chapter 4 assignment 1 types of market segmentation

8 Types of Market Segmentation: Explained & Explored

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Different types of market segmentation allow companies to understand their market better and create more effective messaging, products, and marketing campaigns.

Knowing which methods of market segmentation are right and when to use each helps you make the right moves at the right time . So, if you’ve decided to segment your market, let us explain the various ways to do it and get you on the path to success.

Types of market segmentation

The four most common types of segmentation include demographic, behavioral, firmographic, and psychographic. However, as technology advances, along with the expectations of modern consumers, it’s important to know all the ways you can segment your market, which is why I’ve detailed eight ways to segment a market.

If you’re completely new to this process, I’d recommend you look at our other post covering the ins and outs of what market segmentation is before you choose which type of segmentation is best to use.

Even if you’ve already divided your market based on certain parameters or similar characteristics, it’s worthwhile to take a step back and remember that an audience analysis strategy often benefits from a combination of tactics in the digital world.

1. Demographic segmentation – who is buying?

Typically, segmentation starts with demographic audience analysis – it’s usually what we first think of when defining our customer personas. Geographic segmentation forms part of this, although it’s often referred to in its own right. This type of market segmentation sticks to basic characteristics that can be easily identified:

• Income level
• Marital status
• Family size
• Education level

Demographic segmentation is useful for deciding how to target marketing or services to particular people or groups. It helps understand how different groups of people respond to different messages, products, or services. For example, suppose a business wanted to target a certain age group with a particular product or service. In that case, demographic segmentation could help them identify the right audience and tailor their messaging accordingly.

It’s ideal for B2C companies in particular. You’ll have greater chances of success (i.e., getting your customers to purchase your offering) when whatever you’re putting in front of your audience resonates with them.

Here, we see hotels.com traffic data , looking specifically at the geographical breakdown of their visitors, combined with a snapshot of their audience’s gender and age distribution. This data can be utilized to segment any audience to see which countries drive traffic and the split of that audience’s characteristics.

2. Behavioral segmentation – how are they buying?

Behavioral segmentation is a great way to gain insight into the actions and behaviors of consumers. It can be used to identify buying patterns and preferences and tailor products, services, and marketing messages to specific customer segments . Additionally, it can help companies better understand which customers are most likely to respond to certain campaigns or promotions.

It’s an ongoing process of collecting and analyzing behavioral data. Over time, the data you collect will reveal more about your consumers, such as:

• Purchasing habits
• Browsing behavior
• Interaction with your brand
• Interaction with your competitors
• Buying history
• Brand loyalty

An ecommerce site or retailer , for example, may make segments based on the channel or device people use to reach its site. In contrast, a gaming site might segment according to the frequency of purchases or which competing gaming sites users visit.

One example of behavioral segmentation is segmenting customers based on their purchase frequency. This could involve creating segments such as customers who purchase once a month, a quarter, or annually. This helps companies understand the different types of customers it has and tailor its marketing and product offerings accordingly.

Similarweb’s audience overlap feature is a great way to see a snapshot of how an audience overlaps with others in your space. You can quickly compare your own audience with that of key rivals, to see how loyal consumers are within a market.

3. Firmographic segmentation – what types of companies are buying?

If you’re a B2B company, you will be less interested in your prospects’ individual, personal characteristics. Your buyer is a company, and you need to understand the character of that business rather than the individuals who comprise it.

Firmographic segmentation goes hand in hand with company research . It analyzes the industry, company size, revenue, location, and history of your potential customers.

For example, a company may decide to segment customers by revenue size. Companies with higher revenues could be placed in the high-value segment, while those with lower revenues would be placed in the low-value segment. As a result, it can tailor its resources and marketing efforts accordingly.

4. Psychographic segmentation – why are they buying?

It’s a tough question to answer. But understanding the motivation of your target audience is key. Some factors that influence why customers buy from you could include the following:

• Interests and Hobbies
• Political orientation

Of course, you’ll only need to focus on the ones that are relevant to your industry. An example of how to do psychographic segmentation would be to divide a market of luxury car buyers into three distinct groups:

• Aspirational: These customers aspire to own a luxury car and are more likely to be influenced by luxury car advertisements.
• Sophisticated: These customers are knowledgeable about luxury cars and prefer to spend time researching and evaluating their options.
• Traditional: These customers prefer a more classic look and feel for their luxury cars, and are likely to be driven by word-of-mouth recommendations.

5. Transactional segmentation – how do they transact?

When it comes to online shopping and eCommerce sites, transactional segmentation keeps all the receipts. It considers payment method, purchase value, use of coupons or special offers, and transactions based on categories or top-selling products. It’s a type of segmentation that can optimize pricing strategies and measure customer retention.

One way to do transactional segmentation is to look at customer purchase history. For example, if you’re an apparel retailer, you can look at the types of items customers purchase and create segments based on that. This may include a segment for customers who mostly purchase dresses, another for those who purchase pants, or another for those buying a variety of items. You could then use these segments to tailor marketing messages and offers to each customer group, helping to increase engagement, the relevance of messaging, and sales.

6. Technographic segmentation – what type of tech do they use?

Technographic segmentation is the process of segmenting customers based on the technology they use. This can be done in several ways.

One example would be to segment customers according to the operating systems they use. For instance, if you are a software company, you could segment customers based on whether they use Windows, Mac OS, Linux, Android, etc. You could also segment customers according to the software or device they use.

7. Seasonal segmentation – when are the peak periods of interest?

Some industries are strongly impacted by the seasons and divide their target markets accordingly. We’re not just talking about weather or holidays, though. Consider cultural, sports, or political events that stir human interest and alter buying behavior.

While it’s not relevant to every business, certain industries like travel, accommodation, finance, and retail are highly impacted by seasonal trends .

Some of the benefits of this type of market segmentation include:

• Increased focus: Focus efforts on specific customer segments during certain times of the year helps ensure the right message reaches the right audience at the right time.
• More effective targeting: Better target consumers with more relevant and timely content while improving customer engagement.
• Improved budgeting and resource allocation: Better planning and allocating of budgets and resources to drive focus on promotions with the potential to yield the best results.
• Increased efficiency: Streamline marketing efforts for a more efficient process.
• Increased profitability: Generate higher profits with targeted offers and campaigns.

8. Benefit segmentation – what benefits do people respond to?

This type of market segmentation is based on the potential benefits a customer receives. While it’s sometimes considered a type of behavioral segmentation, it’s worthy of a mention in its own right.

An example is when customers are segmented based on their preferred benefits, such as loyalty rewards or discounts.

For instance, a company may have a loyalty program that offers discounts or rewards to customers who have shopped with it for a certain amount of time or who have reached a certain spending threshold. They may have a different program for customers who prefer free shipping or early access to new products. By segmenting customers based on their preferred benefits, the company can tailor its marketing efforts to target customers more effectively and increase sales in tandem.

Another way to look at this type of segmentation is by the perceived benefit a product offers to a customer. The supplement sector gives us a great example of this to showcase.

Let’s say a company offers a range of health supplements, some for weight loss, some for muscle gain, and some for anti-aging. In this instance, a company could perform segmentation based on the benefits a customer is seeking. This way, should they offer similar products with the same benefits, they have a readily available market to take them to.

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Choosing the right type of market segmentation

The best type of market segmentation to use depends on your business and your overall objectives. Here are three easy steps to help you determine which market segmentation techniques are right for you.

• Consider the characteristics of your target audience, the benefits of your offering, and the goals you want to achieve. 
• Analyze your market data to determine the best characteristics to use for segmentation.
• Once you have identified the most relevant characteristics, you can develop a segmentation strategy that fits your objectives.

Market segmentation bloopers to avoid

Before you take a swing at segmenting your market, here are a few common missteps to avoid:

1. Don’t rush.

Make sure that you’ve completed each step in market segmentation before moving on to the next one.

2. Don’t forget to optimize.

Creating your market segmentation strategy requires considerable initial effort, but don’t stop there. It’s tempting to stick with the same segmentation for good, but markets are dynamic, so keep your finger on the pulse and keep optimizing. You need to identify upcoming trends and emerging markets, detect shifts in behavior and preferences, and, most of all, keep an eye out for up-and-coming competition. Measure performance and apply changes if required.

3. Don’t limit yourself to small segments.

Be careful not to create segments that are too small. The temptation to add factors and metrics for better targeting can lead to splitting your audience into endless, tiny categories. Instead, aim for actionable insights that impact your company on a large scale.

4. Don’t ignore the data.

The backbone of effective market segmentation is your research and analytics strategy. No matter which of the different types of market segmentation you go with and how you combine them, data quality is essential. It all starts with analyzing your audience. You’ll discover natural groupings in your audience, and with a bit of market research, you can find out if these match the industry standards.

Similarweb for market segmentation

Before starting any market segmentation, you need credible data about your rivals and market . While secondary information is readily available, the freshness of that data is often lacking, and that means any analysis has the potential to be irrelevant and out of date.

Dynamic market data changes the game–with the power to help companies shift from reactive to proactive. When businesses need to do more with less , market segmentation allows you to pinpoint opportunities for growth and uncover prospective channels to hone in on.

Similarweb allows you to zoom in on the segments that matter most to your business; so you can easily draw out actionable insights to inform your strategy and power up your segment analysis.

Feature Spotlight: Segment Analysis

• Analyze the performance of a specific topic, category, brand, or line of business on any website.
• Compare performance within a customized industry and benchmark your own performance to spot opportunities and efficiencies.
• Get granular insights that allow you to quantify the impact of specific campaigns or offers over time, and make rapid changes when markets shift.

Here’s how it works.

Why is market segmentation important?

Market segmentation is important because it allows businesses to effectively target their products and services to the right customer base. By understanding their target market , businesses can tailor their offerings to meet the needs and wants of their potential customers, increasing the likelihood of success.

Why should you use different types of market segmentation in business?

