Market Segmentation: Definition and Types

Market segmentation denotes dividing a market into specific and more defined categories. It involves assigning customers into groups with similar characteristics. The process allows businesses to design and present a product that appeals to a specific consumer group. Dividing a market enables marketers to maximize marketing efforts by identifying the right consumers for a product. It prevents wastages, losses, and mistakes witnessed when a business uses a trial and error method to enter a market it does not understand.

Types of Market Segmentation

The primary types of market segmentation are demographic, geographic, behavioral, and psychographic segmentation.

Demographic segmentation

Demographic segmentation involves dividing consumers based on demographic factors, including age, gender, education level, religion, ethnicity, employment status, marital status, and income level. Certain products explicitly target a specific demographic. For example, a nursing home specifically targets the elderly population, while a gaming console business targets the youths.

Geographic segmentation

Geographic segmentation uses physical locations to divide a market. Physical locations can constitute a city, state, country, region, or continent. The demand for a product or service can vary across physical borders, whether internal or external. For example, a company specializing in modern fashion trends cannot venture into Muslim countries, whereas a budget phone company stands to sell more in African and Asian markets.

Behavioral segmentation

As the name suggests, this segmentation utilizes consumer behavior. Consumer behaviors include purchasing habits, brand loyalty, spending habits, brand interactions, online shopping habits, and product rating habits. In the current e-commerce environment, learning about consumers helps deliver targeted ads. It allows a business to design campaigns and messages tailored toward a specific customer.  For example, a company can offer discounts or coupons to customers who repeatedly buy goods on its online store. Such discounts and vouchers persuade the customer to buy more goods and spend money on the site.

Psychographic segmentation

Psychographic segmentation splits customers based on psychological elements such as personality traits, beliefs, hobbies, values, and lifestyles. Psychographic segmentation is challenging because mental or emotional characteristics are difficult to identify. Identifying these characteristics allows a business to understand a target market and closely relate with them. For example, a restaurant chain can design an animal-free menu targeting vegans or activists who advocate against animal cruelty.

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