What is Market Segmentation?

Market segmentation is a research strategy that separates different consumers in order to study their preferences, needs, and perspectives in order to optimise business practices, products, and experiences.

Market Segmentation

It’s crucial that brands understand the experiences they provide and whether or not they satisfy the needs of customers, employees, and beyond. Effective market segmentation is crucial to that goal. Every business should know the ins and outs of how their marketing, advertising, and sales team measures up. Here’s a brief introduction into the thinking behind market segmentation.

What Is Market Segmentation?

Hopefully, your business has more than one customer. If not, that’s okay because market segmentation isn’t primarily concerned with how many customers you have. It’s more about what type of customers. Each customer has their own needs but oftentimes some customers align in a significant way. Market segmentation recognises this reality and is a process to capitalise on that. The main ethos is this: what if we could split our customers into distinct groups—based on specific factors—so we can learn how to market our products to the right people?

In short, market segmentation is a research strategy that separates different consumers in order to study their preferences, needs, and perspectives in order to optimise business practices, products, and experiences.

The 4 Types of Market Segmentation

There are four common types of strategies that businesses use to segment their customer base. Note that this list is not exhaustive and businesses have found other relevant factors that influence their customers’ needs.

  1. Geographically: segmenting customers based on geographic borders, such as cities, states, countries, etc.
  2. Demographically: segmenting customers based on generation, education level, ethnicity, family size, etc.
  3. Psychographically: segmenting customers based on lifestyle, personality, values, interests, etc.
  4. Behaviourally: segmenting customers based on their habits and how they go about their decision making or buying processes.

4 Examples of Market Segmentation

Here’s an example of each type of segmentation to give you a better understanding.

Geographic: Imagine a retail store selling to two customers, one who lives in a cosmopolitan city and the other in a rural town. Each would have different expectations and wants for the clothes they wear. Depending on the climate, how often they’re outside, or the appropriate clothing for a social setting, these two customers are unique enough to warrant a customised marketing strategy.

Demographic: Ever wonder why fast food restaurants have a totally different menu in another country? Well, it’s because food preferences are hugely influenced by one’s ethnic background. That’s why McDonald’s serves a Cheese Tsukimi burger in Japan. And it’s also the reason why the items supplied in grocery stores change depending on the most common ethnicities in the surrounding local community.

Psychographic: Let’s say a large portion of a brand’s customers are Millennials. This generation has been widely characterised as one who cares about the ethical impact of what they purchase. From the environment to social justice movements, millennials want their experiences to mean something. So the business decides to create a policy where 10% of all proceeds go directly to a refugee charity.

Behavioural: Brands frequently provide deals that only apply when customers shop online. It usually looks something like, “Buy up to $50 to get 10% off” or “Free shipping with a purchase of $25 or more”. Businesses offer these not because they like their online customers more, but because online shoppers have different spending tendencies. There could be many factors that contribute to that case. It could be how easy it is to click so many items into one’s cart or the instant gratification of purchasing online. Whatever the reason, the reality is that shoppers are more willing to buy into those deals when it’s done digitally.

3 Benefits of Market Segmentation

Market segmentation can look different depending on your business model, but at the end of the day the goal is the same: better understanding your target market. And that can lead to significant business value:

  1. Increased Customer Retention: Knowing your customers well will lead to a sharpened customer journey because your brand will know how and which marketing messages will resonate with customers. And we don’t have to tell you that an excellent customer experience will increase the likelihood of customers staying loyal to your business.
  2. Differentiation from Competitors: As your company shapes exactly how their products and services can appeal to a variety of consumers, your branding will evolve along with that process. This allows your brand to differentiate from competitors because your target audiences aren’t just a big question mark.
  3. Opens Up Marketing Opportunities: Segmenting your market will open up opportunities to strategise and restrategise. Since market segmentation is an ongoing process, it informs and guides your marketing teams throughout business decisions. Customers don’t stay stagnant forever, they transform as the world transforms but segmenting your market can make your brand aware of opportunities when they arise.

What Does Effective Market Segmentation Look Like?

One of the biggest challenges marketers face is making sure the products actually align with a customer segment. You may have market access to a large customer base but do those customers have enough buying power or will they even want the product you’re offering? That’s why it’s more important to focus on targeting the money instead of the segment. Market segmentation doesn’t necessarily mean you have to market to each and every segment you discover. Choose the ones most likely to engage with your product and that will lead to a positive return on investment (ROI). 

InMoment Can Perfect Market Segmentation For You

Don’t know where to go from here? InMoment can help! InMoment is a commited to aiding businesses with our award-winning technology through the understanding that experiences involve the needs of customers, employees, and the business. And as one of the top 50 analytics and market research (MX) brands, we’re dedicated to teaching and guiding businesses on how to utilise their data when making key business decisions. Our specialised Market Experience Cloud along with expert consultants is available to help you in garnering as much intelligence from the market as possible. Contact us today for a demo.

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