Businesses should use various types of market segmentation as it enables more effective marketing campaigns. Mixing up the types of segmentation facilitates a better understanding of a target audience and informs messaging that is tailored to the unique needs of a subset of a target market .

What are four common market segment examples? 

Four common market segment examples include geographic, demographic, psychographic, and behavioral. Geographic segmentation looks at where customers are located; demographic segmentation looks at demographic characteristics such as age, gender, and income level. Psychographic segmentation looks at lifestyle and personality traits, and behavioral segmentation looks at how customers interact with a product or service.

What are the different types of market segmentation?

The different types of market segmentation are demographic, psychographic, firmographics, benefit or value, transactional, technographic, seasonal, and behavioral.

by Liz March

Digital Research Specialist

Liz March has 15 years of experience in content creation. She enjoys the outdoors, F1, and reading, and is pursuing a BSc in Environmental Science.

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4 Types of Market Segmentation: Real-World Examples & Benefits

Published: Dec 6, 2022

Updated: 17/02/2023

Market segmentation is the foundation of any successful long-term marketing strategy. 

To get maximum value from your marketing budget, get to the heart of your customers’ shopping motivations by splitting your market into subgroups – then you’ll be in a stronger position to serve your customers’ unique needs.

According to research from SALESmanago , 77% of marketing ROI comes from segmented, targeted and triggered campaigns. So, if your marketing campaigns are falling flat, do more market research to understand what makes your customers tick across each segment.

One of the reasons market segmentation techniques drive more revenue for your business is because they can help you deliver personalized customer experiences. That’s why the best personalization tools let you segment your audience so you can:

• Drive more email and SMS leads
• Lift website conversion rates
• Improve average order values
• Increase customer lifetime value

In this blog, I’ll walk you through the four main types of market segmentation:

1. Demographic

2. Psychographic

3. Geographic

4. Behavioral

And I’ll also cover: 

Transactional segmentation

Technographic segmentation, generational and life stage segmentation, firmographic segmentation.

• 8 benefits of market segmentation

What is market segmentation?

Market segmentation is a technique you can use to divide your customer base into subgroups based on shared characteristics, such as age, income, hobbies and location. The aim of segmentation is to tailor marketing efforts to your ideal customer profile (ICP), i.e. the customers most likely to buy your product or service. 

For example, a customer at an organic food shop is likely to have some or all of these characteristics: 

• Gender: Male or Female 
• Income: $100,000+
• Life stage: Home owner, no children  
• Interests: Healthy eating, sustainability, sport

Rather than wasting your budget on campaigns that target a broad section of the market, use messaging that resonates with a market segment made up of customers with those attributes. You should also consider which channels are likely to drive the highest engagement.

For this hypothetical organic food shop, a Pinterest campaign marketing products with sustainable ingredients would be a strategic way to appeal to potential customers. Why Pinterest and not another social channel? Well, not only do 9 out of 10 Pinners browse the social media platform for purchase inspiration, it’s also used by up to 80% of Millennial women and 40% of Millennial men.

Why is a market segmentation strategy important? 

According to Bain and Company , businesses that tailor strategies to customer segments generate yearly profit growth of 15% vs 5% for businesses that don’t. In short, market segmentation can drive significant growth. 

Segmentation techniques are major profit drivers because they help you define your target market and qualify customers as users of your product or service. You can then provide the personalization that 73% of shoppers now expect from brands – sending the right message, through the right channel, at the right time.  

Market segmentation also helps you to: 

• Enter new markets
• Build products that solve customer pain points
• Streamline sales processes
• Drive more revenue from email marketing
• Drive more revenue from social media marketing
• Increase eCommerce customer retention

4 Key market segmentation types & examples

1. Demographic segmentation: The who

Widely used by D2C ecommerce brands, demographic segmentation is one of the most simple yet effective kinds of segmentation. You can use demographic segmentation to split your audience and create customer personas based on objective information, such as:

• Level of education
• Profession/role in a company

For example, if you segment your audience based on your customers’ income, you can target them with products that fall within the constraints of their budget. If you’re a small business or new to ecommerce, this is a straightforward type of segmentation with three key advantages: 

• It’s easy to collect information 
• It’s simple to measure & analyze 
• It’s cost-effective

Luxury goods manufacturer Montblanc worked with Yieldify to present a selection of offers across their website. They lifted conversions by 118% with a Father’s Day deal offering a free gift to customers spending over £200 – a threshold that took the spending expectations of Montblanc’s target audience into account.

2. Psychographic segmentation: The why

Psychographic segmentation is the process of grouping people together based on similar personal values, political opinions, aspirations and psychological characteristics. 

For example, you can group customers according to their:

• Personality 
• Social status 
• Opinions 
• Values and beliefs

Because these characteristics are subjective, psychographic is a harder segment to identify – but it’s also the most valuable. The best places to gather data for psychographic segmentation are through your audience analytic tools and social media, but you should also use surveys, interviews and focus groups to strengthen your customer understanding in this segment. 

Through psychographic segmentation, you can get a deep insight into your customers’ likes, dislikes, needs, wants and loves. You can then create marketing campaigns that resonate with their psychographic profile. 

Yieldify’s personalization technology helps you create on-site experiences that capture more psychographic information about your customers. For example, Heidi, a leading online travel agency, collected information about their customers’ preferred skiing style with layered lead capture experiences. 

3. Geographic segmentation: The where

Geographic segmentation is the process of grouping customers based on where they live and where they shop. People who live in the same city, state or zip code typically have similar needs, mindsets and cultural preferences. 

The real advantage of geographic segmentation is it provides an insight into what your customers’ location says about a number of geo-specific variables, such as their: 

• Climate 
• Culture 
• Language 
• Population density – (urban vs rural)

As with all market segmentation methods, you’ll need to analyze your data to understand how each factor influences your customers’ shopping behavior. For example, people living in colder climates are likely to be in the market for winter clothing and home heating appliances.

You can also use geographic segmentation to solve practical problems. With Yieldify, global fashion brand Nautica used geo-targeting to show different customers when they could guarantee Christmas delivery. Customers in rural areas had to order earlier than urban areas, so Nautica’s delivery countdown timers adapted according to the customer’s location.

4. Behavioral segmentation: The how

Behavioral segmentation is the process of grouping customers based on common behaviors they exhibit when they interact with your brand.

For this type of segmentation, you can group your audience based on their: 

• Spending habits
• Purchasing habits
• Browsing habits
• Interactions with your brand
• Loyalty to your brand
• Product feedback

Gather this objective data through your website analytics and you can identify patterns in your customers’ behavior that help predict how they’ll interact with your brand in the future. 

Then you can leverage this hypothesis to provide personalized recommendations that address your customers needs. For example, Spotify provides its users with curated daily mixes based on the types of genres and artists they’ve listened to previously.  

At Yieldify, we use behavioral segmentation to deliver highly relevant and targeted campaigns based on behaviors including:

• Number of sessions to your website
• Number of pages visited
• Time spent on site
• URLs visited
• Page types visited
• Exit intent
• Shopping cart value
• Campaign history
• Referral source

For example, Petal & Pup tailor their email lead generation messaging for visitors arriving from Facebook.

Other types of market segmentation with examples

Demographic, psychographic, geographic, and behavioral are the four pillars of market segmentation, but consider using these four extra types to enhance your marketing efforts. 

Technographic segmentation groups people based on the technology they use and how they interact with it. For example, you could segment early adopters of new tech and target them when you launch a new product to market. 

Alternatively, you could present customers with deals depending on what device they use to shop online. For example, you could show Apple products to consumers who use Safari.

Generational segmentation expands on demographic segmentation by grouping customers based on their generation – Boomers, Gen Z, Millennials, etc.

You can also segment customers by factors including marital status, home ownership and number of children. 

For example, Bank of America successfully incorporated life stage segmentation in their digital marketing strategy. They invited customers using their Family Life Banking program to specify their life stage circumstances when they signed up. From there, they directed customers to a microsite designed specifically for that segment.

Using transactional segmentation you can group customers based on their previous purchase interactions with your brand, including: 

• Source of brand discovery – e.g. social media, organic
• Date of most recent order 
• Total number of transactions 
• Average order value

Most of the market segments I’ve discussed focus on D2C brands, but firmographic segmentation is a tool B2B companies use to create more impactful marketing campaigns.

Firmographic segmentation is the process of analyzing and classifying B2B customers based on shared company characteristics, and is similar to how D2C marketers use demographic segmentation. 

Use these 7 factors to create firmographic customer segments:

• Company size
• Number of employees
• Performance
• Executive title
• Sales cycle stage

8 Benefits of Market Segmentation

1. better roi from marketing.

According to research from SALESmanago , 77% of marketing ROI comes from segmented, targeted and triggered campaigns. 

2. Set your omnichannel strategy 

The deep insights you glean from a strong market segmentation process will help you set an omnichannel strategy that better addresses your customers’ needs. For example, if a high percentage of your customers are from Gen Z, tailor your messaging across all channels to speak to their cultural and social reference points.

3. Build customer loyalty

Market segmentation helps you build the personalized journeys your customers are craving. According to Accenture , 79% of consumers are more loyal to brands that use personalization tactics. 

4. Reach new markets

Segmentation helps brands identify gaps in the market. For example, world-renowned camera company Canon took a 40% share in the low-end digital camera market by spotting an opportunity to sell cameras to children without smartphones. 

5. Reduce customer acquisition costs

The insights you glean from creating segmented customer personas will make your marketing campaigns more effective. That can be said for both D2C and B2B brands.For example, insurance giant Metlife set annual savings targets of $800 million after streamlining its sales process to consider the behaviors and attitudes of each customer segment.

6. Build better products 

With a clearer understanding of who your customers are, you can create products that better serve their needs, desires and expectations. 

7. Higher quality email & SMS leads 

You’re more likely to get leads into your email and SMS databases by adapting your opt-in form according to customer segments. With Yieldify, American footwear company Rockport drove 30% more revenue per lead using a segmented approach to lead capture.

