What is market segmentation?

Customers are the most important part of your business. But knowing where to find them and reaching out with the right message can be tricky - especially when you take into account the sheer amount of competition around today.

One of the easiest ways to deliver the right information at the right time is by getting to know your audience and targeting specific segments based on their unique wants and needs. This is known as market segmentation, and it can be hugely beneficial in boosting your revenue, creating loyal customers, and positioning your brand in a crowded market.

What is market segmentation?

Market segmentation is the act of creating distinct groups of potential customers based on their characteristics, situations, and interests. When you better understand what makes your prospects tick, you can send them relevant content that meets their needs.

Not all of your customers will be interested in your products or services for the same reason. Market segmentation helps you identify those different needs and serve messages that speak to each of them. As a result, you can forge better customer relationships, develop more appropriate products, and run more successful campaigns.

The benefits of market segmentation

Understanding your customers is one of the most beneficial things you can do for your business. It stops you throwing spaghetti at the wall and seeing what sticks. Instead, you can craft targeted messages that hit the spot every single time.

• Improve campaign performance: identify and target the right people with the right message at the right time for higher conversions
• Develop better products and services: create offerings that tap into the unique pain points that characterise your different market segments
• Increase sales: identify business opportunities that relate to different market segments based on their real-life wants and needs
• Beat the competition: stand out amongst competitors by serving specific segments of the market rather than trying to capture the attention of everyone
• Improve customer retention: loyal customers are your best customers. Understanding them means you can cater to their needs and create irresistible offerings they keep coming back for
• Cost efficient: save time and money by targeting the right kind of customers with the right message

The 4 types of market segmentation

1. Demographic segmentation

Demographics refer to the objective information about customers, like their age, sex, marital status, nationality, income, and occupation. Splitting customers up based on these identifiers is the most common form of segmentation, but it works best if paired with deeper, more meaningful insights.

For example, two 35-year-old women from London could have very different interests. One might be a stay-at-home mother of three, while the other might be a high flying business woman who lives alone. Demographic segmentation can only take you so far, but works well if you want to focus on a basic level.

There are several ways you can collect demographic data about your customers. Firstly, you can ask them directly. This can be time-consuming, but it will make sure you’re getting accurate information. Secondly, you can pull data from second- and third-party providers. Finally, you can scour your social media and website analytics which provide rudimental insights into the age, location, and sex of people who interact with your brand.

2. Geographic segmentation

Geographic segmentation does exactly as it says on the tin - splits customers up based on their location. This can be incredibly useful, particularly when you note that a lot of countries have very different pop culture habits and customs.

There are a few different ways geographic segmentation can help outside of targeting different countries. It also gives you an insight into the kind of climate customers live in, whether they live rural or suburban lives, and what they value the most.

In addition, it’s important to consider the language your customers speak. You may need to switch up your messaging depending on who you’re targeting - this goes for cultural references too. For example, baseball is huge in the US but not big at all in the UK, so referencing that if you’re targeting a UK audience might miss the target.

The easiest way to get your hands on geographic data is to check in with your analytics. Determine where the largest majority of customers are coming from and segment them based on those groups.

3. Behavioural segmentation

Behavioural segmentation identifies and targets consumers with specific behaviours. There are several ways you can segment people based on their behaviour, including:

• How they shop online
• What actions they take on your website
• How often they use a product or service
• What pages they interact with the most
• Which social channels they are most prevalent on
• How loyal they are to your brand

How you find behavioural data depends on what behaviour you want to track and target. If you’re interested in people’s shopping habits, have a look at the journey they take on your website when buying a product. Likewise, if you’re segmenting consumers based on their on-site actions, look at what CTAs they interact with, whether they read blog posts all the way to the end, and the type of content they click on the most.

This data can be collected via cookies on your website, the information you have in your CRM software, and third-party datasets.

4. Psychographic Segmentation

Psychographic segmentation is similar to demographic segmentation but it digs into the more emotional side of consumer behaviour. It gives you insights into your customers’ preferences and their reasons for purchasing.

Psychographic information can include details like:

• The biggest challenges your customers face
• What goals your customers have
• Your customers’ most pressing pain points
• The reasons why customers make a purchase
• Your customers’ biggest fears
• Your customers’ interests

It’s a little more difficult to find psychographic data than the other kinds of data to segment, simply because the information is so subjective. However, you can run customer surveys, interview your most loyal customers, and track the way people use your website.

It helps to pair psychographic data with demographic data to get a comprehensive idea of a segment’s wants and needs. For example, you might decide to target 30-45 year-old middle managers whose buying decisions are driven by their need to impress their boss. Or you might decide to target 25-45-year-old women who struggle to balance their diet with a busy lifestyle.

Other types of market segmentation

While the above four types of market segmentation are the most common, there are other ways you can split up your audience. It depends entirely on the product you’re selling and why you’re selling it.

You might also decide to segment customers through:

• Value segmentation: how much each customer is worth to your business
• Generational segmentation: what generation your customers fall into, whether it’s Gen Z, Millennials, Gen X, or Baby Boomers
• Firmographic segmentation: the unique characteristics of a company rather than an individual
• Lifestage segmentation: what stage of life your customers are at, for example college students, honeymooners, or retirees
• Seasonal segmentation: identifying the different items people buy at different times of the year

Market segmentation helps every part of your business

Understanding your customers and using market segmentation to target different groups is crucial for success in your marketing efforts and product development. It also helps create happy customers who feel like you “get” them. Whether you segment people based on their age, location, interests, or shopping habits, it’s key that you understand what those people want and how your business can tie into their needs.