8 Types of Market Segmentation With Real-World Examples
Different people have different needs, preferences and opinions. Even when you are selling the same product, this means that different people will have different reasons and different motivations for buying the same product.
If you want to effectively market your products, you have to make sure your marketing message and product positioning resonates well with all your customers. Question is, how do you do that? The answer is market segmentation.
Marketing segmentation means breaking down your target into smaller groups with common needs and characteristics, then creating marketing messages that address the needs of each of these groups.
A lot of information about these common needs and characteristics can be collected using online survey software and customer activity data.
Done well, market segmentation can greatly increase your ROI. According to Campaign Monitor, marketers that implement segment campaigns increase their revenue by up to 760%.
Types of Market Segmentation
There are several different approaches that you can use to segment your audience and tailor your marketing to suit the wants and needs of each segment. Below, let’s check out 8 different types of market segmentation.
1. Demographic Segmentation
This is the most common type of segmentation, and is what comes to mind when most people hear the term market segmentation.
Demographic segmentation groups people based on population dynamics. Under demographic segmentation, people can be categorized using the following variables:
The needs and preferences of different clients vary depending on their age. For instance, if you are in the fashion industry, the kind of fashion that appeals to teenagers will be totally different from the kind of fashion that appeals to 30 year olds.
By grouping your customers according to their age, it becomes easier to market the products that are relevant to their age bracket, in a way that is relevant to them.
When segmenting your audience by age, you can either categorize them by age group, such as seniors, adults, teenagers, babies, etc. or by their generation, such as Gen Z, millennials, baby boomers, and so on.
Gender has a huge influence on how people buy products. First, some products are meant majorly for specific genders, which means you have to position and market such products in a way that aligns with that specific gender.
For instance, if you sell beauty products, most of your customers are going to be women, so you need to market your products in a way that resonates with women.
Even when you sell products that can be used by all genders, you’ll need different marketing positioning for the different genders if you want your marketing to be effective.
For example, when marketing a product to women, you are likely to achieve more success by appealing to the emotional satisfaction of acquiring your product.
When marketing the same product to men, on the other hand, you’re more likely to achieve success by highlighting the utility or practicality of the product.
People's income levels have a huge influence on the kind of products they buy and why they buy them, which means you need different marketing messages to appeal to people from different income groups.
For instance, people with low income levels are majorly worried about affordability, so highlighting low prices will often be effective in marketing to them.
People with high income levels, on the other hand, are not concerned about affordability, which means highlighting your low prices will not sway them. Instead, your marketing will be more effective by highlighting things they care about, such as quality.
Segmentation by income level can even help you to come up with a pricing strategy guide.
For example, if you are introducing a new product that is targeting high income customer segments, you can come up with a price strategy that makes your product feel like a premium product.
Your audience’s level of education will also affect how you craft your marketing messages, as well as the channels you use to advertise to them.
For instance, when marketing to an audience with low education levels, you’ll want to avoid complex language, and instead opt for layman’s language product descriptions.
This divides your audience based on the kind of job they hold. The logic behind this is that people’s occupations can have an influence on their perception of various things.
For instance, if you sell engineering equipment, the kind of language you use to market these products to engineers, who are going to be using the products, is different from the kind of language you use to market your products to procurement managers, who will make the decision on whether to purchase the equipment.
People’s family size and structure also affects how and why they buy products, and therefore, categorizing people by their family structure can help you tailor your marketing to each group.
For instance, when it comes to buying vehicles, a couple with two teenage children will be looking for different features compared to a single guy or a young couple with no children.
Religion, Race And Ethnicity
People’s race, religion and ethnicity affects their culture and beliefs, which in turn influence their view towards different things. You need to be aware of such influences when marketing your products.
For example, some things that are culturally normal to people from one race or religion could be seen as offensive in another race or religion, so you need to avoid them when marketing to this religion.
2. Psychographic Segmentation
Psychographic segmentation groups people based on their psychological traits. It tries to understand the factors that influence how people think, their principles, and their motivations for doing different things.
Psychographic segmentation looks at the variables.
This type of segmentation groups people based on shared personal traits that have an influence on their buying habits. It looks at how people interact with others and their environment.
Examples of personality types that customers can be grouped into include introverted, extroverted, opinionated, friendly, sociable, optimistic, creative, emotional, and so on.
When marketing an event to introverted people, for instance, you’ll want to emphasize how it gives them the freedom to choose the activities they are comfortable to participate in.
When marketing the same event to extroverted people, you’ll be better off emphasizing the social aspects and interactions that will come with the event, because this is part of their personality.