8. Drive more revenue from email marketing

Marketers have increased open rates by 14.3% and revenue by up to 760% using segmented email campaigns.

Build your own market segmentation strategy

I hope this blog has given you a clear understanding of how you can use market segmentation tactics to optimize your market strategy. If you want more information about how you can leverage market segmentation on your ecommerce website, check out this page on Yieldify’s audience segmentation capabilities.

Market Segmentation FAQs

Market segmentation is the process of dividing the market into subsets of customers who share common characteristics. The four pillars of segmentation marketers use to define their ideal customer profile (ICP) are demographic, psychographic, geographic and behavioral.

The four main types of market segmentation are: 1. Demographic 2. Psychographic 3. Geographic 4. Behavioral

Market segmentation helps you qualify customers of your product or service and serve them with more personalized marketing campaigns that speak to their unique needs. A good market segmentation strategy will help you: – Drive more marketing ROI – Reach new markers – Cut customer acquisition costs – Build better products – Increase brand loyalty

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What Is Market Segmentation?

• How It Works
• Determining Your Market Segment
• Limitations
• Market Segmentation FAQs

The Bottom Line

• Marketing Essentials

Market Segmentation: Definition, Example, Types, Benefits

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors, in order to better understand and market to them.

Key Takeaways

• Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
• Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
• Market segmentation can also increase a company's demographic reach and may help the company discover products or services it hadn't previously considered.

Investopedia / Matthew Collins

Understanding Market Segmentation

Companies can generally use three criteria to identify different market segments:

• Homogeneity , or common needs within a segment
• Distinction , or being unique from other groups
• Reaction , or a similar response to the market

An athletic footwear company, for example, might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market  and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI) .

Market segmentation enables companies to better target the customers interested in buying their goods or services. If done effectively, it should generally result in a higher return from marketing investment and better revenues and profits.

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics such as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.

Example : The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.

Firmographic Segmentation

Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy focuses on organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .

Example : A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed-fee, more simple product.

Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.

Example : A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.

Behavioral Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and the decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. It assumes that consumers' prior spending habits are an indicator of what they may buy in the future.

Example : Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This approach may yield the strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points. However, it's also difficult to achieve, primarily because the traits it focuses on can change easily and there may be a lack of readily available objective data.

Example : A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.

Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits, such as how innovative or risk-favorable a customer is.

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.

Phase I: Setting Expectations/Objectives

• What is the purpose or goal of performing market segmentation?
• What does the company hope to find out by performing marketing segmentation?
• Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• How should we segment customers?

Phase 3: Evaluate Potential Segments

• What risks are there that our data is not representative of the true market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment over another?
• What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?

Phase 4: Develop Segment Strategy

• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

• Who are the key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they be overcome?
• How should the launch of the marketing campaign be communicated internally?

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include:

• Increased resource efficiency : Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad reach approach.
• Stronger brand image : Market segmentation forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, the company's branding and messaging are more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
• Greater potential for brand loyalty : Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that the company lands the right client, who fits its product line and demographic.
• Stronger market differentiation : Market segmentation gives companies the opportunity to pinpoint the exact message they want to convey to the market and competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
• Better targeted digital advertising : Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort toward specific ages, locations, or habits via social media.

The approximate percentage of company revenues that are spent on marketing, according to the spring 2024 CMO Survey.

Limitations of Market Segmentation

Market segmentation also comes with some potential downsides. Here are some disadvantages to consider when implementing market segmentation strategies.

• Higher upfront marketing expenses : Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.
• Increased product line complexity : Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This has the downside risk of creating an overly complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.
• Greater risk of misassumptions : Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations of individuals within a given population.
• Higher reliance on reliable data : Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends and when market segments may have shifted from prior studies.

Examples of Market Segmentation

Market segmentation is evident in the products, marketing, and advertising that people use every day.

Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments. For example, different zip codes can have drastically different average incomes, which impacts car buying budgets, and terrain. People living in a big city tend to prefer smaller cars, while people living in the country may prioritize greater fuel efficiency and perhaps even off-road capabilities.

Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.

A sports shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious people, and individuals who have health issues or who spend a lot of time on their feet. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.

Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.

Why Is Market Segmentation Important?

Market segmentation recognizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.

What Are the Types of Market Segmentation?

Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how a particular group stands apart from others, and reaction, or how certain groups respond to the market.

What Are Some Market Segmentation Strategies?

Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.

What Is an Example of Market Segmentation?

Upon analysis of its target audience and desired brand image, Crypto.com has spent the past few years targeting younger, bolder, more risk-accepting individuals with its "fortune favors the brave" slogan. Part of this strategy has involved using celebrities it thinks may appeal to its target audience. In 2021, actor Matt Damon became the face of the brand. Then, in 2024, rapper Eminem, whose rags-to-riches story is well publicized, took over.

Market segmentation is a process companies use to break up their potential customers into different groups or segments. This allows a company to allocate the appropriate resources to each individual segment, resulting in more accurate targeting across a variety of marketing campaigns.

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4.5 Global Market Segmentation

Segmentation is an important strategic tool in international marketing because the main difference between calling a firm international and global is based on the scope and bases of segmentation. An international firm has different marketing strategies for different segments of countries, while a global firm views the whole world as a market, and then segments this whole world based on viable segmentation bases. Generally, there are three approaches to segmentation in international marketing:

• macro-segmentation
• micro-segmentation
• hybrid approach.

Macro-segmentation

Macro-segmentation or country-based segmentation identifies clusters of countries that demand similar products.  Macro-segmentation uses geographic, demographic and socioeconomic variables such as location, GNP per capita, population size or family size to group countries intro market segments, and then selects one or more segments to create marketing strategies for each of the selected segments. This strategy enables a company to centralize its operations and save on production, sales, logistics and support functions. However, macro-segmentation doesn’t take into consideration consumer differences within each country and among the country markets that are clustered together, and fails to acknowledge the existence of segments that go beyond the borders of a particular geographic region. Therefore, the company may be leaving money on the table, because the firm may be losing opportunities to solve the need of consumer segments across these country segments. Macro-segmentation leads to misleading national stereotyping, which results in neglect of within-country heterogeneity. Ignoring similarity in needs across country boundaries results in countries losing economies of scale benefits that can be achieved by serving the needs of a wider population across country (macro-segment) boundaries.

Micro-segmentation

Micro-segmentation or consumer-based segmentation involves grouping consumers based on common characteristics using psychographic and/or behaviouristic segmentation variables such as cultural preferences, values and attitudes, lifestyle choices. Table 6.6 “Micro-segmentation bases” and Table 6.7 “Common Ways of Segmenting Buyers” show some of the different types of buyer characteristics used for micro-segmentation. Notice that the characteristics fall into one of four segmentation categories: behavioural, demographic, geographic, or psychographic.

We’ll discuss each of these categories in a moment. For now, you can get a rough idea of what the categories consist of by looking at them in terms of how marketing professionals might answer the following questions:

Segmenting by Behaviour

Behavioural segmentation divides people and organization into groups according to how they behave with or act toward products. Benefits segmentation—segmenting buyers by the benefits they want from products—is very common. Take toothpaste, for example. Which benefit is most important to you when you buy a toothpaste: The toothpaste’s price, ability to whiten your teeth, fight tooth decay, freshen your breath, or something else? Perhaps it’s a combination of two or more benefits. If marketing professionals know what those benefits are, they can then tailor different toothpaste offerings to you (and other people like you).

Another way in which businesses segment buyers is by their usage rates—that is, how often, if ever, they use certain products. Companies are interested in frequent users because they want to reach other people like them. They are also keenly interested in nonusers and how they can be persuaded to use products. The way in which people use products can also be a basis for segmentation.

Segmenting by Demographics

Segmenting buyers by personal characteristics such as age, income, ethnicity and nationality, education, occupation, religion, social class, and family size is called demographic segmentation. Demographics are commonly utilized to segment markets because demographic information is publicly available in databases around the world.

At this point in your life, you are probably more likely to buy a car than a funeral plot. Marketing professionals know this. That’s why they try to segment consumers by their ages. To learn more about the different generations in Canada, review the Stats Can report: A Generational Portrait of Canada’s Aging Population – 2021 Census 

How do companies decide which groups to target? Although it’s hard to be all things to all people, many companies try to broaden their customer bases by appealing to multiple generations so they don’t lose market share when demographics change. Several companies have introduced lower-cost brands targeting Generation Xers, who have less spending power than boomers. For example, kitchenware and home-furnishings company Williams- Sonoma opened the Elm Street chain, a less-pricey version of the Pottery Barn franchise. The Starwood hotel chain’s W hotels, which feature contemporary designs and hip bars, are aimed at Generation Xers (Miller, 2009).

The video game market is very proud of the fact that along with Generation X and Generation Y, many older Americans still play video games. (You probably know some baby boomers who own a Nintendo Wii.) Products and services in the spa market used to be aimed squarely at adults, but not anymore. Parents are now paying for their tweens to get facials, pedicures, and other pampering in numbers no one in years past could have imagined.

As early as the 1970s, U.S. automakers found themselves in trouble because of changing demographic trends. Many of the companies’ buyers were older Americans inclined to “buy American.” These people hadn’t forgotten that Japan bombed Pearl Harbor during World War II and weren’t about to buy Japanese vehicles, but younger Americans were. Plus, Japanese cars had developed a better reputation. Despite the challenges U.S. automakers face today, they have taken great pains to cater to the “younger” generation—today’s baby boomers who don’t think of themselves as being old. If you are a car buff, you perhaps have noticed that the once-stodgy Cadillac now has a sportier look and stiffer suspension. Likewise, the Chrysler 300 looks more like a muscle car than the old Chrysler Fifth Avenue your great-grandpa might have driven.

