Marketing Segmentation 101: Understanding the Benefits and Types of Segmentation in Marketing

Don’t put all of your eggs in the same basket, as the popular business adage goes; the same can be said when it comes to successfully running an ad or email marketing campaign! Since they differ in taste, behavior, age, gender, and other factors, you simply can’t satisfy every single one of your target audiences with the same marketing strategy.

So, what should you do?

Well, here comes the significance of marketing segmentation! If you want to get the most out of your marketing efforts, you will have to properly segment your audience into different subgroups and run personalized marketing campaigns.

However, there are several types of segmentation in marketing, and we’ll go over each one in this article. Read this article to find the best approach for your business and keep it thriving.

Let’s start by understanding what it is and how it works!

What is marketing segmentation?

Marketing is all about getting to know your customers and communicating with them in a way that they understand. However, with so many different customers to reach, businesses may find it difficult to develop effective marketing campaigns that resonate with everyone. This is where segmentation comes into play.

Marketing segmentation is the process of dividing a large market into smaller groups with similar preferences and requirements. This enables businesses to create targeted marketing campaigns that are relevant to their target audience.

However, segmentation strategies can differ from niche to niche and even from business to business. It all comes down to putting the right egg in the right basket. Businesses choose an approach based on their needs and the characteristics of their target customers.

Let’s look at an example to make things clearer!

Assume you run an online business that relies on email marketing to reach its target audience. Now, if you want to run your business efficiently and profitably, you simply can’t approach everyone with the same messages!

Let’s say you own an online clothing store that serves both men and women. Now, you can segment your email list for efficiency based on the gender of your customers. When you release a new line of women’s clothing, you can send out an email showcasing the new arrivals and special offers to only your female subscribers.

Similarly, if you have a sale on men’s clothing, they can send an email to only their male subscribers, highlighting the discounted products and promotions for men. Otherwise, your email campaign will not produce the desired results!

To sum up, marketing segmentation is a vital strategy for businesses seeking to strengthen their relationships with customers and create a recognizable brand. By only segmenting their customers based on their behavior, they can create targeted marketing campaigns that are more likely to convert!

Why does marketing segmentation matter?

Segmentation is an influential tool that can assist businesses in improving their marketing efforts, increasing sales, and strengthening their connections with consumers. Businesses can stand out in a crowded market and develop a devoted customer base by adopting a properly executed segmentation strategy.

There are many advantages to segmenting your market and doing so can greatly increase the chances of a business succeeding. These are the top five reasons that make segmentation so crucial:

1. Increased Engagement: Segmentation enables businesses to customize their marketing to particular customer groups, which leads to higher engagement.

2. Increased Sales: By recognizing their customers’ wants and tastes, businesses can develop goods and services that more effectively satisfy those needs, resulting in higher sales and profits.

3. Marketing That Works Better: By using targeted messaging, companies can design marketing campaigns that speak directly to the wants and needs of their target audience, improving conversion rates and increasing return on investment.

4. Better Customer Retention: Businesses can increase customer satisfaction and loyalty, resulting in better customer retention rates and lower churn, by specifically targeting segments with customized content and offers.

5. Competitive Advantage: By providing goods and services that are specifically tailored to the requirements and preferences of their customers, businesses can set themselves apart from their rivals and gain a market advantage.

Take a look at this article to learn more.

Key Benefits of Segmentation in Email Marketing

Due to its ability to help businesses generate targeted and pertinent messages for particular subscriber groups, segmentation is extremely vital for email marketing. Businesses can design personalized campaigns that are more likely to connect with their subscribers.

Here are some specific reasons why segmentation is important for email marketing:

• Higher Open Rates: By sending customized and targeted messages to specific segments of their email list, businesses can improve open rates and ensure that their emails are being seen by the right people.

• Better Engagement: Businesses can use segmentation to generate more interactive content that talks directly to the wants and requirements of their subscribers, resulting in higher click-through rates and better engagement.

• Improved Conversion Rates: Businesses can reach out to potential customers more effectively by segmenting their contacts, resulting in a higher conversion rate.

• Reduced Churn: Businesses can raise customer retention rates, lower churn rates, and lower email bounce rates by sending targeted messages.

• Improved Brand Perception: Businesses can enhance their subscribers’ perceptions of their brand by making the business more trustable and customer-focused.

• Better Data Collection: Businesses can better target their messaging and enhance their overall marketing strategies by using segmentation, which enables them to gather more information about the preferences and actions of their subscribers.

• Greater Flexibility: Businesses can create campaigns that are flexible enough to experiment with various messaging approaches.

Overall, segmentation is a critical component of email marketing, providing businesses with the ability to create targeted, relevant messages that engage subscribers, drive sales, and build stronger customer relationships.

Furthermore, we recommend that you use a marketing automation tool to make your job easier!

Read: Why contact segmentation is essential

5 key types of segmentation in marketing

As we already know, market segmentation is the process of dividing a market into smaller segments based on particular criteria. However, there are numerous types of marketing segmentation techniques available, and you must use the correct one to achieve the best results.

