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What is market segmentation and its types?

When it comes to reaching customers with a marketing message or advertising campaign, it's essential to target the right market with the right message. If your goal is too broad, your message may reach a few people who end up becoming customers, but it will also reach a lot of people who are not interested in your products or services. If your message isn't optimized for your audience, you'll end up losing a lot of advertising money.

Market segmentation can help you target only the people who are most likely to become satisfied customers of your business or enthusiastic consumers of your content. To segment a market, you have to divide it into groups with similar characteristics. You can base a segment on one or more qualities. Dividing an audience in this way allows for more targeted marketing and personalized content.

The importance of market segmentation

Market segmentation can help you better define and understand your target audience and ideal customers. If you are a marketer, this allows you to identify the right market for your products and then target your marketing more effectively. Similarly, publishers can use market segmentation to offer more precise advertising options and customize their content for different audience groups.

Let's say, for example, that you are a salesperson who is advertising a new brand of dog food. You could segment an audience based on whether they have a dog. You could then further segment that audience based on the type of dog they have and show them ads for foods formulated for their dog's breed. A publisher could use this same information to show content about dogs to people who own or like dogs.

Market segmentation allows you to target your content to the right people in the right way, instead of targeting your entire audience with a generic message. This helps you increase the chances that people will engage with your ad or content, resulting in more efficient campaigns and better return on investment (ROI).

Types of market segmentation

There are many different types of market segments that can be created. Below are the four main methods of market segmentation. You can also create more niche segments within the types listed below.

1. Demographic segmentation

Demographic segmentation is one of the most common ways. Refers to the division of audiences based on observable, persona-based differences. These qualities include things like age, gender, marital status, family size, occupation, education level, income, race, national origin, and religion.

Segmenting a market based on demographics is the most basic form of segmentation. Combining demographic targeting with other types can help you further narrow down your market. One of the advantages of this type of segmentation is that the information is relatively accessible and low-cost.

Some products are explicitly targeted at a specific demographic. A personal care company, for example, might make two deodorants: one for men and one for women.

Automotive companies usually segment their audience by income and market different makes and models of cars for each segment. A company may have a luxury brand, a budget brand, and a mid-range brand.

There are numerous ways to collect demographic data. One of them is to ask your customers directly. This can be time-consuming, but getting the information directly from customers will help ensure its accuracy. If you go this route, be careful to be respectful in the way you ask and to give customers enough answer options to get accurate results. You can also obtain demographic data directly from customers by checking social media and other online profiles where they can provide information about themselves.

You may also obtain demographic data from second and third-party data providers, including marketing service providers and credit bureaus. Public records, such as those of the US Census Bureau and the US Postal Service, can also provide useful information.

Collecting this data in a data management platform (DMP) will help you organize it and use it to target your marketing campaigns or content personalization efforts.

2. Behavioral segmentation

You can also segment your market based on consumer behaviors, especially when it comes to your product. Dividing your audience based on the behaviors they exhibit allows you to create messages that are tailored to those behaviors. Many of the actions you might observe are related to how someone interacts with your product, website, app, or brand.

Some types of behaviors to be aware of are:

  • Online shopping habits: You can take into account the online shopping habits of users across all sites, as this can be correlated with the likelihood that they will make an online purchase on your website.

  • Actions taken on a website: You can track the actions that users take on your online properties to better understand how they interact with them. You can look at how long someone stays on your site, whether they read articles to the end, the types of content they click on, and more.

  • Intended benefits: Refers to the need that a customer tries to satisfy when buying a product.

  • Usage rate: You can rank users based on their usage rate. Your messages will be different depending on whether someone is a heavy user, a medium user, a light user, or a non-user of your product.

  • Loyalty: After using a product for some time, customers often develop brand loyalty. You can rank customers based on their brand loyalty and tailor your messaging accordingly.

Behavioral data is useful because it directly relates to how someone interacts with your brand or products. Thus, they can help you market more effectively.

It may collect this data through various sources, such as cookies placed on your website, purchase data in your customer relationship management (CRM) software, and third-party data sets.

3. Geographic segmentation

Geographic segmentation, which consists of dividing the market based on its location, is a basic but very useful segmentation strategy. A customer's location can help you better understand their needs and allow you to deliver location-specific ads.

There are several types of geographic segmentation. The most basic is to identify users based on their location, such as their country, state, county, and zip code. You can also identify consumers based on characteristics of the area in which they live, such as climate, population density, and whether it is urban, suburban, or rural. Identifying features may require you to be more specific, as a county may have rural, suburban, and urban areas.

Dividing a market based on location is critical if you need to target people in a specific area, such as if you're advertising a small local business. It can also be useful if you are targeting a wide area because it allows you to tailor your message based on regional differences in language, interests, norms, and other attributes, as well as the different needs of people in different regions.

You may need to change the language of your messages depending on the region you are targeting. People living in different countries may also have different interests. Baseball is very popular in the United States, for example, while cricket is more popular in India. If you are marketing sports equipment or publishing sports equipment, you will need to take these different preferences into account.

Companies can also take into account the different needs of different regions. A clothing company, for example, will show ads with warmer clothing to people who live in colder climates and show the opposite to those who live in warmer climates.

4. Psychographic segmentation

Psychographic segmentation is similar to demographic segmentation but deals with more mental and emotional characteristics. These attributes may not be as easy to see as demographics, but they can provide you with valuable insight into your audience's motives, preferences, and needs. Understanding these aspects of your audience can help you create content that engages them more effectively. Some examples of psychographic characteristics are personality traits, interests, beliefs, values, attitudes, and lifestyles.

If you find that members of a demographic segment respond differently to your content, you can add psychographic information. While demographic data provides the basic information about who your audience is, psychographic data allows you to understand why people decide to buy or not buy your product, click or ignore your ad, and interact with you.

Let's say you're a home furnishings and décor company and you have a market segment consisting of newlyweds in their 20s and 30s with a household income of more than $60,000.

Some members of this segment convert, while others do not. If you add psychographic information to the mix, you may discover that the people who buy your products tend to value community and friendships and are environmentally conscious. Based on this information, you can create ads that show people entertaining their friends at home and emphasize the green attributes of your brand.

You can collect this data in many of the same ways that you can collect demographic data. You can ask your current customers for this information through surveys. You can also observe how people interact with your website and see what types of content they use, allowing you to understand their interests and preferences. You can also supplement your first-party data with second and third-party data.

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