Automakers have begun reaching out to Generations X and Y, too. General Motors (GM) has sought to revamp the century-old company by hiring a new younger group of managers—managers who understand how Generation X and Y consumers are wired and what they want. “If you’re going to appeal to my daughter, you’re going to have to be in the digital world,” explained one GM vice president (Cox, 2009).

Tweens might appear to be a very attractive market when you consider they will be buying products for years to come. But would you change your mind if you knew that baby boomers account for 50 percent of all consumer spending in the United States? Americans over sixty-five now control nearly three-quarters of the net worth of U.S. households; this group spends $200 billion a year on major “discretionary” (optional) purchases such as luxury cars, alcohol, vacations, and financial products (Reisenwitz et al., 2007).

Income is used as a segmentation variable because it indicates a group’s buying power and may partially reflect their education levels, occupation, and social classes. Higher education levels usually result in higher paying jobs and greater social status. The makers of upscale products such as Rolexes and Lamborghinis aim their products at high-income groups. However, a growing number of firms today are aiming their products at lower-income consumers. The fastest-growing product in the financial services sector is prepaid debit cards, most of which are being bought and used by people who don’t have bank accounts. Firms are finding that this group is a large, untapped pool of customers who tend to be more brand loyal than most. If you capture enough of them, you can earn a profit (von Hoffman, 2006). Based on the targeted market, businesses can determine the location and type of stores where they want to sell their products.

Gender is another way to segment consumers. Men and women have different needs and also shop differently. Consequently, the two groups are often, but not always, segmented and targeted differently. Marketing professionals don’t stop there, though. For example, because women make many of the purchases for their households, market researchers sometimes try to further divide them into subsegments. (Men are also often subsegmented.) For women, those segments might include stay-at-home housewives, plan-to-work housewives, just-a-job working women, and career-oriented working women.

Family Life Cycle

Family life cycle refers to the stages families go through over time and how it affects people’s buying behaviour. For example, if you have no children, your demand for pediatric services (medical care for children) is likely to be slim to none, but if you have children, your demand might be very high because children frequently get sick. You may be part of the target market not only for pediatric services but also for a host of other products, such as diapers, daycare, children’s clothing, entertainment services, and educational products. A secondary segment of interested consumers might be grandparents who are likely to spend less on day-to-day childcare items but more on special-occasion gifts for children. Many markets are segmented based on the special events in people’s lives. Think about brides (and want-to-be brides) and all the products targeted at them, including Web sites and television shows such as Say Yes to the Dress, My Fair Wedding, Platinum Weddings, and Bridezillas.

Resorts also segment vacationers depending on where they are in their family life cycles. When you think of family vacations, you probably think of Disney resorts. Some vacation properties, such as Sandals, exclude children from some of their resorts. Perhaps they do so because some studies show that the market segment with greatest financial potential is married couples without children (Hill, et al., 1990).

Keep in mind that although you might be able to isolate a segment in the marketplace, including one based on family life cycle, you can’t make assumptions about what the people in it will want. Just like people’s demographics change, so do their tastes. For example, over the past few decades U.S. families have been getting smaller. Households with a single occupant are more commonplace than ever, but until recently, that hasn’t stopped people from demanding bigger cars (and more of them) as well as larger houses, or what some people jokingly refer to as “McMansions.”

The trends toward larger cars and larger houses appear to be reversing. High energy costs, the credit crunch, and concern for the environment are leading people to demand smaller houses. To attract people such as these, D. R. Horton, the nation’s leading homebuilder, and other construction firms are now building smaller homes.

People’s ethnic backgrounds have a big impact on what they buy. If you’ve visited a grocery store that caters to a different ethnic group than your own, you were probably surprised to see the types of products sold there. It’s no secret that the United States is becoming—and will continue to become—more diverse. Even within various ethnic groups there are many differences in terms of the goods and services buyers choose. Consequently, painting each group with a broad brush would leave you with an incomplete picture of your buyers.

Segmenting by Geography

Suppose your great new product or service idea involves opening a local store. Before you open the store, you will probably want to do some research to determine which geographical areas have the best potential. For instance, if your business is a high-end restaurant, should it be located near the local college or country club? If you sell ski equipment, you probably will want to locate your shop somewhere in the vicinity of a mountain range where there is skiing. You might see a snowboard shop in the same area but probably not a surfboard shop. By contrast, a surfboard shop is likely to be located along the coast, but you probably would not find a snowboard shop on the beach.

Geographic segmentation divides the market into areas based on location and explains why the checkout clerks at stores sometimes ask for your zip code. It’s also why businesses print codes on coupons that correspond to zip codes. When the coupons are redeemed, the store can find out where its customers are located—or not located. Geocoding is a process that takes data such as this and plots it on a map. Geocoding can help businesses see where prospective customers might be clustered and target them with various ad campaigns, including direct mail. One of the most popular geocoding software programs is PRIZM NE, which is produced by a company called Claritas. PRIZM NE uses zip codes and demographic information to classify the populations into segments. The idea behind PRIZM is that “you are where you live.” Combining both demographic and geographic information is referred to as geodemographics or neighborhood geography. The idea is that housing areas in different zip codes typically attract certain types of buyers with certain income levels.

In addition to figuring out where to locate stores and advertise to customers in that area, geographic segmentation helps firms tailor their products. Chances are you won’t be able to find the same heavy winter coat you see at a Walmart in Montana at a Walmart in Florida because of the climate differences between the two places. Market researchers also look at migration patterns to evaluate opportunities. TexMex restaurants are more commonly found in the southwestern United States. However, northern states are now seeing more of them as more people of Hispanic descent move northward.

Segmenting by Psychographics

If your offering fulfills the needs of a specific demographic group, then the demographic can be an important basis for identifying groups of consumers interested in your product. What if your product crosses several market segments? For example, the group of potential consumers for cereal could be “almost” everyone although groups of people may have different needs with regard to their cereal. Some consumers might be interested in the fibre, some consumers (especially children) may be interested in the prize that comes in the box, other consumers may be interested in the added vitamins, and still other consumers may be interested in the type of grains. Associating these specific needs with consumers in a particular demographic group could be difficult. Marketing professionals want to know why consumers behave the way they do, what is of high priority to them, or how they rank the importance of specific buying criteria. Think about some of your friends who seem a lot like you. Have you ever gone to their homes and been shocked by their lifestyles and how vastly different they are from yours? Why are their families so much different from yours?

Psychographic segmentation can help fill in some of the blanks. Psychographic information is frequently gathered via extensive surveys that ask people about their activities, interests, opinion, attitudes, values, and lifestyles. One of the most well-known psychographic surveys is VALS (which originally stood for “Values, Attitudes, and Lifestyles”) and was developed by a company called SRI International in the late 1980s.

Hybrid Segmentation

Hybrid or Universal segmentation looks for similarities across world markets. This strategy solves the disadvantages of using macro- and micro-segmentation bases to segment international markets, as they tend to ignore similarities and highlight only the differences. Certain segments identified in a micro-segmentation strategy may have the same characteristics present on a global scale. One such segment is the Global Teen segment – young people between the ages of 12 and 19. It is likely that a group of teenagers randomly chosen from different parts of the world share many of the same tastes. Another such global segment is the Global Elite segment, comprising affluent consumers who have the money to spend on prestigious products with an image of exclusivity. The global elite segment can be associated with older individuals who have accumulated wealth over the course of a long career, including movie stars, musicians, athletes, and people who have achieved financial success at a relatively young age.

Hybrid segmentation involves looking for similarities across micro–segments identified in the countries selected in the final step of the CAA procedure. Under this process, country borders are honorary, as the segmentation process considers the countries selected in the final step of the CAA procedure as one market and searches for similar segments across these countries.

Core Principles of International Marketing – Chapter 6.6  by Babu John Mariadoss is licensed under a  Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted

Global Marketing In a Digital World Copyright © 2022 by Lina Manuel is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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What is market segmentation? Definition, 5 types, and examples

Market segmentation is a vital component of any product marketing strategy. Without it, you may fail to address the diverse needs and pain points of your varied customers.

Market segmentation helps you develop products that cater to the specific needs of distinct segments within the total market. This enables you to more effectively solve customer problems. Moreover, market segmentation ensures a return on investment while guaranteeing profitability and market success.

Defining market segmentation

Market segmentation is a strategic approach that divides the total addressable market (TAM) into several smaller segments. Each segment consists of customers who share similar characteristics, such as demographics, pain points, needs, etc. Consequently, a single product or a similar set of products can satisfy all customers within a particular market segment.

Segmenting the market enables you to target customer segments with a highly personalized approach. This aligns with current industry trends that emphasize hyper-personalization across omnichannel customers.

5 types of market segmentation

The five most common types of market segmentation are:

• Demographic segmentation
• Firmographic segmentation
• Geographic segmentation
• Psychographic segmentation
• Behavioral segmentation

1. Demographic segmentation

Demographic segmentation is perhaps the most common and straightforward method of segmenting the market. It considers demographic characteristics such as age, income, gender, ethnicity, profession, and level of education.

The assumption here is that individuals with similar demographic traits are likely to have shared preferences and are therefore likely to purchase the same products to meet their needs.

2. Firmographic segmentation

Firmographic segmentation applies an organizational perspective to demographic segmentation. In other words, it pertains to organizations rather than individuals.

For instance, the needs of a small firm will likely differ from those of a midsized organization or large corporation.

3. Geographic segmentation

Geographic segmentation is a subset of demographic segmentation. It pertains to people within a specific geographic area and takes into account their unique needs based on their location.

4. Psychographic segmentation

Psychographic segmentation is arguably the most challenging type of segmentation because it divides the market based on factors that can change or vary over time, such as lifestyle preferences, and motivations. However, this form of segmentation is gaining traction due to the industry’s shift towards hyper-personalization.

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When large internet companies gather customer data from online transactions, they use this information to make decisions about intrinsic preferences and spending habits, providing a comprehensive picture that allows for effective customer segmentation.

