Understanding your audience is marketing 101 – but knowing exactly how your product can benefit your audience in a market oversaturated with competitors takes a little more finesse.
That's where market segmentation comes in. This is the process of carefully analyzing your target audience, and segmenting that broad market into defined clusters based on a range of factors and traits. The objective is to help you better understand – and meet – your audience's needs, so you can refine and optimize your marketing campaigns while attracting the right kind of customer.
In this comprehensive guide, we take a deep dive into the topic of market segmentation. We'll explain the different types of segmentation used by marketers; explore its benefits; and expand on how it relates to subjects like targeting, messaging, and positioning.
Let's dive in.
What is market segmentation?
Market segmentation is the process of dividing a broad target market into subsets, or cohorts, of customers who share common characteristics, needs, priorities, and behaviors. The advantage of segmenting the market is that marketing teams can create tailored messaging that aligns with the distinct characteristics of each group.
Traditional market segments are identified using the following characteristics:
- Product usage
Once your market segments are defined, marketing teams can select the clusters that represent the best opportunities to win. From there, you can develop strategic, targeted marketing campaigns that speak directly to the core needs and interests of a specific cohort.
What are the different types of market segmentation?
Next, let’s delve a little deeper into the different types of segmentation listed above and throw in a few examples of segmentation in practice to give you a clearer picture.
Demographic segmentation is defined by age, education, occupation, income, gender, race, sexuality, family size, interests, and more.
It’s the most commonly used form of segmentation because it’s essentially the root of all of our spending habits. Where we live defines where we buy things, where we work has a huge influence on what we buy, and how much we spend is heavily dependent on how much we earn.
A good example of this is T-Mobile’s 2019 campaign targeting baby boomers – the company’s strategists pinpointed what older adults were looking for when buying a phone; which they found was the ability to connect with family and friends. In response to these findings, the company unveiled a new data plan targeted towards customers 55+ which eradicated all of the unnecessary added extras you might find in a millennial's plan who, for instance, streams an inordinate amount of content via TikTok or Spotify.
While demographics tell us who the customer is, psychographics tell us why the customer buys a product. Psychographics categorizes customers by factors relating to personality and characteristics, like lifestyle, values, opinions, and hobbies.
For example, a company like Mercedes Benz focuses on customers who value luxury and status, while Volkswagen, which literally translates to ‘the people’s car’ in German targets an audience who value affordability and reliability.
Geographic segmentation categorizes customers based on geographic boundaries. For example;
- Zip Code
- Urban or rural
For example, a company that sells only waterproof outerwear would have an easier time targeting markets in Seattle than say, Arizona.
Behavioral segmentation divides consumers by behavior patterns as they interact with a business - their knowledge of a product, what they like or dislike about a product or a service, how often they interact with a certain area of your app, and so on.
Netflix has the perfect model of behavioral segmentation, with each user receiving recommendations completely unique to them and based purely on their viewing behaviors. The data doesn’t lie, around 80% of Netflix views come from the recommendation feature.
Market segmentation requirements
Once you’ve finished the market segmentation study, your results should be:
Let’s unpack each in a little more detail...
Segments should be easily measurable so that marketing strategists can decide whether, and to what extent, they should focus their efforts and resources. If you can’t measure your rate of growth then how will you know the segment is valuable?
There’s no use selecting a market segment you can’t reach, whether that means geographically, or psychologically. After all, you wouldn’t market a software solution specifically for a doctor and try and sell it to a police officer, would you?
The market segment must have the ability to buy your product. For example, almost everyone would like to own a private jet but can most of us actually afford it? Not in this lifetime!
Differences between market segments should be clearly defined so that your campaigns, products, and marketing tools can be used as effectively as possible without overlap.
The market segment needs to provide supporting data for a marketing position or sales approach so that your intended marketing targets actually purchase a product.
Customer and market segmentation examples
In this example, Abercrombie & Fitch segment by gender using the same campaign for men and women.
Although the offers are the same, the campaigns are slightly different.
A&F know that having the exact same campaign for both genders just won’t work. Instead, they've divided their customer profiles to see which trends appeal to female customers (e.g., vintage) and what appeals to their male customers (e.g., fitted jeans) when it comes to selling denim.
Segmenting by age, Urban Outfitters has ads that target school, college, or university students.
This particular one is aimed at their University student target base. This offers a discount to students who more than likely only have their student loan to play with, new clothes to buy, and a dorm room to decorate. Which is why the website also has a section dedicated to dorm room interior design and school supplies.
New Customers/old customers
This is an email Typeform sends out when you sign up for their product. The email essentially asks the customer to self-segment themselves into either a new user or an old pro. These two customer segments will then receive a specific type of content targeted at their sophistication level, super relevant to where they are in their customer journey.
What are the benefits of market segmentation?
By getting to know your customers better, you can create and execute better marketing strategies from the ground up. Market segmentation can help you identify gaps in the market and determine how you fill them.
Create stronger marketing messages
When you know who you’re talking to you can personalize your marketing messages. Instead of vague, generic messaging, you can develop stronger, direct messaging that speaks to the unique needs and characteristics of your target audience.
“I think one of the key things you need to nail right away is messaging and positioning, they’re core to any Product Marketing role. If you're not good at messaging, you really can’t do a Product Marketing role. So, be good about figuring out how to message to the right people at the right time. - Sarah Din, Director of Product Marketing at SurveyMonkey
Find out what works
With dozens of marketing tactics available, it can be difficult to know what will attract your ideal audience. Using different types of market segmentation guides you toward the marketing strategies that will work best. When you know the audience you are targeting, you can determine the best solutions and methods for reaching them.
Create hyper-targeted ads
You can use all the information gathered to target audiences by age, location, purchasing habits, interests, and more to create more effective digital ad campaigns.
Stand out from the crowd
Being more specific with messaging and value propositions will set you apart from the competition. By focusing on specific customer needs and characteristics you can deliver products that uniquely serve them, which inevitably leads to stronger customer bonds and lasting brand affinity.
Identify niche market opportunities
When you segment your target market, you can identify parts of the industry that can be served and utilized in new ways. Once you’ve pinpointed these underserved markets you can develop new products and services to serve them.
What’s the relationship between market segmentation, targeting, and positioning?
Segmentation, Targeting, and Positioning (STP) is one of the most popular marketing models out there. In fact, Smart Insights conducted a survey where STP was revealed as the second most popular marketing model, behind the classic SWOT / TOWs matrix.
The STP model is useful for creating marketing communications strategies because it helps marketers prioritize propositions and develop and deliver personalized, relevant messages to different audiences.
STP is essentially the journey you take to position your brand in the minds of consumers, it’s the difference between yours and your competitor’s products.
Once you’ve collected the relevant data through market segmentation, you can then use it to identify your target market.
When you have a target audience in your sights you can then work to present your product and all of its benefits, tailored specifically to the needs of your target market.
Want to learn more?
Market research is an invaluable part of not just product marketing, but the overall organizational function. It helps us to understand what prompts the customer to purchase products within the market and, ultimately, identify how we can position our products in such a way that they stand out from the crowd.
Our Market Research Certified: Masters course has been designed to help you streamline your approach for success. By the end of this course you’ll:
🧠 Understand the importance and benefits of research for making the most impactful and strategic decisions.
🧐 Know about the different types of data and where best to source it.
🔬 Be aware of the best research methods available for conducting valuable data for your company.
✌️ Be able to consider the ethical implications of market research and data collection.
So what are you waiting for?