The kind of lives people lead also have a huge impact on their purchasing decisions. Customers want to purchase products that are well aligned with their lifestyles, and therefore, when marketing to each lifestyle group, you need to show how your product or service will enhance their lifestyle.
If you have an ecommerce business that sells sneakers, for example, the kind of marketing that works for someone buying the shoes because they lead an active lifestyle will not work on someone looking to buy the shoes simply as a fashion statement. Each of them has different needs, and you have to address these needs individually.
Social status refers to how highly a person is viewed by society. Social status has a huge influence on purchase decisions. Most people will be willing to go out of their way to make purchases that enhance their social status.
How you market your products and services will depend on the social class you are targeting. For instance, five star hotels focus majorly on luxury experiences and quality of service when marketing themselves.
Hotels that cater to middle and lower class customers, on the other hand, put greater emphasis on how affordable their services are, since this is what matters more to these classes.
Activities, Interests, and Opinions (AIO)
This type of market segmentation groups your audience based on their interests and hobbies, as well as their opinions on common topics, such as politics and religion.
Activities, interests, and opinions have a very powerful impact on people’s buying behavior. For instance, Vans managed to make their shoes highly popular by positioning the shoes to appeal to people with an interest in skateboarding.
As an example, if you sell cars, the kind of marketing that works for car enthusiasts is not the same kind of marketing that works for someone looking for a car simply because they need a means of transport.
The average car buyer will be focused on things like reliability, fuel economy, and comfort, while the car enthusiast will be more concerned with things like power and performance, even if these come at the expense of comfort and fuel economy.
Attitudes are people’s perceptions of the world, which are usually shaped by their upbringing, as well as their cultural and religious backgrounds. Attitudes can be a bit complex considering that everyone has a unique worldview, but it is still possible to categorize customers by their attitudes.
For instance, among gym users, there are those who work out to avoid health problems, and there are those who work out to achieve a sense of accomplishment. You’ll need a different approach when marketing to these two groups because of their differences in attitude.
3. Geographic Segmentation
This is a strategy that involves grouping people based on the geographic region in which they live or work. Depending on the size of your business, you can segment your audience by country, state, city, or even their neighborhood.
Geographic segmentation looks at the following 6 variables:
This type of segmentation categorizes customers solely based on where they live or work. It doesn’t look at any other aspects that are affected by location, such as language or culture.
When using location marketing, businesses need to tailor their marketing to identify with customers from each location.
For example, in the Nike ‘Nothing Beats A Londoner” campaign, Nike uses football stars from London, London’s key landmarks, and highlights the general life of London, which helps Londoners identify with the campaign
Here, businesses categorize customers based on the time zone within their geographical location. This kind of segmentation is particularly useful when it comes to digital marketing for companies that have customers across multiple time zones.
For instance, when using email marketing, you could schedule your emails to be sent at different times depending on the recipient’s time zone.
If you want your email to reach your audience at 8.30 on Monday morning, the scheduled sending time for customers in London will be different from the sending time for customers in New York.
Climate And Season
Different geographic regions have different climates and experience their seasons at different times. Climate and season, in turn, affect people’s buying behaviors.
By segmenting your customers by climate and season, you can target them with products and services that are relevant to them at that particular time.
For instance, if you are an online store selling fashion items, the kind of clothing items you market to people in a tropical island, such as Bermuda or Barbados, will be completely different from the kind of clothing items you’ll market in a cold place like Newfoundland.
Different geographic regions have different cultures. Culture, in turn, has a huge influence on the buying behaviors of people.
By categorizing your customers by the cultures in their respective geographic regions, you can target them with marketing that is relevant to their culture, while avoiding things that could be considered as offensive.
As an example, McDonald’s does not serve beer in their US restaurants, but they do it in their German restaurants. They do this because of the perception of these two cultures towards drinking. In Germany, it is totally normal to have a beer with your meal, but in the US, it could be frowned upon.
Language is another variable that changes from one geographic location, thus calling for a unique approach when marketing to different regions with different languages.
When tailoring your marketing to suit the language of a specific geographic location, this goes beyond the actual language spoken. It also involves other aspects of language, such as the slang and colloquialisms used in different regions, even if they speak the same language.
For instance, the UK, the US, and Australia all speak English, but when marketing to each of these countries, you have to tailor your marketing to each country’s version of English.
This form of segmentation looks at how urban a geographic region is. Under urbanicity, different areas can be categorized as urban, suburban, rural, and so on. So, which is this kind of categorization important?