5. Behavioral segmentation

This type of segmentation is driven by customers’ past behavior. It projects market segments based on data collected from previous purchases and customer preferences over time, thereby predicting what they are likely to buy in the future.

Examples of market segmentation

To truly understand the power of market segmentation, let’s look at three companies that have effectively used this strategy to drive their success:

Apple’s demographic and psychographic segmentation

Apple, the tech giant behind the iPhone and iPad, has skillfully used both demographic and psychographic segmentation. The company targets customers based on age and income — typically younger, affluent consumers — as well as social class and occupation.

This understanding of their customer base allows Apple to focus on creating products with superior design and user experience, knowing that its target customers are willing to pay a premium for high-quality items.

Slack’s firmographic segmentation strategy

In the market of team collaboration tools, Slack stands out for its effective use of firmographic segmentation. The company targets businesses of all sizes, recognizing that a small startup’s needs will differ from those of a large corporation.

By segmenting its market in this way, Slack can offer tailored solutions — from Slack Free for smaller teams to Slack Enterprise Grid for larger organizations — that meet each segment’s unique needs.

Netflix’s mastery of behavioral segmentation

Streaming service Netflix provides an excellent example of behavioral segmentation. By collecting extensive data on users’ viewing habits — including what they watch, when they watch it, how often they watch it, and even when they pause or stop watching something — Netflix can segment its users based on these behaviors.

This approach not only allows Netflix to provide personalized content recommendations but also informs its decisions about which original series or films to produce.

Tips and best practices for effective market segmentation

• Adopt a data-driven approach — Relying on data for research and analysis allows you to quantify and define market segments accurately. This method leads to a more rationalized approach to market segmentation
• Define personas — Because market segmentation is based on user characteristics, defining user personas can help map these characteristics effectively. This process aids in creating a more precise segmentation
• Use established business models — Employing proven business models, such as Porter’s Five Forces , can provide insights into market conditions. Understanding factors such as market penetration and competition can lead to robust market segmentation

Market segmentation forms the bedrock of an effective marketing strategy. It ensures that the product is built for the right target customers, guarantees product profitability, fosters long-term customer retention, provides return on investment for marketing efforts, and supports an efficient business model.

Taking it one step further, market segmentation ensures that products are highly personalized and tailored for specific customer segments. Therefore, product and product marketing teams that adopt the market segmentation approach are best positioned to capitalize on the market for ensuring product success.

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Essentials of Marketing

William d. perreault jr., joseph p. cannon, e. jerome mccarthy, focusing marketing strategy with segmentation and positioning - all with video answers.

Chapter Questions

Distinguish between a generic market and a productmarket. Illustrate your answer.

Explain what market segmentation is.

List the types of potential segmenting dimensions, and explain which you would try to apply first, second, and third in a particular situation. If the nature of the situation would affect your answer, explain how.

Explain why segmentation efforts based on attempts to divide the mass market using a few demographic dimensions may be very disappointing.

Illustrate the concept that segmenting is an aggregating process by referring to the admissions policies of your own college and a nearby college or university.

Review the types of segmenting dimensions listed in Exhibits 4-8 and 4-9, and select the ones you think should be combined to fully explain the market segment you personally would be in if you were planning to buy a new watch today. List several dimensions and try to develop a shorthand name, like "fashion-oriented," to describe your own personal market segment. Then try to estimate what proportion of the total watch market would be in your market segment. Next, explain if there are any offerings that come close to meeting the needs of your market. If not, what sort of a marketing mix is needed? Would it be economically attractive for anyone to try to satisfy your market segment? Why or why not?

Identify the determining dimension or dimensions that explain why you bought the specific brand you did in your most recent purchase of a (a) soft drink, (b) shampoo, (c) shirt or blouse, and (d) larger, more expensive item, such as a bicycle, camera, or boat. Try to express the determining dimension(s) in terms of your own personal characteristics rather than the product's characteristics. Estimate what share of the market would probably be motivated by the same determining dimension(s).

Consider the market for off-campus apartments in your city. Identify some submarkets that have different needs and determining dimensions. Then evaluate how well the needs in these market segments are being met in your geographic area. Is there an obvious breakthrough opportunity waiting for someone?

Explain how positioning analysis can help a marketing manager identify target market opportunities.

Module 5: Target Market/Segmentation

How markets are segmented, learning objectives.

• Understand and outline the ways in which markets are segmented.
• Explain why marketers use some segmentation bases versus others.

Sellers can choose to pursue consumer markets, business-to-business (B2B) markets, or both. Consequently, one obvious way to begin the segmentation process is to segment markets into these two types of groups.

Different factors influence consumers to buy certain things. Many of the same factors can also be used to segment customers. A firm will often use multiple segmentation bases , or criteria to classify buyers, to get a fuller picture of its customers and create real value for them. Each variable adds a layer of information. Think of it as being similar to the way in which your professor builds up information on a PowerPoint slide to the point at which you are able to understand the material being presented.

There are all kinds of characteristics you can use to slice and dice a market. “Big-and-tall” stores cater to the segment of population that’s larger sized. What about people with wide or narrow feet, or people with medical conditions, or certain hobbies? Next, we look primarily at the ways in which consumer markets can be segmented. Later in the chapter, we’ll look at the ways in which B2B markets can be segmented.

Types of Segmentation Bases

The table below shows some of the different types of buyer characteristics used to segment markets. Notice that the characteristics fall into one of four segmentation categories: behavioral , demographic , geographic , or psychographic . We’ll discuss each of these categories in a moment. For now, you can get a rough idea of what the categories consist of by looking at them in terms of how marketing professionals might answer the following questions:

• Behavioral segmentation. What benefits do customers want, and how do they use our product?
• Demographic segmentation. How do the ages, races, and ethnic backgrounds of our customers affect what they buy?
• Geographic segmentation. Where are our customers located, and how can we reach them? What products do they buy based on their locations?
• Psychographic segmentation. What do our customers think about and value? How do they live their lives?

Table 5.1 Common Ways of Segmenting Buyers

Segmenting by Behavior

Behavioral segmentation divides people and organization into groups according to how they behave with or act toward products. Benefits segmentation —segmenting buyers by the benefits they want from products—is very common. Airlines provide an excellent example of behavior segmentation. USAir and Delta target business travelers who are less price sensitive but seek amenities. Southwest Airlines targets recreational travels who are more price sensitive but appreciate a fun travel experience.

Another way in which businesses segment buyers is by their usage rates—that is, how often, if ever, they use certain products. Harrah’s, an entertainment and gaming company, gathers information about the people who gamble at its casinos. High rollers, or people who spend a lot of money, are considered “VIPs.” VIPs get special treatment, including a personal “host” who looks after their needs during their casino visits. Companies are interested in frequent users because they want to reach other people like them. They are also keenly interested in nonusers and how they can be persuaded to use products.

The way in which people use products is also be a basis for segmentation. Avon Skin So Soft was originally a beauty product, but after Avon discovered that some people were using it as a mosquito repellant, the company began marketing it for that purpose. Eventually, Avon created a separate product called Skin So Soft Bug Guard, which competes with repellents like Off! Similarly, Glad, the company that makes plastic wrap and bags, found out customers were using its Press’n Seal wrap in ways the company could never have imagined. The personnel in Glad’s marketing department subsequently launched a Web site called 1000uses.com that contains both the company’s and consumers’ use tips. Some of the ways in which people use the product are pretty unusual, as evidenced by the following comment posted on the site: “I have a hedgehog who likes to run on his wheel a lot. After quite a while of cleaning a gross wheel every morning, I got the tip to use ‘Press’n Seal wrap’ on his wheel, making clean up much easier! My hedgie can run all he wants, and I don’t have to think about the cleanup. Now we’re both GLAD!”

Although we doubt Glad will ever go to great lengths to segment the Press ’n Seal market by hedgehog owners, the firm has certainly gathered a lot of good consumer insight about the product and publicity from its 1000uses.com Web site. (Incidentally, one rainy day, the author of this chapter made “rain boots” out of Press ’n Seal for her dog. But when she later tried to tear them off of the dog’s paws, he bit her. She is now thinking of trading him in for a hedgehog.)

Segmenting by Demographics

Segmenting buyers by personal characteristics such as age, income, ethnicity and nationality, education, occupation, religion, social class, and family size is called demographic segmentation . Demographics are commonly utilized to segment markets because demographic information is publicly available in databases around the world. You can obtain a great deal of demographic information on the U.S. Census Bureau’s Web site ( http://www.census.gov ). Other government Web sites you can tap include FedStats ( http://www.fedstats.gov ) and The World Factbook ( http://www.cia.gov/cia/publications/factbook ), which contains statistics about countries around the world. In addition to current statistics, the sites contain forecasts of demographic trends, such as whether some segments of the population are expected to grow or decline.

At this point in your life, you are probably more likely to buy a car than a funeral plot. Marketing professionals know this. That’s why they try to segment consumers by their ages. You’re probably familiar with some of the age groups most commonly segmented (see Table 5.2 “U.S. Generations and Characteristics”) in the United States. Into which category do you fall?

Table 5.2 U.S. Generations and Characteristics

Today’s college-age students (Generation Y) compose the largest generation. The baby boomer generation is the second largest, and over the course of the last thirty years or so, has been a very attractive market for sellers. Retro brands —old brands or products that companies “bring back” for a period of time—were aimed at baby boomers during the recent economic downturn. Pepsi Throwback and Mountain Dew Throwback, which are made with cane sugar—like they were “back in the good old days”—instead of corn syrup, are examples. Marketing professionals believe they appealed to baby boomers because they reminded them of better times—times when they didn’t have to worry about being laid off, about losing their homes, or about their retirement funds and pensions drying up.

Baby boomers are aging and the size of the group will eventually decline. By contrast, the members of Generation Y have a lifetime of buying still ahead of them, which translates to a lot of potential customer lifetime value (CLV), the amount a customer will spend on a particular brand over his/her lifetime, for marketers if they can capture this group of buyers. However, a recent survey found that the latest recession had forced teens to change their spending habits and college plans and that roughly half of older Generation Yers reported they had no savings .

