By CommenceCRM

What Are the 4 Types of Market Segmentation?

four hands holding four pieces of plastic pie: market segmentation concept

Market segmentation is the process of grouping buyers together based on their attributes. Often these common traits can help businesses understand driving behaviors, factors, and variables that can be recreated to encourage potential buyers (or existing customers) to buy a product or service.

So, what are the different types of market segmentation? Geographic, demographic, psychographic, and behavioral are the four general market segments.

Leveraging all four will help any business stay on top of customer demands and effortlessly meet evolving expectations.

Marketing In the Age of Targeted Ads

Modern marketing is all about selling the right thing, at the right time. B2B and B2C buyers have become so savvy that they can distinguish between genuine efforts at engagement and lazy copy-pasted campaigns.

The most competitive marketing strategies are driven by targeted advertising and messaging. In order to appeal to your target audience, they have to know that you’re talking to them specifically.

Fortunately, there’s a practice in place for customizing your marketing efforts. Adopting this is as easy as finding underlying similarities in your consumers or leads, using those to your advantage.

What Is Market Segmentation?

Market segmentation is the process of dividing your market into different categories or segments. These groups are formed based on similar characteristics.

This technique allows you to send out hyper-personalized emails or ads to the right people. For instance, you can use market segmentation to isolate leads in different phases of your sales funnel, and create campaigns based on what specific segments need.

The beauty of market segmentation is that it’s infinitely repeatable; you can easily customize campaigns and break them further into more specific groups.

For example, if you want to target leads who have just entered your sales funnel, you can further distinguish them by segmenting them according to:

  • Channel used
  • Nature of company or business
  • Geographical location
  • Preferred content

Segmentation works especially well for companies that offer a product or service with multiple benefits for various consumers. No matter how comprehensive your solution is, not every customer will be able to perceive the benefits right away. On the other hand, highlighting their key problem and matching it with a specific solution simplifies the decision-making process, and increases the likelihood of a sale.

Why It Matters

Taking the time to isolate your buyers and create individualized, targeted campaigns can be laborious, but worth it. In a saturated market, it’s important to highlight your compatibility with consumers and let them know right off the bad that you understand their needs.

In a world where consumers are bombarded with ads and emails, sending a message that gets their attention is the key to beating your competitors. Now more than ever, buyers are expecting some form of personalization when dealing with businesses.

According to a study, 90% of consumers in the U.S. find some degree of content personalization appealing. The study also found that 76% of the surveyed customers were likely to do business with companies offering personalized online experiences, whereas 97% were likely to do business with companies offering offline personalized experiences.

At the end of the day, customers will always go to the seller who understands them. In order to filter out the noise, buyers will listen for exactly what they want to hear – and market segmentation can help you with that.

4 Types of Market Segmentation

little wooden people segmented in groups

1) Demographic Segmentation

Demographic segmentation is one of the most standard types of market segmentation. Segments are created based on observable or reported customer data pertaining to the individual consumer such as age, gender, and race. Other segmentation demographic traits include:

  • Sex
  • Nationality
  • Occupation
  • Marital Status

This type of data is easy to collect because they are observable or easily attainable through surveys and other customer interactions.

Whereas B2Cs might find tracking personal traits more beneficial, B2Bs will often look into traits based on the company or organization as a whole. This type of market segmentation is also referred to as firmographic segmentation. Key demographic traits include:

  • Industry
  • Company size
  • Number of employees

2) Geographic Segmentation

Geographic segmentation is all about location. At the very basic level, it is concerned with identifying consumers based on their geographical location, such as a person or organization’s country, state, city, and zip code. For a more detailed analysis, marketers could also look into other geographic segmentation traits such as:

  • The local climate
  • Local businesses that are within a certain area or radius
  • Population count
  • Classification of an area: is it rural, urban, or suburban

When used proactively, geographic segments can be studied to answer the following questions:

  • Where do my clients usually come from?
  • Which branch is performing the best?
  • What are the traits associated with a specific geographical location?
  • What location-specific messaging should I use to appeal to the local audience?
  • Is there a difference between marketing in the city and the rural areas of the same country?
  • What is the best kind of media to use when engaging local audiences?

Geographic segmentation is especially useful for a business with a global presence. Location-specific targeting is by extension also culture-specific; when you know how the market operates in a specific area, it’s much easier to get to know what the local customers expect from businesses.

Tracking this is crucial because the marketing messages that work best with consumers in the U.S. might not work so well with consumers in South East Asia. Geographic segmentation ensures that you understand the local culture and relate to the audience as genuinely and naturally as possible.

3) Behavioral Segmentation

Behavioral segmentation is different from the other market segmentations because the data you collect is based directly on consumer behavior. Geographical, demographic, and even psychographic segmentation works by supposing that a certain characteristic is predictive of consumer behavior. On the other hand, this type of market segmentation provides actionable data directly from consumer-to-business interactions.

Customers can be classified according to:

  • Types of content consumed on website
  • Usage rate: is the user a frequent or infrequent user
  • Purchasing habits
  • Brand awareness
  • Knowledge of product or service
  • Purchase history

Behavioral segmentation is particularly useful when making sales and marketing decisions because it reveals how buyers directly interact with your brand. You can use this segment to get to know underlying behaviors that drive a sale, and maximize those to increase your conversion rate.