We can categorize marketing segmentation into five types. They are as follows:

1. Demographic segmentation
2. Geographic segmentation
3. Psychographic segmentation 
4. Behavioral segmentation
5. Firmographic segmentation 

Scroll down to learn more about each type of segmentation and see some real-world examples of how to use them effectively.

Demographic segmentation

Demographic segmentation is a kind of market segmentation that considers categorizing a market based on demographic factors such as age, gender, income, education level, occupation, and marital status. Businesses that want to focus their marketing efforts on a particular demographic can benefit from this kind of segmentation.

For instance, Coca-Cola, the world’s largest soft drink company, targets young, active people as its target market, and this brand consistently tries to promote its product through various entertainment segments. Apple, on the other hand, has always targeted higher-income individuals.

The following demographic factors influence demographic segmentation:

• Age: People of various ages have different preferences. You can easily sort your sizable customer base by age. Then approach them based on their requirements. For example, if you own a toy company, you should target children under the age of ten. In the case of a pharmaceutical company, targeting seniors could be your best segmentation strategy.

• Gender: Another popular demographic factor in segmentation is gender. Organizing your customers by gender can help you save time and make your efforts more successful. A cosmetics company, for example, may target women with its makeup and skincare products, whereas a razor company may target men with its shaving products.

• Income level: Even though we talk about equity all day, income discrimination exists in our society and is inevitable. As a result, if you are selling luxury goods and services, you will always love to target customers with a high income level.

• Education level: When it comes to marketing educational products and services, education level is a major factor. For example, as an online course seller, you might target high school graduates for fundamental courses, whereas a university graduate might prefer an advanced course. 

• Marital status: Marital status is a demographic variable that can be used to categorize consumers of family-related goods and services. A company selling baby products, for example, might target married couples who are planning to have kids or young children.

Read our article for a deeper dive into demographic segmentation

Geographic segmentation

Geographic segmentation is the process of breaking the market down into a number of smaller groups based on geographic factors like region, city, climate, or population density. Businesses that want to focus their marketing efforts on particular geographical areas can benefit from using this technique.

As an example, let’s consider McDonald’s! They always keep the food habits of that specific region in their minds while developing their menu. This makes it possible for them to meet the needs of customers in various parts of the world!

Geographic segmentation is primarily determined by the following geographic factors:

• Region: Region can be an excellent segmentation factor. Assume you own an online clothing store. If you want to sell long-sleeved t-shirts, it’s best to target customers who live in a relatively cold region.

• City: It is yet another geographical factor that is frequently used in segmentation. For instance, a pizza-selling business might target customers in densely populated urban areas, where there are more potential customers and a greater demand for food delivery.

• Climate: Climate or weather is another geographical factor that can be used to segment the market for weather-related products and services. Targeting people in hot climates will be ideal if you want to sell air conditioning systems.

• Population: A geographic variable called population density can be used to divide the market for goods and services into urban and rural niches. For instance, a business selling tractors and other farm equipment might target people in rural areas with bigger farms, whereas a business selling private cars might primarily target people in urban areas.

Learn more about geographic segmentation

Psychographic segmentation

Psychographic segmentation is more effective at the individual level. In a nutshell, psychographic segmentation is a marketing technique that divides a market into smaller segments based on the style of living, principles, personality types, preferences, and behaviors.

This technique can help businesses recognize the psychological and emotional drivers of customer actions. Nutrition and supplement product sellers, for example, target people who value fitness, athletic performance, and living a healthy lifestyle. Apple, on the other hand, seeks customers who value creativity, innovation, and uniqueness.

The following factors influence psychographic segmentation:

• Lifestyle: The daily routine of a customer can play a significant role in your segmentation strategy. For instance, a business that sells outdoor gear might concentrate on people who lead active lifestyles and enjoy outdoor pursuits like hiking, camping, and so forth.

• Values: Another frequently used psychographic factor in segmentation is a person’s values and perspective on life. Selling environmentally friendly goods, for instance, will only draw customers who place a high value on environmental and social responsibility.

• Personality: The market for goods and services that appeal to particular personality types can be segmented using personality traits. A business that sells adventure travel can focus on customers who enjoy adventure and thrill-seeking.

• Interest: Interests are another psychographic factor that can be used to segment the market for products and services related to particular hobbies and activities. A company that sells golf equipment, for example, might target golf enthusiasts.

Find out more: Psychographic Segmentation in Marketing

Behavioral segmentation

Behavioral segmentation is a marketing tactic that divides a market into smaller segments based on the actions of customers toward a product or service.

Businesses that want to comprehend their customers’ buying patterns, product usage patterns, and brand loyalty can benefit from this technique. For instance, Amazon makes product recommendations to customers based on their past purchasing patterns.

The most popular factors for behavioral segmentation are listed below:

• Usage rate: This procedure essentially involves choosing a marketing strategy based on how frequently customers use it. Let’s say that based on a customer’s data usage, internet service providers decide which package to offer them.

• Brand loyalty: Another common behavioral factor in segmentation is loyalty to a specific brand. For example, a smartphone company may target customers who are loyal to their brand and have previously purchased their products.

