Market Segmentation and it’s Type

Market Segmentation

Market segmentation is a very crucial aspect of a strong marketing strategy. It makes all the difference for businesses in competitive market scenarios. If you are looking forward to improving your marketing campaign’s effectiveness, segmentation should be on top of the list.

Also, Read First Mover Advantage: Definition, Importance, Advantages


Introduction to Market Segmentation

For any business, acquiring real and loyal customers is a tedious job as they have to infiltrate the market with their new product against the existing ones. Most business firms use market segmentation techniques to acquire a greater number of customers.

Most the people believe that market segmentation is all about getting as much data as possible to be able to find more potential customers. This is somewhat true, but there are a lot of other factors too that play a very important role when it comes to segmenting the market for your product.

In business terms, market segmentation is a marketing term, which implies the aggregation of potential buyers into segments or groups with common needs and those who react similarly to a marketing action. This marketing technique helps businesses to target diverse segments of customers who understand the complete value of some products and services differently from each other.

In this article, let us learn everything that you’ll ever need to know about market segmentation.


Business Market Segmentation

A company that wants to do business for a long time has to regularly evolve as a choice in order to stay relevant. Businesses require customers and in order to get customers, any company has to find the correct market. You can’t sell luxury cars and watches to the demography of people whose annual income is way less to buy such luxuries. This is why it is important to propagate your business in the right market in order to flourish. This is why most of the big, as well as small companies, use market segmentation methods to infiltrate a new market.

This technique has various advantages that can not only save a company’s money, time, and many other things that we will talk about as we go further. If you happen to own a business or have an interest in learning about market segmentation strategies, then buckle up because we have a lot to cover.

Also, Read Ansoff Matrix: Best Business Growth Strategy


Market Segmentation Example

The prime agenda of market segmentation is to enter a market and acquire new customers. We all know that markets around the world are not the same and companies need to have different kinds of approaches to different markets. Thus, market segmentation is of different types with a different approach when it comes to acquiring customers. Here are some of them-


  • Examples of Demographic Segmentation-

This kind of segmentation is used for segmenting the market on the basis of demographics. Some examples of demographic segmentation are age, gender, annual income, location, ethnicity, education, industry, job function, company size, and other such factors.

  • Examples of Psychographic Segmentation-

This kind of segmentation uses more personal data. Examples are personality traits, attitudes, values, lifestyle, interests, psychological influence, conscious and subconscious beliefs, priorities, and motivation.

  • Examples of Behavioral Segmentation-

This segmentation technique focuses more on customer behavior rather than other traits. Examples of behavioral segmentation are purchasing habits, spending habits, user status, and brand interactions.

  • Examples of Geographic Segmentation

The Examples of geographic segmentation include ZIP code, city, country, a radius around a certain location, climate, and urban/rural location.

These data are used to understand the customer base of a particular area and then the company creates a plan accordingly to infiltrate the market. Next, we will understand the types and the examples even better.


Types of Market Segmentation

Types of Market Segmentation

As explained earlier, different markets comprise different kinds of people with different lifestyles and thought processes. A strategy that works in America may not work at all in Nepal. The difference between the two cultures is vast and in order to enter the specific market, companies use different approaches. There are basically four types of market segmentation-

  1. Demographic segmentation
  2. Psychographic Segmentation
  3. Behavioral Segmentation
  4. Geographic Segmentation

Let’s understand each of them to get better clarity.

  1. Demographic Segmentation

This is an approach commonly used by companies for market segmentation. In this technique, the data of a group of people is acquired in order to get an insight into something particular like age, income, gender, etc.  These traits can then help the company to decide whether this market is ideal for its product or not. A good B2C example of this approach is a luxury watch-making company. This company would likely target an audience that has a very high income compared to the general public. This makes their brand highly accessible to those people.


  1. Psychographic Segmentation

This segmentation approach values their customer’s personal traits more. It focuses more on things like attitude, interests, lifestyle, priorities, etc. It doesn’t use facts and figures but values customer’s emotions more. A good B2C example would be an ultra-luxury car brand that only sells its products to customers who value their history and legacy. This creates a lifelong bond between the company and the customer.


