What is market segmentation? 4 types and 5 advantages (2023)

When you're trying to reach customers with a marketing message or advertising campaign, it's important to reach the right market with the right message: If you aim too far, your message may reach a few people who eventually become customers, but it will also reaches a few people, lots of people who aren't interested in your products or services. If your message isn't optimized for your audience, you'll end up wasting a lot of money on advertising.

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

• Types of market segmentation
• 5 benefits of market segmentation

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, you can do thisIdentify the right market for your productsand then target your marketing more effectively. Likewise, market segmentation allows publishers to offer more targeted advertising opportunities and customize their content for different audiences.

For example, say you are adealerThey are promoting a new brand of dog food. You can target an audience based on whether they have a dog. You can further target this audience based on the type of dog they have and then show them ads for food formulated for their dog breed. A publisher can use the same information to show content about dogs to people who own or love dogs.

Market targeting allows you to target your content in the right way to the right people, rather than targeting your entire audience with a generic message. By doing this, you increase the likelihood that people will interact with your ad or content, resulting in more efficient campaigns and a better return on investment (ROI).

Types of market segmentation

There are many different types of market segments that you can create. are belowThe four main methods of market segmentation.🇧🇷 You can also create more niche segments within the following types.

1. Demographic Segmentation

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Demographic targeting is one of the most common methods. It refers to the division of the audience based on what is observable,personal differences.These characteristics include things like age, gender, marital status, family size, occupation, level of education, income, race, national origin, and religion.

Segmenting a market by demographics is the most basic form of segmentation. Combining demographic targeting with other types can further narrow your market. An advantage of this type of segmentation is that the information is relatively easy to access and inexpensive to obtain.

Some products are explicitly aimed at a specific demographic. For example, a personal care company might manufacture two deodorant products: a labeled men's deodorant and a labeled women's deodorant.

Automotive companies often segment their audience by revenue, marketing different makes and models of cars for each segment. A company can have a luxury brand, a low-end brand, and a mid-range brand.

There are numerous ways to collect demographic data. One way is to ask your customers directly. This can be time consuming, but getting the information directly from the customers allows you to ensure its accuracy. If you go this route, be sure to ask respectfully and give customers enough choices to get accurate results. You can also get demographic information directly from customers by looking at social media and other online profiles where they can provide information about themselves.

You can also get demographic data fromData Providers and Third Partiesincluding marketing service providers and credit reference agencies. Public records, such as those maintained by the US Census Bureau and the US Postal Service, can also provide useful information.

Gathering this data intoa data management platform(DMP) helps you organize and use it to target your marketing campaigns or content customization efforts.

2. Behavioral Segmentation

You can also segment your market based on consumer behavior, specifically related to your product. By segmenting your audience based on the behaviors they exhibit, you can create messages tailored to those behaviors. Many of the actions you may see are related to how someone is interacting with your product, website, app, or brand.

Some types of behavior to look out for are:

• Shopping habits on the Internet:You can take into account the online shopping habits of users across all websites as this can be correlated with the likelihood of making an online purchase from your website.
• Actions performed on a website:You can track actions users take on your online properties to better understand how users interact with them. You can see how long someone stays on your site, whether they read articles to the end, what types of content they clicked on, and more.
• Benefits wanted:It refers to the need that a customer is trying to satisfy by purchasing a product.
• Usage fee:You can categorize users based on usage rate. Your message differs depending on whether someone is a heavy user, medium user, light user, or non-user of your product.
• Loyalty:After some time of using a product, customers often develop brand loyalty. You can categorize customers based on their brand loyalty and customize your message accordingly.

Behavioral data is useful because it is directly related to how someone interacts with your brand or products. Because of this, it can help you market to them more effectively.

It may collect this data through a variety of sources, including cookies placed on its website, purchase data in its customer relationship management (CRM) software, andThird Party Records.

3. Geographic Targeting

Geo-targeting, segmenting your market by location, is a basic but very useful targeting strategy. A customer's location can help you better understand their needs and allows you to show location-specific ads.

There are several types of geographic targeting. The most basic is to identify users based on their location, e.g. B. Country, state, county and zip code. You can also identify consumers based on characteristics of the area they live in, such as climate. , population density and whether it is urban, suburban or rural. You may need to be more specific to identify features, as a county can include rural, suburban, and urban areas.

Dividing a market by location is crucial when you need to target people in a specific area, e.g. B. if you are promoting a local small business. It can also be useful when targeting a wide area, as it allows you to tailor your messages to regional differences in language, interests, norms, and other attributes, as well as to the diverse needs of people in different regions.

You may need to change the language of your messages depending on the target region. People living in different countries may also have different interests. For example, baseball is very popular in the United States while cricket is more popular in India. If you're marketing sports equipment or publishing sporting goods, you should consider these different preferences.

Businesses can also accommodate different needs in different regions. For example, a clothing company shows ads with warmer clothing for people living in colder climates and the opposite for people living in warmer climates.

4. Psychographic Segmentation

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

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

Suppose you are a furniture and decorating company and have a market segment consisting of newlyweds in their 20s and 30s with household incomes over $60,000. Some members of this segment convert, some don't. When you add psychographic information to the mix, you may find that the people who buy your products generally 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 highlight your brand's eco-friendly attributes.

You can collect this data in a number of ways, just like you collect demographic data. You can request this information from your existing customers through surveys. You can also see how people interact with your site and what types of content they engage in by providing information about their interests and preferences. You can also supplement your own data with third-party and third-party data.

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Other market segmentation methods

Demographic, psychographic, behavioral, and geographic targeting are considered the four main types of market segmentation, but there are many other strategies you can use as well, including numerous variations of the four main types. Here are some other methods you might want to explore.

