What is Market Segmentation – Meaning, Types, Benefits

What is market segmentation? Why does it play a major role in marketing? How does it help to market to customers? What are the different types of market segmentation? All your questions are answered in one place in this article.

Have you ever wondered why Vans shoes are not available at the local shoe outlets, or why low-cost feature phones are not sold at flagship showrooms?

That is market segmentation. In simple words, it divides the audience into subsets based on what they prefer, need, and want. Generally, a potential customer won’t ask for a feature phone at a flagship showroom.

Market Segmentation Meaning?

When a company chooses to segment its market, it carries out thorough research to determine who are its target customers. It will divide the target audience into different groups based on characteristics like age, gender, income, personality traits, or behavior.

The list is long. It can be anything. Do they have dogs or use mouthwash or not and many more.

In general, the segmentation is done based on demographics, needs, priorities, common interests, and at most, behavioral criteria.

Related: Types Of Market: How Does Market Play An Important Role?

Why Market Segmentation Is Done?

In simple words, it helps in effectively selling a product or service. Market segmentation helps to reach out to the right customers with the right kind of products or services at the right time. If you know what your customers want, you just need to be there and that’s it. People will buy what they need.

All you need to make sure of is that you are either better than your competitors or cheaper than them. A mix of the two would highly work for a brand.

Generally, companies segment markets to optimize products and advertising. This helps them to target different kinds of customers with relative marketing.

Market segmentation basically helps an organization understand its target market. The company can divide its target audience into multiple groups. This helps you to market your products or services effectively and be available in the right places at the right time.

What Are The Types Of Market Segmentation?

There are many bases on which segmentation is done. Organizations generally target customers based on a number of factors. These factors are different in nature and hence classify market segmentation into types.

These are the most commonly used forms of market segmentation.

Demographic Segmentation

In demographic segmentation, the market is segmented in terms of demographics. It is the most general form of segmentation. Here factors like age, education, income, family size, race, gender, occupation, nationality, and such elements are used to segment a market.

Demographic segmentation is a very simple and most commonly used form of segmentation.

Demographic factors take into account what we use, how we use it, and how much we are willing to pay for such relevant products or services.

Read: Product Positioning: How It Helps In Marketing?

Geographical Segmentation

When an organization uses a subset of demographics like location or area, it is known as geographical segmentation. Such segmentation helps companies to create multiple target customer groups with specific boundaries. Geographical segmentation helps to target customers in a particular geography with specific preferences and interests.

Needs differ with geographies. So a better understanding of regions helps companies to target specific customer groups. It’s done mostly to choose what to advertise and market in such areas.

Behavioral Segmentation

Markets are diverse. So pointing out a potential customer group based on geography or income often turns out to be unsuccessful. For certain products and services, organizations carry out behavioral segmentation. It divides the market based on behavior. Basically, the company classifies the market depending on the decision-making patterns of customers.

Mainly carried out for mid-range products, behavioral segmentation is done based on factors like purchase, consumption, lifestyle, and usage.

Behavioral segmentation helps companies divide the market and target customer groups based on purchasing behavior, allowing marketers to target such buyers easily.

Psychographic Segmentation

Coming to our last type of market segmentation, psychographic segmentation is generally done for niche or upper-range products. Behavioral segmentation uses different psychological aspects to divide the market.

It uses the behavioral pattern to classify the markets based on personality traits, values, opinions, and interests.

Advantages of Market Segmentation

It goes without saying that it is critical to understand what the consumer needs before you target a market. Market research helps you to understand what customers like, what they want, and whether are they happy with the current service or product.

On the other hand, market segmentation allows you to take advantage of the gap currently prevailing in the market. It helps you to target different groups of customers and develop marketing strategies based on segments.

As a business, you can create customized marketing campaigns based on different markets. It also plays an effective role in the communications of both advertisement and advanced customer targeting. Market segmentation allows you to stay cost-effective and lower acquisition costs.

