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In Digital Marketing and Sales & Marketing Last updated: August 31, 2023
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Marketing professionals rely on market segmentation techniques to categorize and organize the target audience into small groups.

For a specific product or service, there are various audience groups in the market. Some look for value, while others prefer an affordable price tag🏷️. There are also those customers who prefer high-quality content backing the product or service they consume. 

Here, you must utilize segment marketing so that all the audience groups receive appropriate content according to their preferences. If you don’t know how keep reading until the end!  

What is Market Segmentation?

Market segmentation refers to the technique of segmenting customers based on shared characteristics, like age, gender, location, and purchase behavior. The aim of this segmentation is to create groups that will respond similarly to specific marketing strategies.

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This is also a prominent technique in the marketing niche for conversion rate optimization (CRO) and customer retention rate (CRR) improvement. 

The term “Market Segmentation” was coined for the first time by Wendell R. Smith in 1956. It is the first step to creating a personalized marketing and sales process that can differentiate your business in the market. This strategy is also considered the foundation of any successful long-term marketing strategy. 

This segmentation can be done based on a number of variables. However, the choice of variables depends on the business type and segmentation strategy objective.

Also read: Best Customer Service Platforms To Increase Retention Rates

The Difference Between Market and Customer Segmentation

  • Segment marketing divides a broad market into smaller segments. On the other hand, customer segmentation means creating groups from the existing customer base of an organization.
  • The aim of market segmentation is to identify different groups with similar characteristics. But, customer segmentation aims at understanding the behaviors and preferences of the customers.
  • Segment marketing is useful for the customization of marketing strategies and product offerings. However, customer segmentation helps with personalized interactions with customers and improved customer experiences.
  • While market segmentation focuses on identifying growth opportunities for the organizations, customer segmentation allows companies to build stronger customer relationships.

What Are the Market Segmentation Variables?

An array of items can be considered as the variables for segment marketing. Some of the major variables are related to the customer on an individual level, like age, gender and ethnicity, religion, income level, household size, occupation, education, marital status, location (area, city, state, and country), culture, and language. Others can be from a broader spectrum, like language, climate, values, social status, personality, lifestyle, interests, and opinions.

There are also other considerations like purchase and user behavior; benefits sought, customer loyalty and satisfaction, as well as engagement.

Important Forms of Market Segmentation

There are four major forms of segment marketing that are done by the businesses. Take a look at those below:

#1. Demographic Segmentation

In this type of market segmentation, demographic characteristics like age, gender, occupation, education, income, etc., are used.  With demographic segmentation, companies aim to group people who are interested or uninterested in similar products.

Demographic Segmentation Market segmentation

#2. Behavioral Segmentation

As the name suggests, this segment marketing is done based on user behavior. For example, you are going to use different strategies for the market segments that want to buy products with cost-effective prices and segments that focus on quality over price.

#3. Psychographic Segmentation

With psychographic segmentation, companies identify aspects such as personality, lifestyle, values, and psychology of the market that connect them with products or a brand. 

#4. Geographic Segmentation

The consumer location, i.e., the country, state, city, or region, plays a role in the products they might want to consume. For example, people coming from the Mediterranean area might want to purchase products used in the Mediterranean diet.

How to Create and Implement a Market Segmentation Strategy

#1. Defining the Target Market

First of all, you need to define your target market and establish its relationship with your company or brand. You can do so by answering the following questions:

  • Can your products and services serve this market? 
  • What is the size of the market?
  • What is the position of your brand in the market compared to your competitors? What does competitor analysis say?

#2. Segmenting the Market 

Now, select the criteria to segment your market. There is no such obligation as to use only one criterion; you can use a combination that offers you the best results. 

#3. Understanding the Market

Conduct primary research surveys and polls to get a better understanding of the market. The questions should be related to your chosen segments and must include both quantitative and qualitative questions.

#4. Segmenting Your Customers

Analyze the research responses to find out the most relevant customer segments for your brand.

#5. Testing Marketing Strategy

Testing Marketing Strategy Market segmentation

Finally, you need to create targeted marketing campaigns according to the findings of the segmentation. You can further optimize the plan based on results collected from the marketing campaigns.

