What Is Market Segmentation?

Whether you're a marketer or a new business owner, learning about market segmentation is a game-changer that will allow you to reach the right target audience as well as create effective marketing campaigns.
Market segmentation is a strategy that, when implemented properly, can significantly increase your profits. It also helps you satisfy and retain your customers.
What is market segmentation, exactly?

What Is Market Segmentation?

Market segmentation is a strategy that’s used by every successful business today. The main idea behind this strategy is to categorize consumers.
Each category includes individuals who have similar needs and are likely to react similarly to marketing campaigns.
This strategy helps businesses concentrate their efforts on segments or groups that are likely to be interested in certain product lines.
Moreover, market segmentation allows businesses to create various marketing campaigns that'll appeal to not just one but multiple segments.
For example, suppose you own a furniture store and want to reach out to different crowds. You'll be able to do so easily by identifying the needs of each category.
After identifying your market segments, you can now create multiple campaigns. One campaign will feature a family, another will feature a group of friends, and so on. This will help you reach a lot of potential customers.

What Are the Benefits of Market Segmentation?

According to an Epsilon research conducted in 2018, 80% are willing to make a purchase when brands provide a personalized experience.
This explains why segmented websites are two to five times more effective than others, and why segmented campaigns can raise revenue by a whopping 760%!
Those figures clearly demonstrate how market segmentation helps businesses. However, let us explain how it can make a difference by highlighting its major benefits:

Clarify Objectives

Market segmentation allows you to locate key information about the market in a cluster of data. When you're no longer distracted by unnecessary details, you'll have a clearer picture of your marketing objectives.

Create Effective Marketing Strategies

Based on the relevant data you've gathered, you can now identify the marketing strategies that'll work best.
Knowing more about your target audience will help you figure out how to appeal to them. As a result, the level of engagement in your marketing campaigns will skyrocket.

Reduce Marketing Expenses

Personalizing your marketing campaigns, whether using SEO or organic techniques, will reduce your marketing costs. You don't need to spend money on campaigns that are likely to fail now that you've created effective marketing strategies.
What's more, targeting your paid ads diverts irrelevant traffic away from your website, lowering your CPA (cost per acquisition).

Increase Customer Satisfaction

As we just mentioned, people favor personalized approaches. The more you provide tailored experiences to your customers, the more satisfied they'll be with your product or service.
This is like a stepping stone for establishing a strong base of loyal customers. And remember, having satisfied customers increases your chances of word-of-mouth marketing.

Boosts Return on Investments (ROI)

Market segmentation will eventually help you increase your profits. It forces you to focus on the right traffic, increasing your chances of selling your product or service.
Besides, it'll help you make money in the long run. Along the way, you'll reveal ways to better serve your target audience. You'll also keep discovering a niche and new markets that can pave the way for your brand's expansion.

What Are the Main Types of Market Segmentation?

There are various approaches or types of market segmentation to match different situations. The best approach to take depends on your business model and the segments you want to create.
There are four major types of market segmentation:

Demographic Segmentation

This is a very common type of market segmentation. Demographic segmentation classifies your prospects based on characteristics such as:
  • Sex
  • Age
  • Nationality
  • Religion
  • Marital status
  • Educational level
  • Income
It primarily focuses on gathering easily accessible information, which makes it one of the simplest and least expensive types of market segmentation.
For example, shampoo companies that have lines for both men and women can rely heavily on this type of segmentation.

Geographic Segmentation

Geographic segmentation narrows your target audience down based on where they live. Knowing their country, state, or even neighborhood can tell you a lot about them. After all, interests and preferences do shift from one place to another.
You'll also have a sense of what their climate is like, which is extremely useful if you own a clothing line.
Another case of how geographic segmentation can be crucial is when you open a new store in a specific state. If you want to drive traffic there through ads, you'll need to focus on geographic segmentation so that you only reach people in this state.

Behavioral Segmentation

Behavioral segmentation puts your potential customers into groups based on their buying habits and behaviors. It keeps track of things like:
  • Purchasing patterns
  • Purchase motive
  • Consumption
  • Usage frequency
  • Website interactions
Knowing this information allows you to develop more targeted approaches that result in direct interaction with your products.
For example, suppose you own a food app and have noticed that some users order food during the week but not on weekends.
You can assume they work during the week and thus have no time to cook. In any case, you now know that sending them discounts on weekends can encourage them to order.

Psychographic Segmentation

Psychographic segmentation seeks deeper aspects than the other types mentioned. It divides consumers into segments based on mental and emotional criteria such as:
  • Lifestyle
  • Values
  • Beliefs
  • Activities
  • Personality traits
  • Opinions
Such characteristics aren't as easy to find out about your customers as in demographic segmentation.
However, using the information revealed by psychographic segmentation can lead to more effective campaigns. Using demographic or geographic segmentation alone isn't always enough.
If you run a vegan bakery and rely solely on demographic or geographic types, you might not make it. You'll need to target a more specific audience, which is where psychographic segmentation comes into play.

Conclusion

What is market segmentation? Market segmentation is an effective tactic for increasing the likelihood of developing successful marketing campaigns.
As a marketer or a business owner, you have to be aware of the constant changes that occur daily in the market and respond accordingly.
This is where market segmentation comes in handy; it’ll keep you on track while also revealing new business opportunities as you go.