When you’re looking to improve the effectiveness of your marketing, segmentation should always be one of your first ports of call. Learn about the 4 most common types of market segmentation, plus some other ones that you may have missed.
Market segmentation is an increasingly important part of a strong marketing strategy and can make all the difference for companies in competitive market landscapes, such as e-commerce.
When up against a range of online competitors, effective communication is the best way to differentiate your business. Market segmentation offers an opportunity to pinpoint exactly what messaging will drive your customers to make a purchase.
The 4 basic types of market segmentation are:
1. Demographic Segmentation
2. Psychographic Segmentation
3. Geographic Segmentation
4. Behavioral Segmentation
We’ll go into the 4 types in a lot more detail below.
In this article, we’ll cover
1. 🙋 Demographic segmentation
2. 🚣 Psychographic segmentation
3. 🌎 Geographic segmentation
4. 🛍️ Behavioral segmentation
5. 📊 Other types of segmentation
6. 📈 The benefits of segmentation
The 4 types of market segmentation with examples
The purpose of market segmentation is to identify different groups within your target audience so that you can deliver more targeted and valuable messaging for them.
There are four main customer segmentation models that should form the focus of any marketing plan.
For example, the four types of segmentation are Demographic, Psychographic Geographic, and Behavioral. These are common examples of how businesses can segment their market by gender, age, lifestyle etc.
Let’s explore what each of them means for your business and your market segmentation strategy.
1. Demographic segmentation: The who
Demographic segmentation might be the first thing people think of when they hear ‘market segmentation’. This is perhaps the most straightforward way of defining customer groups, but it remains powerful. Demographic segmentation looks at identifiable non-character traits such as:
- Level of education
- Profession/role in a company
For example. demographic segmentation might target potential customers based on their income, so your marketing budget isn’t wasted directing your messaging at people who likely can’t afford your product.
Luxury goods manufacturer Montblanc worked with Yieldify to present a selection of offers across their website. One sought to raise conversions using a Father’s Day deal that offered a free gift to those spending over £200 – an amount that acknowledged the spending expectations of Montblanc’s target audience and saw a +118% uplift in conversions for those targeted.
Another offer was aimed specifically at corporate gift buyers – a market segment that Montblanc particularly appeals to – and resulted in a +30% uplift for that segment.
Market Segmentation isn’t just about your business reaching customers more effectively – it’s also about those customers seeing messaging that is more relevant to them!
2. Psychographic segmentation: The why
Psychographic segmentation is focused on your customers’ personalities and interests. Here we might look at customers and define them by their:
- Personality traits
- Life goals
Compared to demographic segmentation, this can be a harder set to identify. Good research is vital and, when done well, psychographic segmentation can allow for incredibly effective marketing that consumers will feel speaks to them on a much more personal level.
In our experience working with luxury resort business Omni Hotels & Resorts, for example, were aware that a big sector of the company’s target audience was always keen to get the very best price they could. By targeting a notification campaign specifically towards comparison shoppers, Omni Hotels & Resorts achieved a 39% conversion rate uplift.
3. Geographic segmentation: The where
By comparison, geographic segmentation is often one of the easiest to identify, grouping customers with regards to their physical location. This can be defined in any number of ways:
- Postal code
For example, it’s possible to group customers within a set radius of a certain location – an excellent option for marketers of live events looking to reach local audiences. Being aware of your customers’ location allows for all sorts of considerations when advertising to consumers.
Using Yieldify’s tools, an online shoe store could show different products depending on where the visiting customer was based: wellington boots for someone in the countryside, pavement-friendly trainers for a city-dweller, strappy sandals to resort visitors, and so on!
In large nations like the United States, customers could be presented with options that match with local weather patterns. Geographical identification is an important part of seasonal segmentation, which allows businesses to market season-appropriate products to customers.
Some recent examples of proper geographic segmentation came from the response by e-commerce businesses to the coronavirus pandemic. During lockdown stages, many businesses shifted their focus to local communities to highlight how their services could still be accessed online.
Conversely, as public spaces began to open up again purely e-commerce brands had to shift their marketing plans to maintain the levels of business they had seen over the lockdown period.
4. Behavioral segmentation: The how
Behavioral segmentation is possibly the most useful of all for e-commerce businesses. As with psychographic segmentation, it requires a little data to be truly effective – but much of this can be gathered via your website itself. Here we group customers with regards to their:
- Spending habits
- Purchasing habits
- Browsing habits
- Interactions with the brand
- Loyalty to brand
- Previous product ratings
All of these are datasets that can be harvested from a customer’s usage of your website. At Yieldify, we utilize behavioral segmentation to deliver highly relevant and targeted campaigns based on a number of behavioral patterns:
- Number of sessions to your website
- Number of pages visited
- Time spent on site
- URLs visited
- Page types visited
- Shopping cart value
- Campaign history
- Referral source
- Exit intent
- Inactivity, and more.
