7.8K views Businesses today deal with markets that are changing fast, with rising competency between rivals and drive for specialization more and more. In such environment, dealing with the target market as a whole hinders specialization and proves to be a difficult tactic towards strengthening the unfair advantage .
Because of this, marketers use the Market Segmentation practice in order to break down the target market into smaller groups that they can work on easily and with more focus, conducting proper research and value offering for each group (segment).
Types of Market Segmentation
Market Segmentation can take one of many types, most commonly there are four types that are widely used: Geographic, Behavioral, Psychographic, and Demographic.
- Geographic Segmentation
One of the easiest and most commonly used types, geographic segmentation refers to grouping customers according to their geographical location.
If we take a textiles business for example, it may target geographies that are colder with winter-related clothes and jackets, while targeting more moderate geographies with sprint and summer lines of clothing.
- Behavioral Segmentation
Behavioral segmentation is relevantly more difficult than other types to utilize, as it depends on understanding customer intentions and behavior patterns, including their purchasing and spending habits. It is possible to conduct this type using technology solutions that track such behavior, but is usually not looked upon positively by customers or the public.
Given our example on the textiles business, it may track customer behaviors of previous buyers, and sell someone who has bought shirts a couple of trousers to go with them.
- Demographic Segmentation
Demographics relate to the characteristics of the customer including his/her age, gender, background, education, and others. Here, the business groups its customers according to their characteristics, and therefore making it easier to reach each subgroup (segment) with the right message.
Demographics can be highly variant, and as a result we can consider a special group that stems from the Demographics Segmentation tactic:
- Generational Segments
To make it easier to classify customers by age, this tactic considers generations considering that each generation is 15 years apart from one another. Each of the generations has similar traits so they can be considered as one group with mostly similar interests/needs.
Baby Boomers (born between 1946–1964) usually shape the elderly segment that utilizes medical and physical products. Appealing to them is different from appealing to Generation X (1965–1980) that forms the grownups segment who and are generally familiar with technology, but have certain values and way of living.
Moving to newer generations, Millennials (1981–1996) have witnessed the rise of technology and the disruption of industries, and therefore are more tolerant with new concepts and innovations, but in the same time can work with old-school solutions and products. This is opposed to Generation Z (1997–2012) and Generation Alpha (Post 2012) who take technology for granted and cannot imagine the world without the current advances in lifestyle and telecom.
- Cultural-relevant Segments
Culture can hugely impact customer behavior. Culture in this meaning is not particularly related to geography or demographics, but rather to the beliefs of people and norms for their life, regardless of where they are located. For instance, offering Non-Halal meat for a Muslim customer is a cultural problem relating to segmentation.
- Generational Segments
- Psychographic Segmentation
Psychography focuses on classifying customers according to their inner personalities. This means focusing on things like values that customer go buy, their attitudes, lifestyles, and other beliefs and influences.
Considering the textiles business example, the business can reach customers who stand for environment via conveying a message that it utilizes an environmentally-friendly and fair manufacturing processes.
Benefits of Market Segmentation
- Empowering the competitive advantage
As can clearly be seen in the Value Proposition Canvas , the best value proposition is highly unique and dependable on the customer profile and characteristics which helps build its competitive edge due to specialty and relevance to customers.
- More relevant marketing profile
When talking to a segmented market, it is easier to be more relevant from what the customers are seeking. This helps improve the marketability in each relevant segment.
- Build a niche strategy
As we discussed in our Business Modeling Course- Part 2: Customers and Market Segments , it is essential to understand your market and market focus group. Segmenting the market can help you focus on the market niches better, and come up with a market strategy that is built on niches
- Improve customer retention
Understanding that a business focuses on a smaller number of customers in each segment or customer group in a segmented strategy, this can also improve customer loyalty and boost the customer retention rate. This is done as focusing on smaller focused segments means providing a more personal and unique experience for them, thus improve their satisfaction and loyalty.
Steps to Consider in a Market Segmentation Strategy
When considering a segmentation strategy, it is essential to follow these steps in order to classify the segments correctly and realize benefits from this process. Otherwise, the segmentation will only be a waste of time and resources.
- Identify and analyze target market
A target market should be defined by the business and analyzed. Online SEO rating and checking tools, business insights, and statistics can help greatly pin-point where the potential lies.
- Analyzing target market and building customer profiles
Once addressed and analyzed, the target market should be sub-divided to build several customer profiles each having their needs and characteristics. See our free guide on customer segmentation for an in-depth explanation with examples.
- Create appropriate value propositions for customer segments
As each customer profile is unique, so should the value proposition offered. See our free guide with video on creating the right Value Proposition Canvas utilizing the customer jobs, gains, and pains.
- Test, improve, and iterate
Once all has been identified, it is time to actually to provide the value proposition for the appropriate segment. Collecting after-sales data and feedback from customers can greatly help clarify what needs to be developed and improved, and provided for customers once again.
