6 Types of Market Segmentation (+benefits & example)

market segmentation

So you already have that best product in the market and you’ve done all the campaigns you could. However, customers seems not to be coming by as expected. A good acquaintance of market segmentation might just be all you need to make your business bubble. So, let’s take a walk through all the specifics you need to know on this subject.

 

Market segmentation aims at dividing your potential customers with similar needs and preferences into similar subgroups.

The bottom line of this is, with a deep understanding of market segmentation, a  business owner can present a product/ service to his customers and be almost 100% certain that they are gonna buy it. Now, this is not some abracadabra in action but some logical and proven modus operandi that works wonders.

A major step in the segmentation process is selecting a suitable base. This aims at yielding segments with maximum internal homogeneity that are meaningful for the specific market problem or situation.

Let’s get our head around this by taking a look at the characteristics and different types of market segmentation.

 

CHARACTERISTICS OF MARKET SEGMENTATION

A good thought approach and a basic understanding of the market to be segmented are important in selecting the type of market segmentation. For example, data showing the family size of people in a certain place is of no use to a shampoo seller but a contraceptive company will find this invaluable. So, a good market segment should be identifiable, substantial, accessible, responsive, actionable, stable.

  1. Identifiability:

    This is the ability of a business to identify distinct groups within the market place. It is perhaps your compass when compared to other types of market segmentation because you need to know the people your product is meant for before any other thing.

  2. Substantiality:

    The segment has to be large enough or have a high purchasing power in order to make the business profitable. If not the business will have a hard time trying to establish itself in the market.

  3. Accessibility:

    The targeted segment should be able to access the business. So, through every possible means, social media, etc a company should stay in touch with its segment.

  4. Responsiveness:

    How will consumers in the segment respond to marketing offers targeted at them? Your market segment should respond adequately enough to your product. If possible let your market segmentation be so good that your product becomes an essential part of the daily life of your customers.

  5. Actionable:

    The segment should be able to provide guidance in marketing decisions. So this means the segment controls your action in the market.

  6. Stability:

    The stability of the segment has to be long enough to enable adequate profitability of the business.

The above list which are the characteristics of good market segmentation will serve as a good basis in the selection of a type of market segmentation for your business. So you don’t hawk female jewelry in a male hostel.

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TYPES OF MARKET SEGMENTATION

These six major types of market segmentation; Demographic, geographic, psychographic, behavioral, need-based, transactional, will help you in creating a good market segment for your business.

  1. Demographic:

    For a business-to-customer context, the following attributes could be considered: Age, gender, education, occupation, income, socio-economic status. A jewelry store will find the income attribute handy in their segmentation.

  2. Geographic:

    Have you ever tried to access a website and they tell you that users from your location are not allowed to access the site? Well, that’s an example of geographic segmentation. The attributes in this type are the continent, country, state/region, city. But different avenues within a city are known to show interest in a specific kind of business. Like a city might be the business hub of a state but not all avenues within the city are markets some might show good interest in entertainment.

  3. Psychographic:

    These segments based on personality. So you need to know the kind of person your customers are in terms of their interests, attitudes, values, lifestyle. Are they socially aware, active ‘club going’ youths, conservatives, traditionalists, etc? I once saw a Youtube video about a Chinese billionaire who spends $400 on a meal when I showed my friend, he asked what kind of cockroach will worth $400? A business selling only Chinese dishes in Nigeria will find it difficult to thrive cos these guys don’t value it.

  4. Behavioural:

    This divides your audience based on their previous behavior towards your brand. These attributes can be considered for this segment: Usage level, previous purchase, purchase patterns, product knowledge, product rating. A restaurant might want to segment their customers based on the meals mostly ordered for (purchase patterns). So this causes dynamism in their menu as it will be updated based on customers’ order patterns.

  5. Needs-based:

    This group customers based on their needs. Categories of needs under this type of market segmentation are problem-solving needs, emotional needs, functional needs. For example, data on potential customers with celiac disease will help a food manufacturing company to segment the audience with the need for gluten-free products appropriately.

  6. Transactional segmentation:

    This type of market segmentation group customers based on spending patterns. Use the RFM (Recency, Frequency, Monetary) model to group these guys. So a footwear store that wants to re-engage their loyal customers who haven’t visited them in 6 months and segment them based on their RFM behavior at the end, might want to target customers who visit often but spends small and customers who visit less frequently but spends a lot in their promotions.

 

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LEVELS OF MARKET SEGMENTATION

Every level of market segmentation requires a different marketing approach. Therefore, every marketing should have a good understanding of these levels, how to address them, and how they work. These levels of market segmentation are Global, Niche, Localized, Individuals.

  1. Global:

    It’s a broad level of market segmentation because it contains general information about the audience. For instance the age, income, country. So it’s not broken down in any way.

  2. Niche:

    A niche is a group of consumers that prefer the same product. The global market segment contains a niche. For example, if you sell adult male shoes, your global market will target men >17 years. Within this global segment, you have niches of consumers interested in black shoes, brown shoes, etc.

  3. Localized:

    Moving down from the niche you find where your consumers are localized. For example, you might find that a lot of people living in a particular avenue are under the black shoe niche. So, you can localize customers by using this avenue. This helps you create more of your brand’s black shoe billboard in that avenue.

  4. Individuals:

    This final level of market segmentation deals with consumer habits. Because it’s concerned with collecting data from customers which helps in placing them in any of the levels above.

Having gone through the levels of market segmentation let’s move further to the benefits of market segmentation.

 

BENEFITS OF MARKET SEGMENTATION

I talked a lot about the characteristics, types, and levels of market segmentation, you must have figured out one or two benefits of market segmentation. However, the exclusion of a subheading attributed solely to the benefits of market segmentation is gonna be like an employer explaining the job specifications of a job to their employee and skipping the profit part. So, here are the top benefits of market segmentation:

  1. Realization of market opportunities:

    A good study of the needs of a segment can find out a low level of satisfaction from the present offering of a competitor. So this will present an opportunity for the business owner.

  2. Developing marketing programs:

    A clear insight into the response-ability of a specific market segment will help a company develop nice marketing programs.

  3. Proper marketing appeals:

    A company, instead of creating a marketing campaign aimed at all potential buyers can create different marketing campaigns aimed at the needs of different customers.

  4. Appropriate media choice of advertisement:

    Another benefit of market segmentation is this. You can transfer funds to the appropriate media which has more potential of getting to the segment of choice.

  5. Efficient use of resources:

    Segmentation will help a retailer direct funds to products that are more likely to be purchased by their most profitable segment. So this helps to efficiently and effectively manage funds.

  6. Better service to customers:

    Proper market segmentation can facilitate customer satisfaction and this increases their chance of coming back for more. So kinda a positive feedback mechanism.

  7. Logical price fixation:

    This benefit of market segmentation helps to fix the prices of goods and services. For example, the price for low-income groups has to be lower and product and promotion campaigns adjusted appropriately.