Marketing segmentation is the process of dividing customers into groups based on common characteristics like demographics, interests, needs, or location. The goal is to identify specific customer groups and tailor marketing strategies and campaigns to best resonate with their preferences.
Segmentation is a crucial component of any digital marketing strategy. By dividing a broad target market into subsets, companies can gain a deeper understanding of customers’ motivations and needs. This allows them to create more targeted messaging and product offerings. It also enables companies to optimize their budgets by focusing marketing dollars on the customer segments likely to be most receptive.
The importance of segmentation stems from the fact that customers have diverse needs and will respond very differently to marketing approaches. Few companies can construct a single product or campaign that appeals to an entire market. And with increased competition, simply broadcasting generic messaging fails to cut through the noise. Segmentation transforms a shotgun approach to marketing into a more precise and effective rifle strategy.
Types of Segmentation
There are four main types of marketing segmentation:
Demographic Segmentation
Demographic segmentation divides consumers into groups based on demographic variables like age, gender, income, education level, occupation, religion, race and nationality. For example, a clothing brand might create different products and marketing campaigns targeted at men versus women.
Geographic Segmentation
Geographic segmentation divides consumers into groups based on location, like country, region, city or neighborhood. For example, an international company may customize its products and messaging based on regional tastes and preferences.
Psychographic Segmentation
Psychographic segmentation divides consumers into groups based on social class, attitudes, interests, opinions, values, lifestyles and behaviors. For example, an outdoor retailer may target different products to hiking enthusiasts versus water sports lovers.
Behavioral Segmentation
Behavioral segmentation divides consumers based on how they interact with a company and its products. Variables include purchase frequency, channel usage, benefits sought, loyalty status and readiness to buy. For example, a hotel may market differently to frequent business travelers versus occasional leisure guests.
Steps for Segmentation
Market segmentation is a critical process for any business looking to better understand and serve their target customers. Successful segmentation requires carefully planning and executing a few key steps:
Identify Basis for Segmentation
The first step is determining how you will segment your broader market. Common bases for segmentation include:
- Demographic factors like age, income, education level
- Geographic factors like region, city size, density
- Psychographic factors like attitudes, lifestyle, values
- Behavioral factors like product usage, spending habits, benefits sought
Your business should select the segmentation bases most relevant to your products, customers, and goals. For example, a book publisher may segment primarily by age and education level.
Develop Detailed Profiles
Once you’ve identified your basis for segmentation, the next step is developing detailed profiles of each resulting segment. Ask questions like:
- What are this segment’s distinguishing attributes?
- What are their needs and wants?
- How do they make purchasing decisions?
- What marketing messages and products will resonate most?
Create robust profiles with quantifiable data and deep insights into each segment’s values, behaviors, and motivations.
Evaluate and Select Target Segments
With your segmentation profiles complete, carefully evaluate each resulting segment on criteria like:
- Size of population
- Growth potential
- Accessibility
- Competitive landscape
- Alignment with company goals
Determine which segments represent the best opportunity to profitably deliver value. Avoid spreading your focus and resources too thin – it’s better to deeply engage a few prime segments than superficially engage many.
Target and Position
With your target segments selected, your strategy and messaging can fully focus on meeting their unique needs and preferences. Position your brand, products and marketing to perfectly align with what matters most to your audience segments. Continuously refine your knowledge of each micro-market and adapt accordingly over time.
Demographic Segmentation
Demographic segmentation divides consumers into groups based on demographic variables like age, gender, income, education level, occupation, etc. Demographic factors are the most popular bases for distinguishing customer groups.
- Age: Age is commonly used in segmentation, with age ranges like millennials, gen Z, baby boomers, etc. used to target marketing based on life stage. For example, products like diapers have an obvious age-based demographic appeal.
- Gender: Gender is another basic demographic that markets use in segmentation. Certain products like skin care or clothing are marketed differently to men and women.
- Income: Income segmentation focuses on consumers’ purchasing power. Marketers may segment luxury goods to high income segments. Or everyday necessities can be positioned for lower income segments concerned about affordability.
- Education Level: Education level indicates interests and abilities that affect consumer behavior. Marketers may segment technical products towards educated professionals for example. Or target basic goods to less educated segments.
- Occupation: Occupation indicates needs and lifestyles associated with work environments. Office products can be targeted to white-collar office workers for instance. While workwear and equipment can target tradespeople and blue-collar segments.
Key aspects of demographic segmentation are that it’s easy to measure, offers large segment sizes, and supports targeted communication channels. It remains an essential starting point for consumer profiling.
Geographic Segmentation
Geographic segmentation divides consumers into groups based on where they live. This can include segmentation by country, region, state, city, neighborhood, population density (urban, suburban, rural), and climate.
Some examples of geographic segmentation include:
- Segmenting by region – targeting consumers in specific regions like the Midwest, Pacific Northwest, etc. This helps adapt messaging and products to regional tastes.
- Segmenting by city type – urban cities have different consumer needs/values than suburban or rural areas. Brands may tailor offerings accordingly.
- Segmenting by country – products, messaging, and advertising are localized to resonate in different countries based on culture, values, etc.
- Segmenting by climate – brands sell different products in cold climates (coats, snow blowers) vs hot climates (swimwear, AC units).
Geographic segmentation is useful for localized marketing tactics like customized advertising, partnerships with local businesses, targeted sales promotions, and adapting products to regional needs. It helps brands connect with consumers at a local level.