So which group or groups should your firm target? Although it’s hard to be all things to all people, many companies try to broaden their customer bases by appealing to multiple generations so they don’t lose market share when demographics change. Several companies have introduced lower-cost brands targeting Generation Xers, who have less spending power than boomers. For example, kitchenware and home-furnishings company Williams-Sonoma opened the Elm Street chain, a less-pricey version of the Pottery Barn franchise. The Starwood hotel chain’s W hotels, which feature contemporary designs and hip bars, are aimed at Generation Xers.

The video game market is very proud of the fact that along with Generation X and Generation Y, many older Americans still play video games. (You probably know some baby boomers who own a Nintendo Wii.) Products and services in the spa market used to be aimed squarely at adults, but not anymore. Parents are now paying for their tweens to get facials, pedicures, and other pampering in numbers no one in years past could have imagined.

As early as the 1970s, U.S. automakers found themselves in trouble because of changing demographic trends. Many of the companies’ buyers were older Americans inclined to “buy American.” These people hadn’t forgotten that Japan bombed Pearl Harbor during World War II and weren’t about to buy Japanese vehicles, but younger Americans were. Plus, Japanese cars had developed a better reputation. Despite the challenges U.S. automakers face today, they have taken great pains to cater to the “younger” generation—today’s baby boomers who don’t think of themselves as being old. If you are a car buff, you perhaps have noticed that the once-stodgy Cadillac now has a sportier look and stiffer suspension. Likewise, the Chrysler 300 looks more like a muscle car than the old Chrysler Fifth Avenue your great-grandpa might have driven.

Automakers have begun reaching out to Generations X and Y, too. General Motors (GM) has sought to revamp the century-old company by hiring a new younger group of managers—managers who understand how Generation X and Y consumers are wired and what they want. “If you’re going to appeal to my daughter, you’re going to have to be in the digital world,” explained one GM vice president.

TJ Maxx is appealing to younger women who want to wear expensive designer clothing but do not yet have the income to afford the retail prices they would find in a department store.

http://youtu.be/QFwjQilxOcI

Companies have to develop new products designed to appeal to Generations X and Y and also find new ways to reach them. People in these generations not only tend to ignore traditional advertising but also are downright annoyed by it. To market to Scion drivers, who are generally younger, Toyota created Scion Speak, a social networking site where they can communicate, socialize, and view cool new models of the car. Online events such as the fashion shows broadcast over the Web are also getting the attention of younger consumers, as are text, e-mail, and Twitter messages they can sign up to receive so as to get coupons, cash, and free merchandise. Advergames are likewise being used to appeal to the two demographic groups. Advergames are electronic games sellers create to promote a product or service. Would you like to play one now? Click on the following link to see a fun one created by Burger King to advertise its Tender Crisp Chicken.

Burger King Advergame

http://web.archive.org/web/20110426194400/http://www.bk.com/en/us/campaigns/subservient-chicken.html

You can boss the “subservient chicken” around in this advergame. He will do anything you want—well, almost anything.

Tweens might appear to be a very attractive market when you consider they will be buying products for years to come. But would you change your mind if you knew that baby boomers account for 50 percent of all consumer spending in the United States? Americans over sixty-five now control nearly three-quarters of the net worth of U.S. households; this group spends $200 billion a year on major “discretionary” (optional) purchases such as luxury cars, alcohol, vacations, and financial products.

Income is used as a segmentation variable because it indicates a group’s buying power and may partially reflect their education levels, occupation, and social classes. Higher education levels usually result in higher paying jobs and greater social status. The makers of upscale products such as Rolexes and Lamborghinis aim their products at high-income groups. However, a growing number of firms today are aiming their products at lower-income consumers. The fastest-growing product in the financial services sector is prepaid debit cards, most of which are being bought and used by people who don’t have bank accounts. Firms are finding that this group is a large, untapped pool of customers who tend to be more brand loyal than most. If you capture enough of them, you can earn a profit. Based on the targeted market, businesses can determine the location and type of stores where they want to sell their products.

Sometimes income isn’t always indicative of who will buy your product. Companies are aware that many consumers want to be in higher income groups and behave like they are already part of them. Mercedes Benz’s cheaper line of “C” class vehicles is designed to appeal to these consumers.

Gender is another way to segment consumers. Men and women have different needs and also shop differently. Consequently, the two groups are often, but not always, segmented and targeted differently. Marketing professionals don’t stop there, though. For example, because women make many of the purchases for their households, market researchers sometimes try to further divide them into subsegments. (Men are also often subsegmented.) For women, those segments might include stay-at-home housewives, plan-to-work housewives, just-a-job working women, and career-oriented working women. Research has found that women who are solely homemakers tend to spend more money, perhaps because they have more time.

In addition to segmenting by gender, market researchers might couple gender with marital status and other demographic characteristics. For, example, did you know that more women in America than ever before (51 percent) now live without spouses? Can you think of any marketing opportunities this might present?

Family Life Cycle

Family life cycle refers to the stages families go through over time and how it affects people’s buying behavior. For example, if you have no children, your demand for pediatric services (medical care for children) is likely to be slim to none, but if you have children, your demand might be very high because children frequently get sick. You may be part of the target market not only for pediatric services but also for a host of other products, such as diapers, daycare, children’s clothing, entertainment services, and educational products. A secondary segment of interested consumers might be grandparents who are likely to spend less on day-to-day childcare items but more on special-occasion gifts for children. Many markets are segmented based on the special events in people’s lives. Think about brides (and want-to-be brides) and all the products targeted at them, including Web sites and television shows such as Say Yes to the Dress , My Fair Wedding , Platinum Weddings , and Bridezillas .

Resorts also segment vacationers depending on where they are in their family life cycles. When you think of family vacations, you probably think of Disney resorts. Some vacation properties, such as Sandals, exclude children from some of their resorts. Perhaps they do so because some studies show that the market segment with greatest financial potential is married couples without children.

Keep in mind that although you might be able to isolate a segment in the marketplace, including one based on family life cycle, you can’t make assumptions about what the people in it will want. Just like people’s demographics change, so do their tastes. For example, over the past few decades U.S. families have been getting smaller. Households with a single occupant are more commonplace than ever, but until recently, that hasn’t stopped people from demanding bigger cars (and more of them) as well as larger houses, or what some people jokingly refer to as “McMansions.”

The trends toward larger cars and larger houses appear to be reversing. High energy costs, the credit crunch, and concern for the environment are leading people to demand smaller houses. To attract people such as these, D. R. Horton, the nation’s leading homebuilder, and other construction firms are now building smaller homes.

People’s ethnic backgrounds have a big impact on what they buy. If you’ve visited a grocery store that caters to a different ethnic group than your own, you were probably surprised to see the types of products sold there. It’s no secret that the United States is becoming—and will continue to become—more diverse. Hispanic Americans are the largest and the fastest-growing minority in the United States. Companies are going to great lengths to court this once overlooked group. In California, the health care provider Kaiser Permanente runs television ads letting members of this segment know that they can request Spanish-speaking physicians and that Spanish-speaking nurses, telephone operators, and translators are available at all of its clinics.

African Americans are the second-largest ethnic group in America. Collectively, they have the most buying power of any ethnic group in America. Many people of Asian descent are known to be early adapters of new technology and have above-average incomes. As a result, companies that sell electronic products, such as AT&T, spend more money segmenting and targeting the Asian community. Table 5.3 “Major U.S. Ethnic Segments and Their Spending” contains information about the number of people in these groups and their buying power.

Table 5.3 Major U.S. Ethnic Segments and Their Spending

Source: New American Dimensions, LLC.

As you can guess, even within various ethnic groups there are many differences in terms of the goods and services buyers choose. Consequently, painting each group with a broad brush would leave you with an incomplete picture of your buyers. For example, although the common ancestral language among the Hispanic segment is Spanish, Hispanics trace their lineages to different countries. Nearly 70 percent of Hispanics in the United States trace their lineage to Mexico; others trace theirs to Central America, South America, and the Caribbean.

All Asians share is race. Chinese, Japanese, and Korean immigrants do not share the same language. Moreover, both the Asian and Hispanic market segments include new immigrants, people who immigrated to the United States years ago, and native-born Americans. So what language will you use to communicate your offerings to these people, and where?

Subsegmenting the markets could potentially help you. New American Dimension, a multicultural research firm, has further divided the Hispanic market into the following subsegments:

• Just moved in’rs. Recent arrivals, Spanish dependent, struggling but optimistic.
• FOBrs (fashionistas on a budget). Spanish dominant, traditional, but striving for trendy.
• Accidental explorers. Spanish preferred, not in a rush to embrace U.S. culture.
• The englightened. Bilingual, technology savvy, driven, educated, modern.
• Doubting Tomáses. Bilingual, independent, skeptical, inactive, shopping uninvolved.
• Latin flavored. English preferred, reconnecting with Hispanic traditions.
• SYLrs (single, young latinos). English dominant, free thinkers, multicultural.

You could go so far as to break down segments to the individual level, which is the goal behind one-to-one marketing. However, doing so would be dreadfully expensive, notes Juan Guillermo Tornoe, a marketing expert who specializes in Hispanic marketing issues. After all, are you really going to develop different products and different marketing campaigns and communications for each group? Probably not, but “you need to perform your due diligence and understand where the majority of the people you are trying to reach land on this matrix, modifying your message according to this insight,” Tornoe explains.

Segmenting by Geography

Suppose your great new product or service idea involves opening a local store. Before you open the store, you will probably want to do some research to determine which geographical areas have the best potential. For instance, if your business is a high-end restaurant, should it be located near the local college or country club? If you sell ski equipment, you probably will want to locate your shop somewhere in the vicinity of a mountain range where there is skiing. You might see a snowboard shop in the same area but probably not a surfboard shop. By contrast, a surfboard shop is likely to be located along the coast, but you probably would not find a snowboard shop on the beach.