• Purchase occasion: This marketing strategy is used primarily by businesses that sell products whose demand increases during the festive season. A business that sells flowers, for instance, might focus on clients who buy their products for celebrations like birthdays, weddings, or anniversaries.

• Customer journeys: It is a behavioral characteristic that can be applied to market segmentation for goods and services that are tailored to particular phases of the customer journey. A customer who has abandoned his or her shopping cart, for example, may be more likely to complete his or her purchase if he receives a personalized email with a discount or offer.

Also read: What is Behavioral Segmentation?

Firmographic segmentation

Firmographic segmentation is a marketing tactic in which the market is broken down into smaller clusters based on company attributes such as industry, company size, location, and revenue. This technique is beneficial for companies that sell products or services to other businesses, also known as B2B marketing.

For example, if WPManageNinja wants to sell its customer relationship management plugin, FluentCRM, it should target businesses that operate online and require a CRM tool to manage their day-to-day tasks more effectively and efficiently.

When using firmographic segmentation, the following factors act as determinants:

• Company size: One frequently used firmographic factor in segmentation is company size. A company that sells HR software, for example, may target customers with a large number of employees, whereas a company that sells office supplies may target customers with a smaller number of employees.

• Location: Location is another important firmographic factor. A company selling snow removal equipment, for example, might target customers in areas with harsh winter climates, whereas a company selling beach gear might target customers in areas with warm, sunny weather.

• Revenue: Revenue is a firmographic factor that can be used to segment the market for budget-specific products and services. A company that sells marketing services, for example, may target customers with a large marketing budget, whereas a company that sells office supplies may target customers with a smaller marketing budget.

Some other types of segmentation

Aside from demographic, geographic, psychographic, and firmographic segmentation, businesses can use a variety of other types of segmentation to target specific customer groups. Here are some other types of segmentation that businesses can employ:

• Technographic segmentation: Technographic segmentation classifies individuals according to the technology they employ and how they use it

• Transactional segmentation: Transactional segmentation allows you to group customers based on their previous purchases with your brand

• Generational and life stage segmentation: Generational segmentation extends demographic segmentation by segmenting customers by generation – Boomers, Gen Z, Millennials, and so on

• User status segmentation: Targeting customers based on their level of familiarity with a product or service is known as user status segmentation

5 steps for setting up a solid segmentation strategy

A well-executed segmentation strategy requires a considerable investment of time and resources, along with A/B testing. There are no shortcuts to achieving your desired outcome. The key is to focus on meeting the unique needs of each stage, rather than rigidly adhering to a specific process.

However, before you begin, you should find out the answers to the following questions:

• Why are you looking to segment your market?
• What information do you want to collect, and how can you get it?
• Why did you choose one segmentation approach over another?
• What strategy will assist you in successfully implementing it and achieving your objectives?
• How is it doing? Should you stick to the current process or alter it slightly?

Remember that the answer to the above-mentioned question will have a significant impact on the success of your segmentation efforts. The more accurate and unbiased your data, the better your chances of success!

It’s now time to get down to business! Set up a proper segmentation strategy by following the key steps outlined below:

Identify your goals and target market

Understanding why you want to do market segmentation and who your target market is will help you create a segmentation strategy that works.

To do this, you must conduct market research to compile information on the characteristics, habits, and preferences of your target audience. Remember that this is where you should focus the majority of your efforts if you truly want to succeed.

Determine your segmentation variables

Once you have a firm grasp of your target market and your goals, you can start thinking about which variables you will use to segment your market.

This could include demographic variables like age and income, geographic variables like location and climate, psychographic variables like personality and values, or behavioral variables like purchasing patterns and usage, depending on the nature of your business. 

Create customer profiles

Once you’ve identified your segmentation variables, you can start creating customer profiles for each one. This entails developing a detailed picture of the characteristics, needs, and preferences of each segment.

Tailor your marketing efforts

With customer profiles in hand, you can target specific segments with your marketing efforts. This could include creating customized products or services, developing targeted advertising campaigns, or offering special promotions to specific segments.

Monitor and adjust your strategy

Last but not least, it’s essential that you keep an eye on the impact of your segmentation strategy and make alterations as needed. This could include conducting regular customer surveys, analyzing sales data, or tracking website analytics to determine which segments of your target market are the most engaged with your brand.

Businesses can create a segmentation strategy using the steps listed above, allowing them to target their marketing initiatives and establish closer bonds with their customers. Remember that there is no right or wrong way; whatever works for you is best. So, don’t be afraid to try different approaches and see what works!

Wrapping up

In today’s crowded marketplace, having a targeted marketing strategy is more important than ever. Businesses can only reach their full potential if they target and implement effective segmentation strategies.

In this blog, we discussed the various types of marketing segmentation as well as other factors. We hope it will assist you in clarifying your doubts and making the best decision for your business.

Remember that regardless of whether you use demographic, geographic, psychographic, behavioral, or firmographic segmentation, the fundamental is to recognize your target market and create an approach to meet their needs.

That’s it for now. Have a wonderful day!