Psychographic Segmentation
Psychographic segmentation divides potential customers into groups based on lifestyle, personality, values, attitudes, and interests. This type of segmentation goes beyond simple demographics to uncover why people make purchasing decisions. It helps businesses tailor their marketing to resonate better with different groups.
For example, an outdoor retailer could segment its customers into psychographic groups such as “Outdoor Enthusiasts”, “Weekend Warriors”, and “Comfort Seekers”. The marketing messaging and products offered to each group would differ based on their interests and attitudes about outdoor activities.
Outdoor Enthusiasts are passionate about outdoor sports and recreation. They are experienced, self-reliant, and constantly seeking new adventures. Marketing to this group should focus on performance, quality gear and highlight thrilling extreme sports.
Weekend Warriors enjoy the outdoors but in a more casual way. They like hiking, camping, and water sports but aren’t hardcore about gear. Marketing to them should promote fun outdoor getaways that balance activity with relaxation.
Comfort Seekers prefer easier outdoor activities closer to home. They want to enjoy nature but aren’t interested in roughing it. Marketing to this group should highlight short scenic trails, glamping options, and promoting the outdoors as a peaceful escape.
Developing psychographic profiles takes research but allows marketers to fine-tune messaging to align with the passions, attitudes, and lifestyles of different customer segments.
Behavioral Segmentation
Behavioral segmentation divides consumers based on their behavior, knowledge, use or response to a product. Some common ways to segment by behavior include:
- Purchase Occasion: Segmenting consumers by when and how often they purchase or use a product. For example, categorizing customers as heavy users, medium users, light users, or non-users based on usage frequency.
- Benefits Sought: Grouping consumers according to the benefits they seek from a product. For instance, someone may be looking for convenience, while another values prestige. Segmenting by benefits helps tailor messaging and offerings.
- Usage Rate: Categorizing customers as heavy, medium, light or non-users based on how much they use a product or service. High usage segments may be targeted for increased sales, while light users could be encouraged to increase consumption.
- Loyalty Status: Dividing consumers into segments like new customers, returning customers, and loyal customers who repeatedly purchase. Loyalty programs and incentives can then be tailored to each group.
Segmenting by consumer behavior provides actionable insights to craft targeted marketing. Key behaviors related to the product help uncover motivations to inform branding, positioning and sales strategies.
Hybrid Segmentation
Hybrid segmentation involves using a combination of different segmentation bases to divide consumers into groups. This approach combines two or more of the major segmentation bases – demographic, geographic, psychographic, and behavioral data – to get a fuller picture of the target audience.
For example, a sporting goods company may look at a combination of demographic, geographic and behavioral data to identify market segments. They could target 18-34 year old males (demographic) living in the Southern United States (geographic) who purchase outdoor recreation gear at least once a month (behavioral). This creates a very specialized cohort for targeted messaging and product development.
Some key advantages of hybrid segmentation include:
- More precise targeting – Combining data provides a multi-dimensional view of customers and their needs. This allows for messages and offerings tailored to very specific groups.
- Identify new opportunities – A hybrid approach may uncover consumer groups not visible with a single data source. The overlaps reveal unique segments to serve.
- Improved marketing efficiency – Highly targeted marketing to specialized niches gets better engagement and return on investment.
The challenge with hybrid segmentation is the complexity of analyzing different data sets together. It requires clear segmentation objectives, quality data, and advanced analytics skills to combine the information successfully. But the detail provided by a hybrid approach makes it worthwhile for brands looking to fine-tune their targeting.
Segmentation Strategies
When creating marketing segments, brands can take one of three main strategic approaches:
Differentiated Marketing
With a differentiated marketing strategy, a company targets multiple segments and designs distinct products and marketing mixes for each. This allows complete customization to match the needs of different groups. The key advantage is maximizing total market coverage. However, the drawback is higher expenses from producing variations and managing multiple marketing campaigns.
Differentiated marketing works best when consumer needs are highly diverse or segments are very responsive to tailored appeals. Fashion retailers often follow this approach with separate product lines aimed at women, men, teenagers, and children.
Concentrated Marketing
Concentrated marketing focuses on one well-defined segment. Using this strategy allows brands to gain a deep understanding of the target segment and specialize their product and marketing. It can help companies build a reputation within a niche. However, the risk is missing potential growth from other segments.
Companies that sell expensive or exclusive products, like luxury automakers, frequently choose a concentrated approach to intensely cater to customers who want premium options. The goal is not mass-market coverage but dominating a niche.
Multisegment Marketing
With multisegment marketing, a company targets several relevant segments but does not fully customize its offering or marketing for each one. This balances some adaptation with efficiency. The benefit is reaching a larger market than a concentrated approach, with more focused appeal than mass marketing. The challenge is ensuring adequate relevance across multiple segments.
Multisegment marketing is common with consumer goods from food to home appliances. Brands identify key consumer demographics, lifestyles, or usage behaviors to segment. But products are not radically altered for each group, just positioned and messaged differently. This provides wider access with targeted messaging.
Conclusion
Marketing segmentation is a crucial process for businesses to identify their target customers and successfully market to them. This guide has covered the key types of segmentation and steps to follow when performing market segmentation analysis.
The main segmentation bases discussed were demographic, geographic, psychographic, behavioral, and hybrid segmentation models. Each has its own advantages for grouping customers and allows marketers to customize their strategies based on segmentation results.
Overall, marketing segmentation empowers companies to fine-tune their positioning and marketing mix for more relevant targeting. When done effectively, it leads to greater customer acquisition and retention. This makes segmentation an indispensable tool for a successful marketing strategy.
