uses a definable segment that it targets with reasonable effort, cost, and time.

Market segmentation aims at identifying the targeted buyers so that the firm can tailor its message in a way that is attractive to the group in question. Market segments are broad and can be categorized based on different metrics, including geographically, behaviorally, and demographically.

Geographic segmentation looks at the geography or physical features of the market. Behavioral segmentation evaluates customers based on their behavior patterns. Demographic segmentation evaluates factors like age, income, and gender.

After the segment has been identified, it is vital to cross-check that the potential buying group can be targeted with existing resources and is accessible to the company. More importantly, you need to evaluate whether or not the group will respond to the company's marketing actions, like promos, schemes, prices, and ads. Beyond this, even though the market is accessible and responds to the product, the company still needs to identify whether it is profitable to sell to them. And what will be the number and value of the segment over a certain timeframe? Is it projected to grow, reduce, or remain the same?

Demographic market segmentation

Demographic market segmentation is an approach to identifying potential customers based on factors such as income, family size, age, gender, race, occupation, marital status, religion, nationality, and/or race. It is one of the most commonly used market segmentation and perhaps the most successful.

Companies that divide the market into smaller units with common variables get the power to efficiently use their time and resources in marketing. Such a company has a better understanding of the similarities of the individuals in the market, which in turn determines the messages that they can respond to. The firm can leverage personalized adverts so that it effectively meets the needs of the target group.

Demographic market segmentation is the most commonly used owing to the fact that it is easy to get through analytics software, consensus data, and consumer insights. Many businesses also consider it to be the most effective way of diving into your market.

What makes demographic market segmentation so important in marketing? The approach targets particular audiences. It helps organizations communicate effectively with the audience because they have enough data about that specific group. Furthermore, the personalized advertising that demographic segmentation provides plays a vital role in managing advertising costs.

  • Age

Age is the most basic variable when it comes to market segmentation. It is also the most important because consumer preferences change with age. The majority of marketing campaigns are normally created around this variable.

Your marketing campaign created around age as a variable can be viewed from the perspective of age ranges or life cycle stages. You may have categories such as seniors, middle-aged, adults, adolescents, children, and babies. For instance, fashion designers often have collections aimed at particular age groups. Therefore, they will market their products in line with the age groups that are to use them.

  • Gender

Males and females have varying likes and dislikes as far as products are concerned. The needs and thought processes of both genders also differ. For instance, most women don't wear boxers, and few men apply makeup. Similarly, most grocery shopping is done by women, while men are more likely to give to charity.

Depending on the products that you deal with, you can target particular gender where you feel it is more applicable. Some brands sell their products exclusively for a particular gender. For instance, you may find a piece of clothing defined as "High quality for women."

As you perform gender segmentation, you need to be careful not to fall into stereotypes. This is a delicate trap that can sink your business, especially in this period when gender is a sensitive topic. Allowing yourself to assume that a certain color is more feminine than masculine may not work to your advantage.

  • Income groups

Different people fall under different income groups. Consequently, they have varying buying powers. For this reason, you need to target your products to an audience that you know has the financial muscles to buy them.

For example, it does not make sense to advertise iPhone 14 pro to an audience that can only afford regular entry-level smartphones. Income targeting means you are advertising products based on the buying power of your audience. Once you have information about your audience's income ranges, you can evaluate data on how people in those ranges spend money on the high and low ends.

  • Religion, race, nationality, and ethnicity

The continued expansion of international business and global advertising has brought to light the important roles that religion, race, nationality, and ethnicity have over businesses. Each of these groups differs in culture, which means they also have varying beliefs, attitudes, preferences, and interests. As a result, they have different responses to marketing efforts and buying habits.

Due to this metric, multinationals have learnt that they cannot just run a single campaign that caters to their global audience. On the contrary, they often localize their campaigns per country to drive a particular message. Such messages are entirely different and based on religions, customs, nationality, etc.

Behavioral market segmentation

Behavioral market segmentation involves grouping customers based on particular behaviors that they portray. The behaviors can vary broadly to include consumed content products they like and patterns of interaction on websites, apps, or social media.