Geographic segmentation divides the market into areas based on location and explains why the checkout clerks at stores sometimes ask for your zip code. It’s also why businesses print codes on coupons that correspond to zip codes. When the coupons are redeemed, the store can find out where its customers are located—or not located. Geocoding is a process that takes data such as this and plots it on a map. Geocoding can help businesses see where prospective customers might be clustered and target them with various ad campaigns, including direct mail. One of the most popular geocoding software programs is PRIZM NE, which is produced by a company called Claritas. PRIZM NE uses zip codes and demographic information to classify the American population into segments. The idea behind PRIZM is that “you are where you live.” Combining both demographic and geographic information is referred to as geodemographics or neighborhood geography. The idea is that housing areas in different zip codes typically attract certain types of buyers with certain income levels. To see how geodemographics works, visit the following page on Claritas’ Web site: http://www.claritas.com/MyBestSegments/Default.jsp?ID=20 .

Type in your zip code, and you will see customer profiles of the types of buyers who live in your area. Table 5.4 “An Example of Geodemographic Segmentation for 76137 (Fort Worth, TX)” shows the profiles of buyers who can be found the zip code 76137—the “Brite Lites, Li’l City” bunch, and “Home Sweet Home” set. Click on the profiles on the Claritas site to see which one most resembles you.

Table 5.4 An Example of Geodemographic Segmentation for 76137 (Fort Worth, TX)

The tourism bureau for the state of Michigan was able to identify and target different customer profiles using PRIZM. Michigan’s biggest travel segment are Chicagoans in certain zip codes consisting of upper-middle-class households with children—or the “kids in cul-de-sacs” group, as Claritas puts it. The bureau was also able to identify segments significantly different from the Chicago segment, including blue-collar adults in the Cleveland area who vacation without their children. The organization then created significantly different marketing campaigns to appeal to each group.

City size and population density (the number of people per square mile) are also used for segmentation purposes. Have you ever noticed that in rural towns, McDonald’s restaurants are hard to find, but Dairy Queens (DQ) are usually easy to locate? McDonald’s generally won’t put a store in a town of fewer than five thousand people. However, this is prime turf for the “DQ”— because it doesn’t have to compete with bigger franchises like McDonald’s.

Proximity marketing is an interesting new technology firms are using to segment and target buyers geographically within a few hundred feet of their businesses using wireless technology. In some areas, you can switch your mobile phone to a “discoverable mode” while you’re shopping and, if you want, get ads and deals from stores as you pass by them, which is often less expensive than hiring people to hand you a flier as you walk by.

Segmenting by Psychographics

If your offering fulfills the needs of a specific demographic group, then the demographic can be an important basis for identifying groups of consumers interested in your product. What if your product crosses several market segments? For example, the group of potential consumers for cereal could be “almost” everyone although groups of people may have different needs with regard to their cereal. Some consumers might be interested in the fiber, some consumers (especially children) may be interested in the prize that comes in the box, other consumers may be interested in the added vitamins, and still other consumers may be interested in the type of grains. Associating these specific needs with consumers in a particular demographic group could be difficult. Marketing professionals want to know why consumers behave the way they do, what is of high priority to them, or how they rank the importance of specific buying criteria. Think about some of your friends who seem a lot like you. Have you ever gone to their homes and been shocked by their lifestyles and how vastly different they are from yours? Why are their families so much different from yours?

Psychographic segmentation can help fill in some of the blanks. Psychographic information is frequently gathered via extensive surveys that ask people about their activities, interests, opinion, attitudes, values, and lifestyles. One of the most well-known psychographic surveys is VALS (which originally stood for “Values, Attitudes, and Lifestyles”) and was developed by a company called SRI International in the late 1980s. SRI asked thousands of Americans the extent to which they agreed or disagreed with questions similar to the following: “My idea of fun at a national park would be to stay at an expensive lodge and dress up for dinner” and “I could stand to skin a dead animal.” Based on their responses to different questions, consumers were divided up into the following categories, each characterized by certain buying behaviors.

• Innovators. Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services. Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality. Innovators are among the established and emerging leaders in business and government, yet they continue to seek challenges. Their lives are characterized by variety. Their possessions and recreation reflect a cultivated taste for the finer things in life.
• Thinkers. Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility. They tend to be well educated and actively seek out information in the decision-making process. They are well informed about world and national events and are alert to opportunities to broaden their knowledge. Thinkers have a moderate respect for the status quo institutions of authority and social decorum but are open to consider new ideas. Although their incomes allow them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.
• Achievers. Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery. With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favor established, prestige products and services that demonstrate success to their peers. Because of their busy lives, they are often interested in a variety of timesaving devices.
• Experiencers. Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiencers are avid consumers and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having “cool” stuff.
• Believers. Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong. As consumers, Believers are predictable; they choose familiar products and established brands. They favor American products and are generally loyal customers.
• Strivers. Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it to meet their desires. They favor stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead. Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstance will allow.
• Makers. Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it—building a house, raising children, fixing a car, or canning vegetables—and have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context. Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labor but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.
• Survivors. Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Because they must focus on meeting needs rather than fulfilling desires, Survivors do not show a strong primary motivation. Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to favorite brands, especially if they can purchase them at a discount.

To find out which category you’re in, take a VALS survey at http://www.sricbi.com/vals/surveynew.shtml . VALS surveys have been adapted and used to study buying behavior in other countries, too. Note that both VALS and PRIZM group buyers are based on their values and lifestyles, but PRIZM also overlays the information with geographic data. As a result, you can gauge what the buying habits of people in certain zip codes are, which can be helpful if you are trying to figure out where to locate stores and retail outlets.

The segmenting techniques we’ve discussed so far in this section require gathering quantitative information and data. Quantitative information can be improved with qualitative information you gather by talking to your customers and getting to know them. (Recall that this is how Healthy Choice frozen dinners were created.) Consumer insight is what results when you use both types of information. You want to be able to answer the following questions:

• Am I looking at the consumers the way they see themselves?
• Am I looking at life from their point of view?

Best Buy asked store employees to develop insight about local consumer groups in order to create special programs and processes for them. Employees in one locale invited a group of retirees to their store to explain how to make the switch to digital television. The store sold $350,000 worth of equipment and televisions in just two hours’ time. How much did it cost? The total cost included ninety-nine dollars in labor costs plus coffee and donuts.

Intuit, the company that makes the tax software Quicken, has a “follow me home” program. Teams of engineers from Intuit visit people’s homes and spend a couple of hours watching consumers use Quicken. Then they use the insights they gain to improve the next version of Quicken. Contrast this story with that of a competing firm. When a representative of the firm was asked if he had ever observed consumers installing or using his company’s product, he responded, “I’m not sure I’d want to be around when they were trying to use it.” Eric Nee, “Due Diligence: The Customer Is Always Right,” CIO Insight , May 23, 2003. This company is now struggling to stay in business.

To read about some of the extreme techniques Nokia uses to understand cell phone consumers around the world, click on the following link: http://www.nytimes.com/2008/04/13/magazine/13anthropology-t.html?pagewanted=all .

Segmentation in B2B Markets

Many of the same bases used to segment consumer markets are also used to segment B2B markets. For example, Goya Foods is a U.S. food company that sells different ethnic products to grocery stores, depending on the demographic groups the stores serve—Hispanic, Mexican, or Spanish. Likewise, B2B sellers often divide their customers by geographic areas and tailor their products to them accordingly. Segmenting by behavior is common as well. B2B sellers frequently divide their customers based on their product usage rates. Customers that order many goods and services from a seller often receive special deals and are served by salespeople who call on them in person. By contrast, smaller customers are more likely to have to rely on a firm’s Web site, customer service people, and salespeople who call on them by telephone.

Researchers Matthew Harrison, Paul Hague, and Nick Hague have theorized that there are fewer behavioral and needs-based segments in B2B markets than in business-to-consumer (B2C) markets for two reasons: (1) business markets are made up of a few hundred customers whereas consumer markets can be made up of hundreds of thousands of customers, and (2) businesses aren’t as fickle as consumers. Unlike consumers, they aren’t concerned about their social standing or influenced by their families and peers. Instead, businesses are concerned solely with buying products that will ultimately increase their profits. According to Harrison, Hague, and Hague, the behavioral, or needs-based, segments in B2B markets include the following:

• A price-focused segment is composed of small companies that have low profit margins and regard the good or service being sold as not being strategically important to their operations.
• A quality and brand-focused segment is composed of firms that want the best possible products and are prepared to pay for them.
• A service-focused segment is composed of firms that demand high-quality products and have top-notch delivery and service requirements.
• A partnership-focused segment is composed of firms that seek trust and reliability on the part of their suppliers and see them as strategic partners.

B2B sellers, like B2C sellers, are exploring new ways to reach their target markets. Trade shows and direct mail campaigns are two traditional ways of reaching B2B markets. Now, however, firms are finding they can target their B2B customers more cost-effectively via e-mail campaigns, search-engine marketing, and “fan pages” on social networking sites like Facebook. Companies are also creating blogs with cutting-edge content about new products and business trends of interest to their customers. For a fraction of the cost of attending a trade show to exhibit their products, B2B sellers are holding Webcasts and conducting online product demonstrations for potential customers.

Key Takeaway

Segmentation bases are criteria used to classify buyers. The main types of buyer characteristics used to segment consumer markets are behavioral, demographic, geographic, and psychographic. Behavioral segmentation divides people and organization into groups according to how they behave with or toward products. Segmenting buyers by personal characteristics such as their age, income, ethnicity, family size, and so forth is called demographic segmentation. Geographic segmentation involves segmenting buyers based on where they live. Psychographic segmentation seeks to differentiate buyers based on their activities, interests, opinions, attitudes, values, and lifestyles. Oftentimes a firm uses multiple bases to get a fuller picture of its customers and create value for them. Marketing professionals develop consumer insight when they gather both quantitative and qualitative information about their customers. Many of the same bases used to segment consumer markets are used to segment business-to-business (B2B) markets. However, there are generally fewer behavioral-based segments in B2B markets.

