What is Market Segmentation?

Neil Chandavarkar
Neil Chandavarkar
December 13, 2021
Marketing

What is Market Segmentation?

Market segmentation is the art of finding niche markets for your products by building profiles of potential customers and breaking them down into groups. Segmenting customers with similar needs and wants into groups makes it easier to target them directly. Whether you’re a small business or a Fortune 500 company, knowing who your customers are can boost revenue and lead to sustained brand growth. 

Marketers can choose from several useful tools and strategies that can help them get to know their customers and keep marketing plans up to date. Segmentation analyses of target markets over time help businesses of all sizes stay ahead of the curve. Here are the four different types of market segmentation and how you can reap the rewards of knowing your target audience.

Demographic Segmentation

The demographic market segment classifies customers by individual attributes. Examples include age, gender, disposable income, family size, marital status, and education level. All of these stats might impact demand for a product or service. 

Interest levels may depend on a variety of different attributes at the same time. Some products may or may not be gender-specific A completely different approach might be needed if you plan to target baby boomers or trend-wary millennials. 

B2B can focus on Firmographic segmentation – a sub-category of demographic segmentation that groups companies by size, revenue, industry, and other relevant stats. 

Psychographic Segmentation

This segment is concerned with who a potential customer is. Value set, lifestyle, political slant, personality traits, and aspirations can all affect consumption patterns in a big way. Certain consumers may be willing to pay a premium for products that they covet as status symbols or value as ethical or sustainable.   

Geographic Segmentation 

Geographical boundaries can also impact buying habits. Marketers should be aware of geographic considerations like zip code, climate, and season. Purchasing decisions are often made based on where someone is, and what time of year it may be. This segment is closely tied to the demographic and psychographic segments, as cultural considerations also come into play and are commonly related to the region where a potential customer may be.        

Behavioral Segmentation

Grouping consumers by behavior means taking a look at what they do. What did they buy in the past? What motivated the purchase, and how did they search for it? How do they interact with your brand? Do purchases increase on special occasions? Answering these questions will make it easier to target and send direct messages to your niche customer. Understanding the buyer journey of your customers will also make post-sales support that much easier. 

Adopting behavioral segmentation can lead to the optimization of ad spend,  increased sales, and a lower Cost of Goods Sold

Tools of the Market Segmentation Trade

Segmentation analysis can provide a clearer picture of your target market. If two groups of people have the same spending habits, you can group them in the same segment. Their profiles do not have to be completely aligned. Two people in different age groups and with divergent political views may share a hobby. They could even have the same job. In this case, targeted messaging would be very similar for both individuals.

Analytics tools like Google Analytics are indispensable for breaking down consumer demographics, trends, and spending patterns over time. Metrics like conversion tracking, bounce rate, and click-through rate can show how effective your marketing efforts have been. You can also see how many visitors came to your site, how long they stayed, and what pages they browsed.  

Many software solutions offer features like customer data storage, behavioral analytics, segmentation research, and consumer categorization. Advanced features can include predictive modeling and machine learning. These features use algorithms to map the buyer journey and forecast future consumption patterns.   

You can use polls, focus groups, and surveys with qualitative and quantitative questions to identify pain points and build a target audience profile. Using psychological studies can provide valuable insights into consumer personality. 

You can cross-reference these results between market segments to provide a snapshot of consumer habits. Email and Marketing Automation Software can test the market for responsive consumers, while CRM software helps you stay on top of sales and customer success goals. 

See the table below for a breakdown of some of the best tools for researching and grouping market segments. 

ProductPricetrScoreProsCons
Alexa$99 per feature per month8.1/10
Site and traffic rankings
Competitor information
Web traffic analytics

Keyword functionality
Metrics
Learning curve
Google Analytics$0-$150,000 per year8.6/10

Detailed reports
Data accuracy
Seamless experience

Expensive premium version
Cookie reporting
Attribution modeling for a limited number of reports
QualtricsFree, with a premium version that costs $1,500 a year for each user 8.7/10Reporting and data collection
Survey research and design templates
Consumer insights
Loading times for reporting interface
Analysis of open-ended responses
Usability
MailChimpFree up to 2,000 subscribers, with premium packages from $15 to $300 per month8.2/10
Usability
Integration between social accounts and email campaigns
All-in-one marketing solution
Customization
Learning curve for list segmentation
Database integration updates
Salesforce

$25-$300 per user per month
8.4/10
Data inputs
Dashboard reporting
Depth of features
Price
Learning curve
Customization
SurveyMonkey$27 – $119 per user per month, special pricing for Enterprises8.1/10
Survey creation
Usability
Reporting and analytics
Customization
Flexibility
Automation

Market Segmentation Benefits

Knowing who might be interested in your products can provide a major boost to customer acquisition and loyalty. See the table below for a summary of some of the biggest market segmentation benefits: 

Market Segmentation Benefits
Identifying potential customersA clear view of the potential customer base allows for stronger marketing messages and increased lead generation.
Content marketingThe ability to tailor web, in-store, or promotional content to target customer interests.   
Digital marketingUnderstanding the traits and behaviors of your customer base increases the efficiency of targeted advertising on social media and search engines.
Brand recognitionHaving more relevant ad campaigns and content increases brand recognition, helping you stand out from competitors.
Customer serviceAwareness of wants and needs helps improve customer support and satisfaction.
Product developmentCustomer preferences become easier to identify, facilitating product development. 
Building brand loyaltyMeeting customer demands builds trust, helping businesses stand out from competitors. 
Driving revenue and growthKnowing customer spending habits increases cross-selling and upselling possibilities. 

Crafting The Right Market Segmentation Strategies

Market segments change as products or consumer preferences evolve. Holidays or external events like the COVID-19 pandemic can also impact buyer behavior and attitudes. It’s good practice to review segments periodically and make sure that products or services align with your target market’s desire. What has changed and why? What are the risks and opportunities in each segment? A simple SWOT analysis will help answer these questions. 

Having clearly defined marketing strategies is essential for growing your brand and grabbing market share in an increasingly competitive market. Market segmentation is an essential part of any new marketing initiative, giving you a clearer picture of who your potential customers are, what they have in common, and what makes them unique

About the Author

Neil Chandavarkar
Neil Chandavarkar
Neil Chandavarkar is a Research Analyst at TrustRadius. He holds a BA in International Relations from the State University of New York at Geneseo, having undertaken graduate studies at New York University and the Federal University of Rio de Janeiro. In his spare time he enjoys traveling, reading, and hanging out with his German Shepherd and Tabby Cat.

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