It would be misleading for a business to assume that all people behave the same. The reality is that habits, backgrounds, and emotions create different kinds of behaviors.

Some people have certain daily habits that have formed part of their everyday life. For instance, there are those who have made coffee a part of their morning routine. A marketer needs to understand who these people are and create a separate group for them.

With behavioral market segmentation, the first step involves recognizing that people have different behaviors. You then proceed to segregate the people of your interest into one group before sending out customized messages as per those behaviors.

Behavioral segmentation is important because it identifies users based on a particular behavior from which marketers can target messages and campaigns specifically for the identified audiences. This approach has some key benefits, including:

  • Personalization

Through behavioral segmentation, you get to learn the products and services that a particular group of customers like. In addition, you also get information about their most frequent channels and the messages they respond to. Based on this, you have everything you need to personalize your message to the target group and increase the chances of converting potential buyers into actual customers. And if your aim is just to pass a message, such communication will more likely be positively received.

  • Forecasting trends

The trends that people follow are closely tied to their behaviors. Such trends, on the other hand, have a direct impact on the success of a product. For example, if you introduce a product that a certain group considers to be outdated, you will have a hard time making a sale.

Behavioral market segmentation helps you to identify patterns and project what is likely to come in the future. Such prediction is easier if you have massive past data. Based on this, you can start planning for a future trend and ride on it for the success of your business.

  • Budget allocation

With this segmentation, you can tell who spends the most and how they spend it. Therefore, you can allocate most of your budget towards the heavy spenders as they stand the highest chance of buying from you.

Geographic market segmentation

Geographic market segmentation involves dividing your target consumer group as per their geographic region. Various classifications can be used here, including country, county, city, postal code, etc. It aims at targeting products to people who live, work, or shop in a specific location.

The assumption made by geographic market segmentation is that people within the same physical location have the same needs and cultural preferences. Thus, brands seek to know what people in a given area require and then create products that consumers are aware of or are more likely to buy.

Here are some of the benefits of geographic market segmentation:

  • Easy market segmentation

Of all the approaches to market segmentation, the geographic approach stands out as the easiest. Your goal is clear – identify a specific geographic location, study the audience, and start pushing marketing messages tailored to that region.

  • Works well for large companies

Large companies have an opportunity to move products into different regions and market them there. For instance, Coca-Cola can come up with a marketing message for Canada that differs from that of The U.K. In addition, the company has the leeway to coin a global message that applies to all regions in which it operates.

  • Applicable to smaller companies

Smaller companies can choose geographic market segmentation and create marketing messages that appeal to specific areas and target audiences. That saves them from the pain of taking a blanket approach that may not necessarily convert.

  • Saves you money

Your marketing makes sense only when it targets a specific audience. Through geographic segmentation, you no longer have to advertise to regions where you have no short-term goals of selling your products or services. Therefore, it reduces your costs because you become very specific about marketing.

Psychographic market segmentation

Psychographic market segmentation involves splitting your customer groups into segments that have an impact on buying behaviors, such as social status, lifestyle, values, activities, opinions, and beliefs. It differs from behavioral segmentation in the sense that psychographic segmentation focuses on the motivations behind the behavior as opposed to tracking only the behavior.

Psychographics often works well when combined with demographic market segmentation. Whereas demographics share information about who the customers are, the former reveals why they buy. In other words, demographics reveal quantitative data, and psychographics provides qualitative data.

One thing about this approach to market segmentation is that you have to build your customer persona. To do so, you will need to know the group's psychographics and demographics, after which you can reach them more effectively.

In psychographic market segmentation, you can have information such as a female who enjoys healthy living or a city dweller who spends his time watching YouTube.

Psychographic segmentation is important because it helps you better understand your customer's needs, wants, aspirations, and motivations. In addition, it reveals information about how your customers use your products and why.

Conclusion

The better you understand your customers, the more you are likely to personalize your campaigns. That is why you need to take time when performing market segmentation. A correctly segmented market reduces the cost of advertising and increases the chances of success.