Market segmentation creates subsets of a market based on demographics, needs, priorities, common interests, and other psychographic or behavioural criteria used to better understand the target audience. Traditional market segments are identified using characteristics such as:
- Behavioural activities
- Technical knowledge
- Usage and purchase situations
- Benefits sought from the products
Types of Market Segmentation
With segmentation and targeting, the researcher aims to understand the likelihood that a given respondent or segment will exhibit a specific desired behaviour. In many cases, a predictive model may be incorporated into the study so that individuals can be grouped within identified segments based on specific answers to survey questions.
Demographic segmentation sorts a market by demographic elements such as age, education, income, family size, race, gender, occupation, nationality, and more. Demographic segmentation is one of the simplest and most commonly used forms of segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors.
Market segmentation will typically follow these 4 categories.
Behavioural segmentation divides markets by behaviours and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase body wash, while older consumer groups may lean towards soap bars. Segmenting markets based off purchase behaviours enables marketers to develop a more targeted approach.
Psychographic segmentation takes into account the psychological aspects of consumer behaviour by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.
Geographic segmentation creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.
Requirements for Your Market Segments
At the end of your market segmentation study, your results should meet 4 tests of actionability:
You must be able to identify segmentation variables that are related to purchase of the product and develop a descriptive profile of the market segment using a combination of variables.
In addition to being able to identify the market segment, you must be able to reach them in an efficient and cost-effective manner. Do they belong to specific chat groups, newsgroups, or subscribe to online publications? Perhaps they subscribe to one or more computer magazines, or have purchased from a specific catalog.
The market segment must have the ability to purchase. For example, almost all college seniors want to have a new Porsche or Corvette, but few have the ability to purchase such an expensive sports car.
The market segment must produce the differential response when exposed to the market offering. That is, they must be willing to purchase.
Which method of market segmentation is most effective? Of course, it depends on the specific product or service being considered. The preparation of content for advertisements or web pages would rely heavily on benefit segmentation. The design of an economical automobile for a young single woman would, of course, rely heavily on demographics as well as psychographics.
Once you understand the various market segments you are dealing with, the next step is to conduct product concept tests that optimise your product to be fully appealing to your segments.