4) Psychographic Segmentation

Psychographic segmentation is a bit similar to demographic segmentation in that the data reveals something specific to the individual. However, instead of looking at your customer’s age, gender, and marital status, this segment type is focused on psychological attributes and how they drive a sale.

Out of the four market segment types, psychographic data is the hardest to extract because your target audience won’t readily reveal their preferences. To pull off psychographic segmentation, marketers can either create an approximation of their buyers by developing a buyer persona or engage in relationship-building tactics that can slowly reveal unmeasurable, qualitative data about your consumers. This includes:

  • Values and beliefs
  • Lifestyle
  • Interests and hobbies
  • Personality traits

Psychographic segmentation is crucial if you want to understand roadblocks that occur because of lifestyle choices and values more so price or service or product quality. Modern consumers are typically concerned with a brand’s ethos, and performing a psychographic-based analysis can help you develop a more sympathetic approach to an otherwise unattainable customer base.

Other Ways To Segment Your Market

  • Seasonal segmentation: Seasonal segmentation takes advantage of special holidays, events, and seasons. It’s a great example of how targeting at the right time can boost sales. Seasons can include anything from back-to-school promos to new year marketing campaigns.
  • Generational segmentation: Different generations will have different customer service experiences, preferences, and expectations. Segmenting your audience according to generation is a great way to get quick insights since it already provides both quantitative and qualitative attributes that could help you understand your customer base better.
  • Price segmentation: Instead of alienating buyers within a certain budget range, you can develop products or services that are more accessible for certain groups. By doing so, your business can tap into different types of markets, regardless of their financial capability.

5 Benefits of Market Segmentation

marketing strategy concept image: hand drawing diagram

Delivering a personalized brand of service is just one of the many benefits of taking the time to create your market segment. Taking the time to perform a segmentation of market characteristics will also enhance different aspects of your business:

1) Better Allocation Of Resources

How much do you spend on marketing campaigns and how much value do you receive in return?

Instead of spending hundreds of dollars and countless man-hours trying to create the perfect email for your customer base, market segmentation compels you to develop a more targeted marketing series that’s tailored specifically to the different types of market your business is involved in.

Customer market segmentation will force you to identify your audience and engage with profitable, probable leads while filtering out the rest.

Instead of creating messages that will only have minimal impact on hundreds of strangers, you have the opportunity to deliver a message that is irresistible to a smaller, but more sales-ready group.

2) Higher Conversion Rate

A general email campaign might give you a bigger reach, but it won’t bring you closer to customers who are willing to pay for your service or product. By performing marketing segmentation, you can provide straightforward value propositions and relevant information to potential customers.

Think of it this way: if you’re a cleaning company and you’re hoping to sell your services to people with pets at home and event planners, you won’t be using the same messaging on these customers because they have different needs.

You can talk about your cleaning services in general, but what would really impress these two types of audiences is mentioning aspects of your service that they would identify with, such as using pet-friendly cleaning products or providing a complimentary after-party clean up.

When you market to the right segment, you will see improved conversion rates because you are using the exact language they want to hear. A more personalized approach leads to higher conversion rates because you are no longer discussing general problems; you are addressing immediate concerns and needs they may have.

3) Inform Product Or Service Development

Performing market segmentation has applications beyond marketing and sales. Instead of trying to guess what your market wants, you could use data from existing consumers and use those to develop solutions that would directly address their needs.

For example, a sporting goods company already has the opportunity to segment their customers based on the type of sport. Another segment they could explore is athleticism: is the athlete a hobbyist or a professional?

If a huge percentage of their existing market is coming from casual athletes, they can develop a more suitable product pertaining to what this market needs. For instance, they could develop a more affordable product range and other workout wear designed for moderate training.

4) Identify New Markets

Market segmentation doesn’t just help you identify existing markets – it could also potentially uncover new markets to expand into. A market segment can easily be broken down into more specific segments that could lead to new opportunities.

Let’s say you’re selling handmade leather bags online for middle-aged men. After market segmentation, you find out that one common thing about your consumers is that they are either married or have families. With this information, your shop can expand into weekend bags, customized leather organizers, and other leather goods your current shoppers can gift or recommend to their family members.

Ultimately, segmentation is about getting to know your audience and figuring out other ways to fulfill a need or provide for a certain niche.

5) Effortless Customer Service

Previous blindspots that you may have had with customer service can be resolved by performing segmentation in marketing. If you’re having problems with conversion, you can use psychographic information to develop a buyer persona.

For instance, if you’re running a fitness facility targeted for people with average fitness levels of all ages, but wonder why only few inquiries convert into paying customers, you could look into reasons why existing customers have chosen your gym.

When you add psychographic data into the equation, you might realize that people sign up with your facility because they value community classes and enjoy training with groups. With this, you could create more content highlighting the community aspects of you to attract the rest of your potential customers.

Do Market Segmentation the Smart Way

There are different tools available that can help you consolidate this much data into usable information. Most SMEs and enterprises already have customer relationship management software in place, that tracks different sales, marketing, and customer relationship metrics.

When working with a CRM, make sure that it has the right tools to track and analyze customer data. Commence CRM is a full-suite CRM solution for businesses of all sizes. Book a free demo with us today and start segmenting your customer base in the easiest way possible.