Benefits of Market Segmentation

There are many benefits to this approach. Here are a few listed below:

  • Making stronger marketing messages to the specific audience group
  • Identifying niche markets for growth and profit
  • Design custom products and services for different segments
  • Attract the right group of customers and make them loyal to your brand
  • Create targeted digital advertisements according to interest, demography, etc.
  • It ensures that your brand becomes more visible, overshadowing your competitors
  • Lower customer acquisition rate through targeted advertisement
  • Better response rates with effective marketing strategies
  • Optimized resource utilization to prevent wastage

Along with these benefits, through market segmentation, you can identify further market expansion opportunities for diversification. This helps in further solidifying your business and creating newer customer markets.

How to Leverage Market Segmentation

#1. Behavioral Segmentation

Behavioral segmentation explains specific steps in the buying process of the ideal customer. With this, companies can find out what their ideal customers want and why. It also tells them which benefits the potential customers want to get from the product and how the customers meet their requirements. 

Behavioral segmentation includes behavior such as cause of purchase, purchase events, product benefits, stage of buyer’s journey, and user engagement. It is commonly used for B2C and B2B market studies. As it can tell companies why people buy

, organizations can target them better by incorporating those in campaign and promotion strategies.

#2. Demographic Segmentation

According to this segmentation, people with common demographic traits will have the same purchasing habits. This data is often combined with other segmentation to understand target markets with the highest chance of buying products.

The data you need for this segmentation is easy to collect from sources like government sources, surveys, and apps that track more granular demographic data. Using these, marketers can segment their market as well as the customer base. 

It helps them identify the market opportunity, brand position compared to the competitors, customers who are most likely to purchase their products, and campaigns that will resonate best with each segment.

#3. Geographic Segmentation

The aim of geographic segmentation is to group people based on their location of residence and work (country, region, province, state, town, climate zone, zip code). The location is deeply connected with the culture, which can influence the buying habits of a group of people to a great extent. 

Geographic Segmentation Market segmentation

The data needed for geographic segmentation can be found online on different reliable websites. It helps marketers to create a complete market profile, combining it with other types of segmentation. Also, when companies know when someone is planning to travel, they can promote local hotels and restaurants to that person.

#4. Media-Specific Segmentation

This market segmentation approach helps you to create a sales and marketing budget for products and services. 

Here’s a real-world scenario:

Acme online store has the following traffic or viewership:

MediumTrafficConversion RateProfit Margin
Own Website5,00010%90%
Third-party website2,0001%60%
PPC on Google1,0002%50%
Newspaper3,0003%75%
Television3,5004%45%
Social media3,0007%60%
Influencer collaborations3,5006%65%

Analyzing the above dataset, the marketing manager of the brand will decide how to allocate the marketing budget so CRO and CRR grow.

You should target high viewership, conversion rate, and profit margin media to invest the maximum portion of the budget. For example, own website, newspapers, influencer collaborations, etc.

Also read: Shopify Collabs—Everything You Need to Know as a Merchant/Creator

#5. Organizational Segmentation

Organizational segmentation is used by B2B marketers to understand the characteristics of their business target market. The data used for this segmentation are company size, legal status, financial status, years in business, industry type, location, ownership, and other business-related variables. Organizational data can be collected from government websites, trade journals, and other online industry sources. 

Since the B2B target market usually has a few large companies, this data helps marketers understand the strengths and viability of their company within the target market. This segmentation helps them to understand if the market segment is growing or declining through financial performance data and growth trends.

#6. Psychographic Segmentation

To improve the conversion rate for your organization, you can resort to psychographic segmentation. It divides a market based on the personality, lifestyle, social status, interests, activities, and opinions of the users. When combined with demographic segmentation, it enables you to find the motivations behind particular choices people make.

With this segmentation, companies can understand what the consumers think of their products and services. It also makes them understand why the customers want what they want. Thus, organizations can focus on optimizing their conversion rate by offering people what they want.