For example, we can distinguish between a first-time visitor and someone who’s already been on your site multiple times but haven’t purchased. Based on this behavioral data, we can tailor our messaging accordingly:
First time visitor: Hey, learn about our latest collection!
Returning visitor: Join our loyalty program and start saving!
Working with online wine club Vinomofo, we used behavioral segmentation to target three distinct audiences: new visitors, returning visitors, and returning clients.
One of the best examples of this type of segmentation is showing new visitors a $15 incentive in exchange for joining the community. Returning visitors who had already subscribed but have not redeemed their coupon yet were reminded on their first order incentive. Whereas returning customers saw a campaign about Vinomofo’s premium services.
This targeted approach focused on purchasing habits reached a 34.02% conversion rate uplift with new and 29.24% CR uplift with returning visitors!
Other types of market segmentation with examples
Though the most common types of market segmentation are demographic, psychographic, geographic, and behavioral, there are other types that are also worth considering and can offer excellent opportunities in the right context.
Technographic segmentation identifies and groups customers with regards to the role technology plays in their lives. This might mean recognizing groups of early adopters when marketing new technologies. It might also be as simple as recognizing the device users access the site from and presenting deals differently.
With personalization, it’s easy to target adverts at specific groups like this. Consumers accessing an online phone store via the Safari internet browser might be more interested in Apple products – and can be shown these as a result.
Generational and life stage segmentation
Generational and life stage segmentation both expand on aspects of the demographic approach. Identifying customers by generation allows for broad but distinct approaches depending on age.
Life stage segmentation, however, works similarly whilst divorcing life experience from age itself. Instead, it groups customers by factors including marital status, home-ownership, and whether or not they have children (and more specific still by considering the ages of their children).
Bank of America, for example, has successfully used life stage segmentation in their digital marketing strategy. Medialogic details BoFA’s “Family Life Banking” program that invited customers to segment themselves by clicking on a relatable tab within and email. From there, the customer would land on a custom microsite designed specifically for their segment.
Transactional segmentation is based on previous interactions your customer has had with your brand. Whilst it can draw on behavioral elements, it also has a much wider scope – considering the initial source of their registration with your business, how long it has been since their last order, and how many orders they’ve made overall.
Yieldify worked with clothing retailer Turnbull & Asser to boost conversion rates on their online store. Offering free shipping to all their customers would have been too expensive, so Yieldify targeted a specific transactional segment of their userbase – offering free shipping to those with a set value of items already in their carts.
The shipping offer encouraged many of those targeted to make the extra purchases necessary to claim it, and drove over £22,000 of extra revenue for the brand.
Picking up on information like this is a particularly effective strategy across multiple industries, including top competitors to mass global retailers like Amazon, presenting e-commerce businesses with the best understanding of their customers, and encouraging return visits.
Whilst the above marketing segmentation strategies mainly focus on B2C organizations, Firmographic segmentation can be extremely useful to those in the B2B world.
Firmographic segmentation is the process of analyzing and classifying B2B customers based on shared company or organization attributes & characteristics.
This segmentation strategy allows B2B companies to better understand and target their audience and marketing campaigns. This process is very similar to the way B2C marketers would use demographic segmentation.
This type of market segmentation predominantly uses 7 factors to identify customer segments.
- Company Size
- Number of employees
- Executive Title
- Sales Cycles Stage
This market segmentation process can help form an effective B2B marketing strategy by identifying target customers and tailoring marketing efforts to these specific customer segments.
How To Build A Market Segmentation Strategy
So now you know the different types of market segmentation, let’s focus on how you can actually implement a market segmentation process. There are a number of key steps you’ll need to follow.
1) Set an objective
What are you trying to achieve with this market segmentation process? Most of the time the purpose of market segmentation is to identify which customers and segments are the most profitable.
2) Define your market
Does the world need your products and services? How large is the market for what you’re selling? Is there enough room for another competitor, or do yours have a monopoly? Carrying out this type of market research will help you make better decisions in the next steps.
3) Identify market segments
Based on your market research you’ll need to decide what type of market segmentation strategy you need to implement to find your target market. You can use any of the above types we mentioned. You don’t need to just stick to one, try different combinations and see which one works out best for you, your market and your objectives.