Urbanicity has an influence on the kind of products people buy, and their motivations for buying them.
As an example, if you tried marketing high end sports cars to people in rural areas, you’d have trouble making sales, because the rough terrain and poor roads in rural areas are not suitable for such cars.
Instead, people from such areas are more likely to purchase trucks, which can handle the rough terrain, and can also be used for various farm-related activities, such as hauling farm inputs from the store.
4. Behavioral Segmentation
When segmenting customers by behavior, you group them based on their behavior patterns when interacting with your business or your products.
The aim of behavioral segmentation is to market to customers depending on their purchasing tendencies, how they use your product, as well as their attitude towards your business.
Behavioral segmentation is a very effective segmentation method. Actually, 91% of marketers report that behavioral segmentation is the most effective compared to all other segmentation methods.
Under behavioral segmentation, you can categorize your customers and audience based on the following variables:
When you segment customers by their purchasing habits, you are basically categorizing them based on how they approach the buying process. People can be divided into 4 groups based on their purchasing habits.
- Complex buyers: These are buyers who do not know which product or brand to buy. They are still researching to learn more about the available options.
- Variety seeking: These are customers who are happy with their current brand, but they are still open to trying other brands and varieties.
- Dissonance reducing: These are customers who are happy with their current brand, but they think other brands and varieties could have better offerings.
- Habitual: These are customers who are loyal to their brand and are unlikely to switch to other options.
Since they have different approaches to the buying process, you also need a different marketing approach for each of these groups. For instance, the kind of marketing that works for habitual buyers is unlikely to work for dissonance reducing customers.
Customer Journey Stage
This type of segmentation categorizes customers and tailors the marketing approach depending on where they are on the customer journey.
The different types of categorization under customer journey stage segmentation are awareness stage, engagement stage, evaluation stage, purchase stage, and post purchase stage.
This variable categorizes customers depending on the product features, or even the kind of products that are most important to them. In other words, you categorize them based on the problem they are trying to solve.
For example, if someone attends all your webinars on how you can help them increase conversions, but doesn’t join any webinars on how you can help them drive traffic, then this means that their biggest concern is conversions. Traffic is not a concern to them probably because they are already attracting enough traffic.
Once you know what benefits a customer is looking for, you can then tailor your marketing to emphasize those benefits.
This type of segmentation categorizes users based on how often they use your products, and how much time they spend with your products.
Under this type of segmentation, customers can be classified as heavy users, medium users, and light users.
Your marketing message needs to vary depending on the group you are marketing to. When marketing to light users, your focus should be on getting them to use your product more frequently, while for heavy users, you should focus on showing them how they can use your product more effectively or efficiently.
Segmentation based on brand interactions groups customers depending on how they engage with your brand.
To be able to segment customers by brand interactions, you have to track how they interact with your brand, both online and offline. These interactions show the level of interest customers have in your business or your products.
If someone frequently engages with your social media profiles, for example, this shows they are highly interested in your business. The kind of marketing that works for such customers will not work for customers who seldom interact with your business.
This segmentation method groups customers based on how they spend their money on your business. Do they buy online or offline? Do they purchase at random times, or only when you have sales and offers? Do they have your store’s loyalty card?
5. Technographic Segmentation
Technographic segmentation looks at the role of technology in the lives of different groups of customers.
When using technographic segmentation, you group your customers depending on how receptive they are towards technology (are they early adopters, innovators or laggards?), as well as the kind of tech products they use, such as devices, browsers, social platforms, ERP software, and so on.
Different technographic segments have different needs, which means that how you market to them, and even the kind of products you market to them will differ.
For instance, marketing that works for customers who primarily use SnapChat will not work for customers who primarily use LinkedIn. Similarly, the kind of products that you’ll market to Apple users could be totally different from the kinds of products you market to Android users.
Therefore, collecting data about how your customers use technology and grouping them based on that can help prevent you from using the right marketing approach for the wrong group.
6. Generational And Life Stage Segmentation
Generational and life stage segmentation can be termed as a subset of demographic marketing, since they also categorize customers based on their age and where they are in life.
With generational marketing, customers are grouped based on the period during which they were born. Under generational marketing, we would have groups like generation Z, millennials, generation X, baby boomers, and so on.
The idea behind generational segmentation is based on the fact that people from the same generation tend to have some common characteristics that have an influence on their purchase behaviors.
For instance, SnapChat is more likely to be successful marketing itself to generation Z compared to generation X.
It’s good to note, however, that people don’t always have the same needs and preferences just because they belong to the same generation.
