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Market segmentation: types, definition, and examples

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Last editedJan 20212 min read

Market segmentation offers plenty of possibilities to make your business communication more effective. Find out more about how this term is used in marketing, along with the most common types of market segmentation.

What is market segmentation?

The term market segmentation simply refers to the act in B2C marketing of grouping people together by traits, behaviours, or location. It can also be used in B2B marketing to group businesses together by similar characteristics. By dividing a target audience into these groups, you can provide more personalised advertising and content.

For example, social media companies like Facebook provide a personalised news feed via algorithm, based on user location and interests. This same concept can be provided to your own marketing strategy, from personalised email campaigns to a targeted online strategy.

Benefits of market segmentation

There are several key benefits of market segmentation:

  1. You can make marketing more effective by keeping customer needs and interests in mind.

  2. Spending becomes more efficient when you use methods of market segmentation, since you avoid wasting money on marketing that’s unlikely to reach the right audience.

  3. You can improve customer retention rates by fine-tuning your offers to deals that customers will most appreciate. This gives your clients greater reason to return.

  4. Improve focus with targeted advertising based on real-life research and customer activity.

  5. Digital ad services can be hyper-localised to target your audience by purchasing habits, location, age, and more.

Types of market segmentation

Are you sold on the benefits of market segmentation and ready to get started with formulating a strategy? If so, there are four main types of market segmentation that you can use to your advantage for targeted messaging.

1. Demographic

Demographic segmentation is straightforward, defining customer groups by identifiable traits. These aren’t related to a customer’s character or preferences. Examples of demographic methods of market segmentation could include the following:

  • Gender

  • Age

  • Income

  • Education level

  • Ethnicity

  • Profession

  • Religion

For example, a luxury perfume company might choose to target customers within a higher income bracket, since they may be more likely to purchase this product.

Demographic segmentation can also be used for B2B businesses by breaking the audience down by features like company size and industry. One example of this could be a software company that manufactures a new accounting and payroll platform. They might focus marketing efforts on larger companies who handle finances for hundreds of employees.

2. Geographic

Geographic segmentation groups customers together by physical location. This could be on a country-wide level, by city, or even by postcode. For example, if your company is marketing live events or concerts, you’d want to focus target marketing on local audiences. Additional types of market segmentation in this category could include:

  • Urban vs. rural locations

  • Defined radius around a central location

  • Climate type for seasonal marketing

3. Psychographic

A third type of market segmentation is psychographic. While demographics focus on non-character traits like age and gender, psychographics look at customer interests and personalities. Examples of psychographic market segmentation include factors like the following:

  • Hobbies

  • Life goals

  • Core values

  • Lifestyle choices

  • Personality traits

  • Motivations

Psychographic market segmentation requires a high level of research to gain insight into customer personality types and behaviours. However, it’s often worth the effort because it allows businesses to target consumers on a personal level. For example, an electronics company might target thrill-seeking individuals who enjoy cutting-edge technology to market a new VR headset.

4. Behavioural

Finally, behavioural segmentation breaks down your market by consumer habits. It requires a high level of market research, like psychographic segmentation, to help you gain a greater understanding of what truly makes customers tick. Groupings could include the following:

  • Past interactions with the brand

  • Brand loyalty

  • Spending habits

  • Browsing habits

In the example of the electronics company above, it might be wise to target customers who have a history of purchasing gaming equipment. Similarly, a luxury beauty company might tailor its marketing efforts to consumers with a history of browsing high-end fashion websites and clicking through to advertisements.

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