Marketing Segmentation

1. What is Market Segmentation?

You may have heard:

This idiom sums up the essence and purpose of market segmentation, which is the process of dividing a target market into smaller, more precisely defined groups of consumers or organizations who have common needs and are expected to respond similarly to a marketing action. This allows marketers to better target and market to people based on what their specific needs and wants are.

IN CONTEXT: One Size Does Not Fit All

Imagine a company that sells athletic shoes. If they marketed one general shoe to everyone, they’d miss opportunities. Instead, by segmenting the market, they can identify different groups:

• Runners who want lightweight shoes for long-distance training.
• Basketball players who need high-top shoes with ankle support.
• Fashion-conscious teens who buy sneakers mainly for style.

By segmenting, the company can create products and campaigns that speak directly to each group (e.g., performance-focused ads for runners, style-focused ads for teens). This leads to higher customer satisfaction, stronger brand loyalty, and increased sales.

How many messages do you receive each day? Through advertisements, social media posts, and many more, in fact, we are exposed to anywhere between 4,000 and 10,000 advertisements daily (AdFuel, 2024)! Compare this to before the heavy use of technology in the 1970’s where people usually say only 500-1600 ads per day. That’s why it’s critical to target the right market. Most marketers have limited advertising budgets, so using one marketing message to reach a broad audience may garner a few new customers, but it’s likely to come at a high advertising cost.

EXAMPLE

Consider a company that makes woodworking tools for the professional or home hobbyist. The company would waste a lot of money placing ads in “general interest” magazines like Reader’s Digest because the average reader likely has little interest in woodworking tools. A better bet would be placing ads in specialty magazines like The Family Handyman (published by the same company as Reader’s Digest), Wood Magazine, or Popular Woodworking— publications aimed at professional woodworkers and hobbyists. Not only would it likely cost less to advertise in specialty magazines like these, but the ads would be more relevant to the company’s desired customer base.

There are other benefits to market segmentation. Let’s look at a few:

• Customers are not all alike. Some will love your product or service, while others will be indifferent. Instead of trying to appeal to everyone, market segmentation enables marketers to focus their efforts and resources on those customers who will likely result in revenue for the company.
• Allows marketers to better understand what consumers want in a product or service, and that knowledge enables the marketer to make recommendations for refinements to existing products and services to meet those needs. This knowledge is equally important in terms of designing new products and services to meet the needs of the target market.
• When customers feel that your company’s products or services are a good fit for them, they are more likely to stick with your brand and recommend it to others.
• Offers a more detailed and subtle insight into customer needs, purchasing behaviors, and challenges within particular groups.
• Improved Marketing Efficiency: Enables precise targeting of marketing efforts (such as advertising, emails, and promotions) to audiences most likely to engage, thereby reducing unnecessary expenses.
• Insights from segments can inform the creation of new products or help customize existing ones to better address the specific needs of a target audience.
• By concentrating on a segment's unique needs more effectively than competitors who target everyone, a company can establish a strong position in a niche market.
• Personalized marketing and products result in increased customer satisfaction and loyalty.

2. Market Segmentation Types

Now that you understand what market segmentation is, and why we do it, let’s look at how we can segment our market. There are several different types of marketing segments you can create. We’ll focus on four major types:

1. Geographic segmentation: the “Where”
2. Demographic segmentation: the “Who”
3. Behavioral segmentation: the “How”
4. Psychographic segmentation: the “Why”

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BIZV20: How Companies Reach the Right Audience

2a. Geographic Segmentation

Let’s first take a look at geographic segmentation, or dividing the market based on where your customers or potential customers live. There are several geographic parameters a marketer can use to focus their marketing efforts, including:

• Location
• Cultural preferences
• Climate
• Language
• Population type and density

EXAMPLE

Starbucks segments its markets according to global geographic segmentation—the Americas, China, and Asia Pacific and Europe, the Middle East, and Africa. Each of these segments is then subject to sub-segmentation in order to cater to markets that share cultural preferences (Jones, 2015).

• In China, where tea tends to be the beverage of choice, they offer a lengthy menu of tea-based drinks like Red Bean Green Tea Frappuccino and Black Tea Latte.
• In Taiwan, where consumers prefer creamy beverages, Starbucks offers Jeju Honey Peanut Latte and Happy Cheese White Mocha.