Let’s assume, for example, that there are two young men, both 30 years of age, who grew up together in the same neighborhood. However, one is married with one kid, while the other is single and is still living at home. Despite being from the same generation, these two guys don’t have similar needs.
This is where life stage segmentation comes in. Life stage segmentation categorizes customers based on where they are in life at the moment.
Life stage segmentation looks at factors like whether someone has graduated from school or not, whether they earn their own income or not, whether they are married or unmarried, whether they have children or not (as well as the ages of their children), whether they are home owners or not, and so on.
By combining generational and life stage segmentation, marketers are able to gain in-depth insights into the wants, needs, preferences and motivations of their customers, which in turn allows them to target them with relevant marketing messages.
7. Transactional Segmentation
Transactional segmentation divides your customers into groups based on the kind of transactions they have had with your business.
Transactional segmentation looks at factors like how recently a customer has purchased from your business, how frequently they buy from you, how much they spend on average, and so on. This data can then be used to encourage different kinds of actions to different customers.
Let’s say, for example, by looking at your customers’ transactional data, you realize that there is a group of customers who haven’t bought from your company in the last six months, another group that buys frequently but has a low average spend, and yet another group that buys infrequently but has a high average spend.
Armed with this data, you can then come up with multiple marketing campaigns targeting the three different groups.
For the first group, you can have a campaign aimed at encouraging them to make a purchase, say by giving them a discount if they purchase within a certain period.
For the second group, you can have a campaign promoting small, low cost items that this group is likely to buy, while for the third group, you can have a campaign promoting pricier items that are on sale.
8. Firmographic Segmentation
This type of market segmentation is only applicable to B2B companies. It classifies customers based on common company or organization characteristics.
With firmographic segmentation, customers can be grouped using any of the following variables:
- Industry: Companies from different industries will have different wants, needs and preferences. Grouping similar companies together makes it possible to customize your marketing efforts to their unique wants and needs.
- Annual revenue: This allows you to group companies based on their ability to afford your products. For instance, a fortune 500 company will be able to easily afford an expensive enterprise software, but a smaller company might be looking for a more affordable solution.
- Company Size: Company size also has an influence on the needs and wants of the company. For instance, a startup with a small team will have totally different needs compared to a large company with thousands of employees.
- Location: This categorizes companies based on their geographic location. For instance, a company that operates in a small remote town will have different needs from a big company operating in a major city.
- Sales cycle stage: Here, customers are classified based on how far they are along the buyer’s journey. Are they just researching their options, or are they close to making a purchase?
- Status: Status looks at whether customers are sole proprietorships, partnerships, limited liability corporations (LLCs), subsidiaries of other larger organizations, and so on. The idea here is to focus on companies that stand to gain most value from your products or services.
- Performance: When segmenting companies by performance, you basically look at the results the company has achieved over time. Is the company growing or in decline? Have they been posting profits or losses over the years?
- Executive title: Segmenting customers by their executive title allows you to profile the decision makers in different companies and tailor your marketing to match the specific needs of these people. For instance, how you market a product to the CEO of a company is different from how you’ll market the same product to a procurement executive.
By segmenting B2B customers using these variables, it becomes easier to identify what matters most for different companies, then customize your marketing to give them what they want.
Benefits Of Market Segmentation
Segmenting your customers based on shared characteristics has a lot of advantages for your business, including…
1. Allows Better Matching Of Customer Needs
Different customers have different needs, which means that trying to appeal to a large market with the same product, or the same kind of marketing will not work.
When you segment your customers, however, you can address the needs of each segment individually, which in turn makes your marketing more effective.
If you engage in influencer marketing, customer segmentation can also help you to partner with the right kind of influencers whose content resonates with the customer segment you are targeting.
2. More Efficient Spending
Imagine you are a fitness coach trying to market your online course, so you decide to use display ads to market yourself. Since your product is a fitness course, you set up a display ad campaign with digital banners that read “best fitness course on the internet.”
Unfortunately, most people are not simply looking for a fitness course. They have a particular goal they want to achieve, such as losing weight, building muscle, training for a sporting event, and so on. These are the kind of services potential clients are searching for.
If you spend money to market under the umbrella term fitness course, you’ll have very little ROI. However, by marketing each goal individually, your services will resonate with your potential clients who have different motivations, which will increase their likelihood of signing up for your classes.
By segmenting your customers and then marketing to them individually, you’ll have spent your marketing dollars more efficiently and will achieve better results from your marketing.