#7. Generational Segmentation

Often, brands segment the market based on the generation. There are many generations of people in the US. These are the prominent ones:

  • Silent Generation: born between 1928 and 1945
  • Baby Boomers: born between 1946 and 1964
  • Generation X: born between 1965 and 1980
  • Millennials or Generation Y: born between 1981 and 1996
  • Generation Z: born between 1997 and the early 2010s
  • Generation Alpha: Born from the mid-2010s onwards

Customers and leads from different generations have different preferences. 

For example, Generation Z and Generation Alpha will prefer websites and mobile apps for shopping. Whereas Baby Boomers, Generation X, and Millennials will still want to visit a brick-and-mortar shop to experience the product before buying.   

#8. Segmentation Based On Technology Profile

Technographic segmentation enhances Conversion Rate Optimization (CRO) and Customer Retention and Referral (CRR) by informing customers’ technology preferences. This market segmentation tactic is mostly for the B2B ecosystem. 

Segmentation Based On Technology Profile

For example, professionals trained on desktop CRMs based on Oracle will find a hard time switching to online CRMs. Contrarily, professionals who entered the workforce during the cloud computing era, would prefer web CRM over desktop CRM.

So, you must identify the visitors’ preferences before pitching them a desktop or web CRM. If you pitch the right SaaS product to this market segment, you’ll easily increase CRO. Also, if you don’t sunset desktop CRMs in the future, existing customers will prefer to stay with you, thereby enhancing CRR.   

#9. Value Segmentation

Value Segmentation is another word for segment marketing based on the transactional worth of your audience.

It affects CRO and CRR in the following ways:

  • In CRO, you can cultivate a high willingness to pay customers to spend more on other range of products and services in your mobile app, eCommerce site, or SaaS portal.
  • Fixed-budget customers tend to leave a platform when the cost goes up. If you wish to retain these customers, offer additional service periods, warranties, premium support, and gift vouchers redeemable on your website or app. The customer feels valued and wishes to stay with you for a few more years.     

#10. Lifestage Segmentation

Another way to improve conversion rate and customer retention rate is by analyzing the lifestage of your leads, prospects, and customers. If you know that the customer browsing your eCommerce website is a new parent, you could show them targeted product recommendations like baby formulas, wellness, and healthcare products.

Other lifestages you can track are young adults, newlyweds and couples, empty nesters, retirees, seniors/elderly, and so on.   

#11. Seasonal Segmentation

You can leverage seasonal market segmentation tactics to deliver appropriate brand messaging to your audience in different seasons of the year.

Seasonal Segmentation

You can do seasonal segmentation on these events:

  • New Year’s Eve
  • Super Bowl
  • St. Patrick’s Day
  • Coachella Valley Music and Arts Festival
  • Independence Day (4th of July)
  • Thanksgiving, Halloween, and Christmas
  • Veterans Day
  • Tribal Powwows

Examples of seasonal segmentation-based advertising or promotion could be the following:

  • A big organic farm running social media advertisements on seasonal produce.
  • Heavy discounts on electronics and IT products and services on Black Friday and Cyber Monday.

If you run Black Friday campaigns in months other than the actual events, you won’t attract many audience to your website or app. So, the CRO and CRR won’t be affected much. You must run the PPC campaign when the event is a few days later. Also, ensure you protect your PPC campaign from sabotage by the competition.   

Market Segmentation—The Future Trend

In the upcoming years, marketing segmentation to enhance CRO and CRR will incorporate automated technologies heavily. 

For example, there will be production-level AI tools that’ll analyze customer behavior and preferences in real-time and guide them to the right product, service, or content. Machine learning and data science will also come in handy to train new AI tools.

Marketers will also rely more on customer behavior analysis, real-time segmentation, and hyper-personalization rather than conventional market segmentation techniques like demographics and psychographics.

Next up, the digital marketing tools to grow engagement and revenue.

  • Tamal Das
    Author
    Tamal is a freelance writer at Geekflare. After completing his MS in Science, he joined reputed IT consultancy companies to acquire hands-on knowledge of IT technologies and business management. Now, he’s a professional freelance content… read more
  • Joy R Bhamre
    Editor

    Joy R Bhamre is a multifaceted professional, holding the title of Editor at Geekflare. She is a Google-certified Digital Marketing Specialist, a seasoned Editor and writer, and a Cambridge-certified English Language Trainer, boasting… read more

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