What is Market Segmentation? Learn About its Types & Benefits (2024)

Before the 1950s, businesses largely focused on creating products according to manufacturing needs. However, during the 1950s, production, and market trends shifted from manufacturing to consumer needs. As a result, businesses started identifying customer patterns, behaviors, needs, and demands to cater to specific target audiences. This led to the emergence of market segmentation. Let’s explore what is market segmentation and why it is important to create an effective marketing strategy.

In 1956, an American marketing professor Wendell Smith defined the term market segmentation as “dividing a market into smaller groups of buyers with distinct needs, characteristics, or behaviors who might require separate products or marketing mixes”.

Simply put, market segmentation is a marketing technique that involves finding a distinct or hom*ogeneous group of customers with similar demands or interests. It also refers to creating subsets in the market so that companies can define and target their niche audience. In general, the concept of market segmentation is opposed to mass marketing. It is highly relevant to the contemporary marketing industry as it helps cope with high market competition and rapidly changing consumer trends.

How Can Businesses Identify Their Target Audience?

Market segmentation provides different criteria or categories businesses can use to identify their target audience. Now that the definition of what is market segmentation is clear let’s see how to use it to define a company’s target audience:

1. Conduct Market Research

First, conduct market research to gain information about your industry, competitors, and potential customers. This is carried out by using demographic, geographic, and psychographic data.

2. Determine the Ideal Customer Profile

After doing market research and collecting data, determine an ideal customer profile. Consider factors such as the age, gender, location, or interests of the customers interested in buying your company’s products.

3. Utilize Analytics Tools

Leverage analytics tools such as Google Analytics, social media insights, and Customer Relationship Management (CRM) software to learn the audience response on social media or websites. It helps identify similarities between people who engage with the product or brand.

Market segmentation is a unique marketing strategy that enhances the company’s overall growth by adopting a customer-centric approach.

Here is how it helps businesses market their products and services better:

Reach the Desired Audience

The core purpose of marketing is to promote products and services, establish brand value, and increase customers for growth. However, marketing alone is not enough without a defined target audience. As a result, campaigns planned by marketing professionals for their brand’s products will not reach people who want to purchase the products or services or invest in them. Market segmentation resolves this issue: It enables businesses to identify a category of audience they should target and helps personalize marketing campaigns. Ultimately, this helps in generating more business leads.

Reduces Marketing Cost

Another great way market segmentation impacts a brand’s marketing strategy is that it helps reduce the cost of marketing. Since the target audience is defined, marketing professionals in a company can create personalized campaigns for various audiences. Moreover, market segmentation helps companies know the preferences and needs of their customers. This, in turn, can be incorporated into marketing campaigns to connect with customers. Therefore, market segmentation helps businesses spend the required budgets on personalized marketing campaigns instead of mass marketing and trying multiple marketing strategies aimlessly.

Reduces Competition

In the digital era, nearly every business focuses on effective marketing strategies. This has led to an increase in competition to come up with creative and unique marketing campaigns. Here, market segmentation helps marketers gain detailed insights into the market and customer patterns. They can use this data to design and implement marketing campaigns, improve the overall brand image, and stay ahead of the competition.

ALSO READ: How You Can Use Different Types of Digital Marketing to Boost Sales

What are the Different Types of Market Segmentation, and How Do They Work?

The following are the four major types of market segmentation:

Demographic Segmentation

This focuses on age, gender, income, education, occupation, religion, and customer nationality.

Geographic Segmentation

This type of segmentation considers regions like rural/urban neighborhoods and the resources and amenities accessible in that region.

Psychographic Segmentation

This includes the target customers’ interests, opinions, personalities, and attitudes.

Behavioral Segmentation

Categorizes customers based on their purchasing history, usage habits, brand loyalty, and purchase reasoning

There are no definite criteria or rules for market segmentation. Businesses use multiple market segmentation strategies to increase their customer base and grow. This is known as multi-segment marketing. Marketers can use this kind of strategy if they offer customers different solutions, products, or services. In such cases, using various types of marketing segmentation such as demographic, geographic, distribution, media, and price helps determine target audiences. It further helps build a large customer base and increase growth.

ALSO READ: A Comprehensive Guide to Content Marketing in 2022 and Beyond

Market Segmentation Examples

Let’s understand what market segmentation is with the following examples:

Release of iPhone 5S and 5C in 2013

Even though Apple launched iPhone 5S and 5C together in 2013, the former received a better response and had a high sell rate primarily because of the market segmentation strategy. While Apple manufactured these two phones with similar features, iPhone 5S had upgraded features and an increased cost. Apple thus segmented its market into two categories: People willing to pay extra for the 5S upgraded features; and people who did not want to pay for the extra features but could still become customers by buying the iPhone 5C.

Nike Market Segmentation

One of the best ways to understand market segmentation is to observe Nike’s marketing strategy. Its primary target audience is athletes. However, it uses different market segmentation strategies to target various categories of customers. Under demographic segmentation, the company targets physically active customers between the ages of 11 and 45. It also manufactures products that target female audiences. Furthermore, Nike leverages psychographic market segmentation to categorize customers based on their lifestyle, personality, activities, and interests. It also utilizes a behavioral segmentation approach by providing supreme quality products to its customers.

Canon Market Segmentation

Canon is another great example to learn what is market segmentation and how to leverage it. Sheri Jammallo, the manager of the Corporate Enterprise Segment at Canon, says companies should divide the market into similar and identifiable segments to understand bettercustomer needs and the type of products and services they demand. Canon uses transaction and direct mail segments to develop new customer applications. Moreover, it also helps them acquire industry knowledge and build unique workflow solutions.

Granular Segmentation

Granular data refers to detailed information which is categorized to the lowest level. An increasing number of companies are leveraging granular data for market segmentation to get a defined set of target audiences. It enables marketing teams to identify patterns that are not commonly observed. Simply put, granular data offers a holistic view of customer purchasing patterns and preferences.

Focus on Real-Time Intent Data

How does one get instant personalized ads on social media based on the items they search for? This is thanks to real-time data, which allows companies to track which products consumers search on third-party websites. It thus allows companies to accurately segment their customers based on their interests and preferences. Thus, more businesses are leveraging real-time intent data.

Emphasis on User Privacy

Personalized ad campaigns are a great way to acquire leads for companies. But they also bring up data privacy concerns for consumers. Therefore, businesses and marketing firms are focusing on enhancing their data protection frameworks to provide maximum user privacy. Moreover, it mitigates the risk of customers’ personal data being shared with third-party websites.

Now that what is market segmentation is clear, it will also be evident that this is going to be integral to business success in the future. New technologies will continue to come up, and consumer behavior will also change. Therefore, it will be more challenging for companies to focus on a large, undefined audience base. In sum, marketing segmentation is an essential marketing strategy to learn in 2023. Emeritus’ online sales and marketing courses teach marketing fundamentals, its various techniques and strategies, and trends. These courses can also help marketing professionals acquire relevant skills to boost their careers.

By Sneha Chugh
Write to us at content@emeritus.org