3. Improve Customer Retention
As customers move along the customer life cycle, their needs keep changing. By segmenting your customers depending on where they are on the customer life cycle, you can then market products that are relevant to them at that particular point in time.
By doing so, it becomes easier for you to retain customers who would have otherwise switched to your competitors because their needs were not being met.
4. Higher Quality Leads
Segmentation allows you to make your marketing more targeted, which in turn leads to higher quality leads who have a higher likelihood of converting to paying customers.
5. Discover Niche Markets
Categorizing your customers into different segments can also help you discover niche markets that you didn’t know existed.
Let’s assume you have an online store that sells sportswear. After segmenting your customers using multiple variables, you discover that there is a certain kind of shoe that is very popular among 20 – 30 year olds who have a high interest in parkour.
Without segmentation, it would be impossible to know that there is a niche market selling shoes to young parkour enthusiasts.
Once you have discovered such a niche, you can then focus on creating products specifically for this niche, or marketing in a way that resonates with this niche.
6. Gain Market Share
By carefully segmenting your market, and then effectively targeting these segments, you can position yourself as the go-to brand for that segment, thus giving yourself an edge over the competition and getting the lion’s share of that market segment.
7. Gain In-Depth Customer Insights
Segmenting your customers allows you to learn as much as possible about your customers, including their needs, wants, preferences, behaviors, motivations for buying, likelihood of buying certain products, and so on.
You can then leverage these insights to better serve your customers, leading to more profits and more growth for your business.
8. Better Focus
A marketing strategy that is targeted at the general market is akin to using a machine gun. Sure, a machine gun can spray out hundreds of bullets in a minute, but it has poor aim, which means that many of these bullets will not strike your target.
Market segmentation, on the other hand, is like having a high end sniper rifle with a highly-skilled sniper behind it.
It allows you to focus on the right customer needs, which will in turn increase your efficiency and effectiveness. With proper market segmentation, every effort you put into marketing will deliver the desired results.
Market Segmentation FAQ
Market segmentation is a marketing strategy that involves categorizing customers into small, well-defined groups based on shared characteristics.
Once a business has segmented its customers, it then becomes easier for them to conduct strong market research and gain better insights about their customers.
With these insights, businesses can then develop products that solve the right problems for different customers, and position their products and services in a way that resonates with different types of customers.
The 4 major types of market segmentation are demographic segmentation, geographic segmentation, psychographic segmentation, and behavioral segmentation.
Demographic segmentation classifies customers based on shared personal characteristics like gender, age, level of education, employment status, level of income, and so on.
Geographic segmentation categorizes customers based on where they live or work.
Psychographic segmentation involves classifying customers based on their shared psychological traits, such as their personality, lifestyle, beliefs and opinions, interests and activities, attitudes, and so on.
Behavioral segmentation, on the other hand, groups customers based on their behavior towards your company and your products.
A market segmentation strategy refers to the general guidelines that a company follows when it comes to segmenting its customers.
For example, some companies will opt to use only one type of segmentation, such as demographic segmentation, while other companies will opt to use multiple types of segmentation simultaneously, such as demographic, psychographic, and behavioral segmentation.
Using multiple types of segmentation simultaneously allows businesses to glean more in-depth insights about their customers compared to using only one type of segmentation.
First and foremost, the factors used for segmentation need to be measurable. It should be easy to measure the factors you’re using for segmentation. For instance, you can easily measure how many of your customers live in a certain area, or fall in a certain age group.
Second, segmentation factors need to be relevant. The factors used for differentiation need to have some influence on how your customers purchase or use your products or services.
For instance, if you sell shoes, you could segment customers based on whether they use their left or right hand, but this would not be relevant because right or left-handedness doesn’t affect how people buy shoes.
In addition, these factors need to be differentiable. When segmenting customers, different customer segments need to be significantly different in their purchase behaviors to warrant spending time and effort on each of them individually.
Next, you need to make sure your segmentation factors are substantial. A market segment needs to have substantial numbers, otherwise you could end up wasting your time and money marketing to an insignificant segment.
For instance, if you are a local business and have only 10 customers out of 1000 living outside your locality, there is no point segmenting customers geographically.
Finally, your segmentation needs to be based on factors that are stable. All market segments need to be stable enough that you can predict their future behavior with a high degree of assurance. In other words, customer segments should not be based on factors that keep changing.
Businesses use market segmentation in order to learn as much as they can about their customers and their needs. With the insights gained from market segmentation, businesses can then tailor their marketing campaigns to the wants and needs of specific clients. This, in turn, allows businesses to run campaigns that are effective and efficient.