4) Evaluate & understand your target market
After step 3 you may have a few potential target markets to focus on. But which one has the best chance of achieving your objective? Once you’ve identified a target segment you then need to evaluate and validate it. Look into consumer data, spending habits, competitors, the market size of these customer segments. Carry out a mix of qualitative and quantitative research methods to draw out meaningful insights.
This step is arguably the most important as it will have an impact on everything you do from here on out, from marketing tactics and brand positioning to even potentially finding a competitive advantage.
5) Build marketing strategies
If you’ve validated a market segment you then need to think about the best way to get your brand in front of them. Understanding your target customer will allow you to create a successful marketing campaign. Understanding what messages they will respond to, where they spend most of their time, what they value from a brand etc will mean your marketing efforts don’t go to waste. Make sure you can track and report on everything you can do.
6) Evaluate performance
After launching your marketing strategy you’ll need to evaluate how effective it has been. Hopefully, your market research has paid off and everything has gone according to plan and you’ve converted some of your target customers. But if it hasn’t
10 Benefits of Market Segmentation
There are many benefits of market segmentation, our top 10 are below. You’ll see most relate to
1. More effective marketing
This is the biggest and most obvious benefit to well-implemented market segmentation. By better recognizing the needs of your customers, you can identify more effective tactics for reaching them and improving their interactions and experience with your business. Making your marketing efforts even more effective.
2. More efficient spending
After all, your targeted marketing is going to allow for better returns on investment, and you’ll waste less money on marketing that reaches the wrong audience.
3. Higher quality leads
You’ll also notice that the more targeted more marketing is, the better your leads become. You’re reaching the right people, and they’re starting to notice you!
4. Identifying niche markets
Similarly, your research into segmentation may help you recognize areas of the market you’d not considered before. This might even lead to the development of new products that are aimed specifically towards these markets.
5. Improved customer retention
By identifying your customers by their needs, you can put out marketing that offers irresistible reasons for a return visit. This is proven to increase customer retention, customer loyalty and lifetime value.
6. Differentiating your brand
The purpose of market segmentation is not only to help you reach your audience but also to allow your customers to see the true value of your brand via marketing that speaks to them – and in doing so puts you head and shoulders above your competitors.
7. More focus
Ultimately, thoughtful customer segmentation will allow your business to focus every element of its activity to better reach those that it serves. Your marketing becomes focused on your customers’ needs, your research and development may focus on meeting those needs, your spending will be focused on achieving these, and not wasted on mistargeted marketing and planning.
Everything becomes better suited to giving your customers what they need, and as a result, your business becomes exactly the sort of business they want to be buying from. This can greatly help with the return on investment of all your marketing activity.
Common Market Segmentation Mistakes To Avoid
Market segmentation may seem like a pretty straightforward task, but it’s easy to fall into some common mistakes.
Make sure you avoid the following when implementing your marketing segmentation strategy:
The market segment is too small – Whilst mass marketing may not be your aim, avoid the trap of going too small or specialized. Smaller segments are often challenging, inaccurate, and limit your potential customer base. Remember your objective and make sure the size will allow you to achieve it.
Ignoring ROI – Your research may have you convinced your target market segment is perfect but don’t lose sight of the most important metric, ROI. Your marketing campaigns need to be converting if they aren’t somethings not right. Review your segments, your marketing tactics, your pricing etc and figure out what area you need to address.
Ignoring new markets – Markets change over time and you may be missing out on potential customers if you don’t. Whilst your initial segments may have served you well don’t be afraid to look for new ones in new markets.
So, as you can see there are many different types of marketing segmentation you can choose from to find and define your target market and effectively promote your product or service.
Your customers’ every decision is judged on whether the result is what they want, or whether it is what they need. Market segmentation allows you to recognize these needs and market directly to them, without any wasted messaging.
Whether it’s telling new drivers about the best car insurance for them, or sharing offers on barbeques and sun-chairs to those living in the middle of a heatwave, market segmentation offers you thousands of ways to ensure your customers see you as exactly what they want, and exactly what they need.
Market Segmentation FAQs
Market segmentation builds a subset of a market. This can be based on demographics, needs, priorities, common interests, and other psychographic or behavioral criteria.
The 4 basic types of market segmentation are:
1. Demographic Segmentation
2. Psychographic Segmentation
3. Geographic Segmentation
4. Behavioral Segmentation
Market segmentation allows you to understand your customer’s needs better and how you can fulfill these better than your competition.