Some of the benefits businesses can get from market segmentation exercise are as follows:

a) Targeted Marketing

By identifying specific segments within the market, businesses can create highly targeted marketing campaigns. This not only saves resources but also increases the likelihood of reaching interested consumers.

b) Improved Customer Understanding

Segmentation helps businesses gain a deeper understanding of their customers’ preferences and needs. This insight enables the development of products and services that better cater to these preferences.

c) Enhanced Product Development

With a clearer picture of customer needs, businesses can innovate and develop products that are more likely to succeed in the market. This reduces the risk of investing in products that may not gain traction.

d) Effective Resource Allocation

Segmentation enables companies to allocate resources more efficiently. They can focus their marketing efforts on segments with the highest potential for sales and growth.

e) Competitive Advantage

A well-executed segmentation strategy can provide a competitive edge by allowing a business to serve niche markets effectively. This can be particularly advantageous in highly competitive industries.

8 Steps in Implementing Market Segmentation

Effective market segmentation requires a structured approach. Some of the basic steps to implement market sef]gmentation exercise as listed below:

1. Market Research

Firstly, you need to gather data on your target market by conducting detailed market research. It includes demographics, psychographics, behavior, and geographic information. This can involve surveys, interviews, or data analysis.

2. Segmentation Criteria

Decide which criteria are most relevant to your business and product/service offerings. Ensure these criteria are actionable and align with your marketing goals.

3. Segment Identification

Use the collected data to divide your market into distinct segments. Each segment should be internally homogeneous and externally heterogeneous, meaning consumers within a segment should be similar to each other but different from those in other segments.

4. Segment Evaluation

Assess the attractiveness of each segment by considering factors like size, growth potential, profitability, and competition.

5. Target Selection

Choose one or more segments to target based on their attractiveness and alignment with your business objectives.

6. Positioning

Develop a positioning strategy that defines how your product or service will be perceived by the chosen segment(s).

7. Marketing Mix

Adapt your marketing mix (product, price, place, and promotion) to meet the specific needs and preferences of the selected segment(s).

8. Monitoring and Adaptation

Continuously monitor market changes and consumer behaviors within your segments. Be prepared to adjust your segmentation strategy accordingly.

Frequently Asked Questions

Why is market segmentation important for my business?

Market segmentation is crucial because it helps you understand your diverse customer base better. It enables you to tailor your marketing efforts, products, and services to meet the specific needs of different customer groups, increasing your chances of success.

What are the common mistakes businesses make when implementing market segmentation?

Some common mistakes include using too few or too many segmentation criteria, neglecting to continuously update segments, and failing to differentiate your marketing strategies for each segment. It’s essential to strike the right balance and stay agile in your approach.

Can a small business benefit from market segmentation as much as a large corporation?

Absolutely. In fact, market segmentation can be even more critical for small businesses with limited resources. It allows you to focus your efforts and resources on the most promising customer groups, maximizing your return on investment.

How do I conduct market research for segmentation purposes?

Market research can involve surveys, interviews, data analysis, and even the use of market segmentation tools and software. Start by collecting data on demographics, behavior, psychographics, and geographic factors to build a comprehensive understanding of your audience.

Is it necessary to use all segmentation criteria (demographics, psychographics, behavior, geography) for every business?

No, it is not necessary to use all criteria for every business. The choice of criteria depends on your business type, products, and goals. Select the criteria that are most relevant and actionable for your specific situation.

How often should I review and update my market segmentation strategy?

Market dynamics change, so it’s advisable to review and update your segmentation strategy regularly. This can be done annually or as needed when significant shifts occur in your market or customer behavior.

Can I target multiple segments simultaneously?

Yes, you can target multiple segments simultaneously, but it’s crucial to have a clear marketing strategy for each segment. Ensure that your resources, messaging, and product adaptations align with the needs and preferences of each segment.

Are there any tools or software that can help with market segmentation?

Yes, there are various market segmentation tools and software available that can streamline the process and provide valuable insights. Some popular options include customer relationship management (CRM) systems and data analytics platforms.

How do I measure the effectiveness of my market segmentation strategy?

Effectiveness can be measured through metrics like customer acquisition rates, conversion rates, customer retention, and sales growth within each segment. Regularly tracking these metrics will help you assess the impact of your segmentation efforts.

Can market segmentation help in expanding my business to new markets or regions?

Yes, market segmentation can be valuable when expanding to new markets. By analyzing the unique characteristics of the new market, you can identify segments that align with your offerings and develop targeted entry strategies.