Review Questions

• What buyer characteristics do companies look at when they segment markets?
• Why do firms often use more than one segmentation base?
• What two types of information do market researchers gather to develop consumer insight?
• Provided by : Lumen Learning. Located at : http://lumenlearning.com . License : CC BY: Attribution
• Marketing Principles. Authored by : Anonymous. Located at : http://2012books.lardbucket.org/books/marketing-principles-v2.0/ . License : CC BY-NC-SA: Attribution-NonCommercial-ShareAlike
• TJ Maxx Commercials. Authored by : BigGameSuperBowl. Located at : http://youtu.be/QFwjQilxOcI . License : All Rights Reserved . License Terms : Standard YouTube License
• Southwest Airlines Commercial. Authored by : Jono Brooks. Located at : http://youtu.be/PIN4zpEtMhU . License : All Rights Reserved . License Terms : Standard YouTube License

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What Are Segmentation Variables in Marketing?

Marketing segmentation variables can help you target an ideal audience for your goods or services. Learn more about these variables and how to use them.

Segmentation variables refer to the factors marketers use to categorize their audience into different groups.

The 4 main types of segmentation variables include demographic, geographic, psychographic , and behavioral traits. For example, if you were to segment your audience based on their zip code, you would be using the geographic variable.

In order to create an effective marketing strategy, it’s important to segment your audience. Not only does segmentation ensure your target audience receives the most relevant content, but it also increases the likelihood of success. Plus, splitting your customer base into various groups allows you to use your resources more wisely.

If you’re interested in learning more about marketing segmentation variables, read on. We’ll cover what they are and how you can use them in your organization to create more targeted campaigns.

What is segmentation in marketing?

Segmentation in marketing is a type of strategy that allows you to aggregate potential and existing customers into subgroups based on shared characteristics, such as age, location, or past shopping behavior.

As a result, businesses can target these market segments differently with campaigns that are relevant to their needs. Segmenting your audience is also valuable in attracting consumers who are most likely to make a purchase or interact with your brand.

Ultimately, segmentation allows you to develop a deeper understanding of your audience, including who they are, their needs, interests, and behavior, so you can create a more effective marketing strategy.

In fact, marketing segmentation makes companies 60% more likely to understand customers’ challenges and 130% more likely to know their intentions. With this information at your fingertips, you can tailor your content to their specific pain points and desires.

What are marketing segmentation variables?

Since your marketing campaigns aren’t going to be relevant to everyone on your contact list, it’s a good idea to build audience segments based on needs, shared beliefs, online behavior, and so on.

Marketing variables help you split an audience into segments by providing you with possible categories to group your contacts into. The 4 main types of market segmentation include demographic, geographic, psychographic, and behavioral–which we’ll cover more in depth in the next section.

An example of a marketing segmentation variable would be age. So you may use popular slang and colloquial language in your campaigns if a particular segment is made up of Gen Z teens. You can also leverage well-known influencers and celebrities to attract more like-minded consumers to your brand.

What are the most commonly used segmentation variables?

There are several characteristics marketers can use to divide their audience into categories.

That said, a few of the most commonly used variables include:

Demographic segmentation

Demographic segmentation enables you to understand who your target audience is, which is critical for building customer personas. A customer persona is essentially a profile used to represent your target market according to the data obtained from segmentation. Segmenting based on personas can provide 90% of companies with better knowledge about their audience.

This type of segmentation is also an excellent place to start if you want to understand your audience and if you’re just learning the ropes of segmentation since it’s easy to use.

Demographic segmentation variables include:

• Income level
• Size of household
• Marital status

Example: Say you run a wine company and the majority of your audience is married. In this case, you may promote a special wine bundle for couples to these contacts.

Keep in mind that demographic variables may look different for B2B (business-to-business) organizations. Potential variables include:

• Size of the company

Geographic segmentation

Geographic segmentation tells you where your audience is located. Like demographic segmentation, categorizing your contacts according to geographic location is straightforward.

Here are a few geographic variables you can use to divide your audience:

• Location (Includes factors such as zip code, city, state, and country)
• Population density

Psychographic segmentation

Psychographic segmentation enables businesses to segment their contacts based on psychological traits that influence shopping. Variables include:

• Social status
• Personality

While it can be difficult to segment audiences using this approach, doing so results in highly effective marketing campaigns. This is because psychographic segmentation provides insight into why consumers buy certain products.

Example: A brand that focuses on plant-based food products may have an audience segment of vegans, vegetarians, or pescatarians and meat eaters who wish to consume less meat.

Behavioral segmentation

Behavioral segmentation refers to a type of market segmentation in which you group your audience based on consumer behavior, allowing you to see how customers interact with your business. With behavioral segmentation, you can see what your contacts are doing on your website, determine which ones engage with your brand the most, and identify patterns to plan ahead.

Variables of behavioral segmentation include:

• Purchasing behavior
• Stage in the customer journey
• Occasion or timing
• Usage behavior
• Benefits sought
• Customer loyalty
• Customer satisfaction

Example: You may send special deals and discount codes to those who signed up for your loyalty program but have not made a purchase yet.

Should you use segmentation variables?

Leveraging segmentation variables to create subcategories for your audience can help you make more focused marketing strategies and tailor your messaging according to the needs of your contacts.

Some other benefits of using segmentation variables include:

Enhance your messaging

It can be tempting to build marketing campaigns with generic, non-personalized content; after all, it’s easy and fast. However, this type of content can be vague and irrelevant to your target audience. But you can enhance your messaging by understanding your customers via applicable segmentation variables.

Use resources more wisely

Instead of sending an email campaign to everyone in your contacts or developing an ad for your entire audience, you can focus on a smaller pool of people and obtain better results. This can help you spend less money or valuable resources and ensure they’re used effectively.

Develop a stronger marketing strategy

Your marketing campaign can encompass different strategies, such as email automation or digital advertisements. With segmentation, you can ensure that your content is relevant and tailored to your audience–regardless of which type of tactic you use.

Boost brand loyalty

Encouraging clients to be loyal to your brand can increase repeat sales and help you build a community. As such, your audience may be more likely to recommend your brand to people they know and advocate for your business.

Ensure consistent branding

Segmentation is also valuable for ensuring the consistency of your messaging since it can help you stay on brand. So no matter who your segment is, they’ll see a consistent marketing campaign that aligns with your organization.

How to start using segmentation variables in your marketing

There are many types of segmentation variables you can use in your marketing, so how do you know which ones to utilize at your brand?

Take a look at the following steps if you’re interested in using segmentation variables today.

Determine your objectives

The first step is to determine your objectives. What are you hoping to achieve by segmenting your audience? For example, do you want to raise brand awareness in areas where you have a physical retail store established or strengthen your relationship with your most loyal clients?

Verify the viability of your segments

It’s a good idea to verify the viability of your segments, as not all segments will align with your marketing strategy or overall business goals. It’s important to ensure the viability of your segments to prevent wasting resources. For your segment to be successful, ask yourself whether it’s stable, accessible, and competitive.

Use segmentation tools

You can use segmentation tools to organize your audience into subgroups that make sense for your business. With Mailchimp, you can also leverage pre-built market segments to ensure the success of your engagement or buying behavior strategy. These types of tools save you valuable time and money.

Develop your marketing segmentation strategy

You’ll choose between a concentrated or differentiated approach when developing your marketing segmentation strategy . Concentrated marketing strategies will only focus on one segment, whereas differentiated marketing strategies will focus on catering to multiple customer segments . So if you want to target more than one segment, a strategy that revolves around differentiated marketing may be more suitable.

Create more effective marketing campaigns with market segmentation

Market segmentation allows you to split your audience into subgroups, providing an inside look into who your audience is, where they’re located, why they make purchasing decisions, and how they interact with your brand or website.

Segmentation also makes it easier to create effective campaigns that are tailored to the specific needs of your target market. When planning your strategy, you’ll choose between demographic, geographic, psychographic, or behavioral variables.

While segmenting your contacts can eat away at your time, our segmentation tools make it easy to build segments and target customers based on their activity, traits, and behaviors. Now, you can create more personalized campaigns that align with your segmentation strategy in less time and enhance your marketing efforts.

Keep customers coming back for more with Mailchimp’s free Customer Retention Kit

Whether you’re looking to improve existing strategies or seeking fresh insights into who your customers are, this kit is a comprehensive collection of resources designed to cultivate lasting relationships with valued customers.

Fill out the form below to receive your free Customer Retention Kit

By signing up, you are agreeing that we can use your email address to market to you. You can unsubscribe from marketing emails at any time by using the link in our emails. For more information, please review our privacy statement .

4.1 Knowledge Check

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Market Segmentation, Targeting, and Positioning

• First Online: 09 May 2021

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• Richard George 2  

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This chapter explores market segmentation as well as how tourism and hospitality marketers can position their offerings to gain a competitive advantage in the marketplace. It begins with an explanation of market segmentation, which is essential for designing and implementing a marketing mix. It considers how tourism and hospitality companies decide on which market segments to focus their marketing efforts. It also discusses the criteria used by the marketer to ensure effective segmentation: using demographic, psychological, and behavioural criteria. Further, it discusses the process of target marketing and the different approaches that a tourism and hospitality organisation can take. The chapter concludes with a discussion of market positioning and how companies can position their offerings to gain a competitive advantage. Lastly, the chapter’s case study examines these principles in the context of Moxy Hotels , designed to capture the millennial traveller market, and owned by Marriott Hotels International Group .

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George, R. (2021). Market Segmentation, Targeting, and Positioning. In: Marketing Tourism and Hospitality. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-64111-5_7

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