  1. Behavioral Segmentation

This approach is usually followed by companies that need customers with a particular kind of history with products like their own. They search for customers who are already interested in the field the company is in and can be their potential customers. A good B2C example of such a technique is Rolex. Rolex sells its high-end luxury watches only to customers who have a history of buying luxury timepieces. This ensures the company that they secured a returning customer who will definitely give them business in the future.


  1. Geographic Segmentation

This is the simplest form of market segmentation that utilizes the borders between areas to decide their potential market. They use factors like ZIP code, city, country, climate, etc. A great example of this can be car companies that are looking for people residing in snowy climates. This will help them to cut costs and save money as these people will not need features like a sunroof and heating system. This kind of approach is sure-shot and rarely backfires.

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Market Segmentation Benefits

Now that we know the different types of market segmentation, let us see the benefits of market segmentation techniques-


  1. Higher Rate of Success and Profits

When a company uses market segmentation techniques, it narrows down its market to the most precise point where the selected population is highly likely to be their potential customers. This not only increases the rate of success but also ensures that the company will get higher profits when using market segmentation techniques.


  1. Increases Competitiveness

When you have a clear idea of the segment of people you will be targeting for your product, you can easily list out your competitors in the market. This, in no way, is a disadvantage because competitiveness in the market will only result in better products.


  1. Customer Retention and Satisfaction

In market segmentation, the undesired customer base is filtered out leaving you with people that are in need of your product. This gives you a chance to better connect with them, thus providing customer satisfaction. The better your service or product is, the better your customer retention will be.


  1. Cost-Efficient

Using market segmentation, you can save a lot of your money and time, which you would have otherwise spent searching for the right market if you didn’t opt for market segmentation. Thus, it is highly advisable to save you money by choosing the right market for your company using market segmentation techniques.


  1. Efficient Use of Resources

Every company out there would want to save every penny they can so that they can use that money elsewhere. By using market segmentation, you don’t have to spend your resources on things that won’t yield the desired outputs for you. Thus, market segmentation not only saves money but also saves you a lot of time and resources.

Also, Read Customer Acquisition And Retention Strategies (Full Guide)


Market Segmentation Process

Market segmentation is not only useful for big companies but also helps small budding firms to understand their market and launch their product in it. Now, we will learn the steps involved in the market segmentation process.


  1. Understand the Need for Specific Segment of Customers

In this step, you have to think like a customer and find out what the customers desire. Only then, you’ll be able to understand the needs of the market inside out.


  1. Identify the Segment-

After you know “what” they want, you have to find “who” wants it. In this step, you have to decide what kind of market segmentation you are going to use and you can choose from the four kinds that we discussed in the above sections.


  1. Choose the Most Attractive Segment-

This is a tricky step because in this step you have to weigh in the pros and cons of your choice of segmentation approach. You have to select the one that gives you the desired results in the desired amount of time.


  1. Find the Profit in the Segment-

You have to analyze whether the segmentation approach used by you would be profitable for the firm or not. And if yes, when will it start yielding profits, and is it better than any other option that you have got? You have to keep in mind that making a profit is usually the sole aim of most companies.


  1. Position Your Product in the Segment-

Once you are done finding the ways of making a profit in the segment, you have to make sure that you position your brand or product in the customer’s minds in such a way that it mends perfectly. You have to make the customers realize your brand’s value and worth. This will create an emotional connection between your brand and the customer.


  1. Expand Your Segment-

When you have found the segment that you want to work in, it also has to be scalable. Working in a market where you can’t expand further is slow death for your brand. So, you always have to keep working on expanding the company in that particular segment.

  1. Incorporate the Segmentation-

Once you have found a suitable segment that will provide growth as well as profits, you have to start incorporating your marketing strategies according to the people of that particular segment.

It doesn’t matter whether a company is multi-national or just a newly budding business, market segmentation can help any business grow and flourish better. The business will not only find new customers but will also be able to establish a better relationship with their customers. Market segmentation is also great because it promotes competitiveness among businesses, which eventually leads to better resultant products for the customers.

Always remember that market segmentation is a tedious process that requires patience, time, and hard work. But this hard work will further save a lot of the company’s money, time, and resources. So, never ignore the importance of market segmentation and the incredible way in which it can benefit your business.


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