• Value segmentation:Some companies segment a market based on their customers' "transaction value": how much they are likely to spend on their products. To determine a customer's transaction value, you can look at previous purchase data, e.g. B. how many purchases you make, how often you shop and the value of the items you have purchased.
• Firmographic segmentation:Business-to-business (B2B) companies can use firmographic segmentation to segment companies in a market. This is similar to demographic targeting with individual consumers, but looks at the characteristics of businesses that might become customers. Examples of data to look at are industry, revenue, number of employees, and location.
• Generation segmentation:Businesses can segment and group consumers by generationCategories that containGeneration Z, Millennials, Generation X, Baby Boomers and the Silent Generation. These generations are believed to share certain preferences, behaviors, personality traits, and beliefs. Of course, not all members of a generation are created equal, but generational targeting can provide additional insights into your audience.
• Segmentation by life stages:You can also split your market into groups based on where they are in their lives. Going to college, getting married, and having children are examples of important life events to consider. People at different stages of life need different things. For example, future students may need furniture for their apartment. New parents will try to buy baby food.
• Seasonal Alignment:Just as people buy different products at different times in their lives, people also buy different items at different times of the year. Major holidays such as Christmas and Hanukkah also have a significant impact on purchasing behavior.

5 benefits of market segmentation

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In a recent survey of marketers in North America62% of respondents saidA priority was improving audience segmentation to enable more accurate targeted messaging. There's a reason improving targeting was the top-ranked priority in the survey. Market segmentation offers many benefits to sellers, publishers, and others, including the following benefits.

1. Improve campaign performance

Market segmentation can help you improve the performance of your marketing campaigns by helping you reach the right people with the right message at the right time. Segmentation allows you to learn more about your audience so you can better tailor your messages to their preferences and needs.

Targeting a specific segment likely to be interested in your content or products is much more effective than targeting a very broad audience. If you advertise to an entire market, you will end up spending a lot of money on ads, but only a relatively small percentage will convert. Targeting your marketing to a segment with the right attributes can dramatically increase your campaign's conversion rate.

The more specific the audience is of people interested in your brand, the more beneficial the targeting will be. For example, there is no reason to market dental instruments to anyone other than dentists. Marketing to a wide audience would result in wasted advertising dollars.

Even if you're selling a product with broad appeal, customer segmentation can help you tailor your message to different groups to better appeal to them. Suppose you advertise furniture. You couldShare your audienceBoost by age and send custom ads featuring people your age.

2. Inform product development

Market segmentation can also help companies create products that better meet the needs of their customers. You can create products that meet the needs of your main market segment and develop different products that cater to different parts of your customer base.

For example, let's say you run an automotive company and your main market segment is mid-sized families. You would probably design your car with lots of seats, legroom and room for a family with several children. It would also create mid-priced vehicles.

However, you can further segment your audience and create vehicles that appeal to each of those segments. For example, a segment could be families who enjoy vacationing outdoors. To appeal to this group, you can offer a four-wheel drive vehicle with plenty of cargo space. Another segment may prefer to take trips into the city. You can make this car smaller so drivers can easily navigate narrow city streets and fit into tight parking spaces.

When you design your products with your customers' needs in mind, you can sell more and make your customers happier. Your customers will also feel like you understand their needs, which improves your company's reputation.

3. Identify areas to expand

Market segmentation can also help companies identify audience segments they are currently not reaching with their marketing efforts and then expand into new markets.

By analyzing your audience data, you can discover interests you didn't know your customers had. For example, a business may do the majority of its sales in brick-and-mortar stores. By analyzing behavioral data, they can see that many of their customers enjoy shopping online. Based on this information, they could start an online store or further promote their online marketplace.

As another example, a clothing company that caters primarily to middle-aged women might decide to also sell children's clothing. They could showcase and market these items to their current customers to encourage them to buy them for their children.

4. Improve business focus

Market segmentation can also help companies focus their efforts by allowing them to establish a brand identity and specialize in a specific type of product. A brand that tries to appeal to everyone in their marketing will come across as generic and memorable. It can also lead to customers being confused as to what the brand stands for and what type of business it represents. Likewise, a company trying to sell everything is unlikely to have much of an impact in any market, and its offerings may be of lower quality compared to specialized companies. As your business grows, you can expand your offering, but initially it can be difficult to differentiate your business if your product offering is too broad.

5. Informs other business decisions

Market segmentation can also help make other important business decisions about how to get your product to customers. These decisions can affect issues such as pricing and distribution.

Businesses can use targeting to determine the price that maximizes sales and keeps customers happy. Businesses may consider demographic information such as income levels. They can also consider their customers' price sensitivity: the extent to which your price influences their purchasing decisions. Paying attention to seasonal changes in demand can help businesses plan special offers to increase sales.

Market segmentation can also help companies determine optimal strategies for distributing their products. For example, some groups of people are more likely to shop online, while others are more likely to shop in a store. Businesses can also decide which stores to showcase their products in based on their market segment location. For example, your customers might shop at luxury boutiques or retail stores. Looking at geographic data can also help a company decide where to open a new store.

How can we help

To take control of your audience data, you need the right data tools along with the right partners. We can offer you both.Spherical powered by Lotame is a CDP accelerator. Their suite of solutions extracts maximum value from their own branded data and connects with leading CDPs to enable human development, enrichment, analytics and ad activation. With Spherical, brands and agencies can:

• Unify fragmented marketing and advertising data
• Expand your audience for advanced customer acquisition using machine learning, peer modeling and access to a trusted data marketplace
• Preserve and improve activation and measurement with a proven cookie-free identity framework
• Ensure regional and global compliance with auditable privacy management tools

To learn more about Spherical and how we can help you better understand your audience, contact us today.