Customers’ choices and market behavior can also be influenced by their location in terms of climate or season. Segmenting the market this way also allows the marketer to present the most relevant information to the audience.

EXAMPLE

Snow shovels probably wouldn’t sell well in Las Vegas, but they might sell well in Idaho.

Language can be used to segment a market geographically.

EXAMPLE

There are a number of different languages spoken in different regions and states in India. Therefore, it stands to reason that segmenting a market based on language—so you can translate your marketing message appropriately is another way to segment geographically.

Finally, the marketer can segment the market on the basis of population type or density—in other words, whether the market is urban, suburban, or rural.

EXAMPLE

For a company that does home lawn treatments like fertilization, weed control, or grub control, they would likely have more success targeting a suburban area where residents need extra yard care. Home lawn treatments would be less successful in an urban area where residents have smaller yards or maybe live in apartments or condos with no yard.

2b. Demographic Segmentation

With demographic segmentation, the marketer will divide the market into smaller groups, generally on the basis of common demographic factors such as gender, income, age, educational level, race, religion, ethnicity, occupation or job type, and even family structure. These smaller segments enable marketers to focus their efforts and resources on those customers who will likely result in revenue for the company.

With gender segmentation, the market is divided into men and women. Those who identify as men and those who identify as women have different interests in terms of shopping for various products like apparel, shoes, and food.

EXAMPLE

ok at the ad campaigns crafted toward women in fashion magazines such as Vogue or Vanity Fair. You’ll likely see a different ad focus in magazines like GQ or Men’s Health.

Income segmentation involves segmenting the market on the basis of monthly or yearly income. With income data, a company can determine how its potential consumer base spends money on both the high and low ends of the spectrum.

EXAMPLE

Mercedes-Benz is a classic example of this as it markets different car models at different price points: A-Class vehicles starting in the low $30,000 range, C-Class in the $40,000–$55,000 range, E-Class in the $55,000–$72,000 range, and, finally, its S-Class vehicles, which are priced at $95,000 and up.

Age is another common factor used to segment consumers. It’s likely no surprise to you that our preferences change with age. The products that appeal to us as teens or young adults are likely not the same products that appeal to us when we’re older.

Education is another means through which marketers can segment a market, and it also affects the channels through which marketers reach the target market.

EXAMPLE

If you were going to open a bookstore in your hometown, you’d want to determine the average educational level in your community as part of your due diligence. Are most of your would-be customers elementary or middle school students? Their tastes in reading will be considerably different than if you live in a college town populated by a number of literary professors who prefer the classics.

Race, ethnicity, and religion can be used to segment a market. It’s always dangerous to stereotype, but consumers of different races, ethnicities, and religions have different preferences and needs.

EXAMPLE

Zondervan, a leading bible publisher, would segment its market based upon religion because it offers products that complement the religious beliefs of a particular group. Likewise, IMAN Cosmetics is designed for women with darker skin tones, so its target market would likely be women of color.

Marketers can also segment the market based on occupation or job type. Focusing on a smaller segment of the market enables a company to make better use of its limited resources.

EXAMPLE

AllHeart is a producer of medical scrubs, nursing uniforms, shoes, and medical accessories, so it has segmented the market to focus on medical professionals. Another example can be found with Saf-Gard, a producer of safety shoes and work boots that meet or exceed safety standards. This company targets workers in the construction and farming industries.

Finally, a company can segment its market on the basis of family structure, marital status, whether there are children in the home, and the life stages of those in each family.

2c. Behavior and Psychographic Segmentation

The behavior segmentation focuses on which benefits or features of a product or service are most applicable to the customer.

IN CONTEXT: Toothpaste

Consider toothpaste. People who buy toothpaste may do so for a variety of reasons—sensitive teeth, tartar control, whitening, fresh breath, cavity prevention, etc. This means that two consumers may look identical in terms of their demographics but could have very different values regarding the benefits and features that are most important to them.

Procter & Gamble markets various formulations of its Crest brand toothpaste, including, but not limited to:

• Crest Kids
• Gum Detoxify
• Deep Clean
• Gum and Breath
• Purify Deep Clean

Marketing messages sharing the toothpaste’s benefits and differences are tailored for each formulation.

Occasion segmentation divides consumers (or potential consumers) on the basis of the occasions when they make purchases or plan to buy. Occasion marketing is huge because marketers know that consumers will be purchasing certain items on certain occasions.

think about it

Just look at the number of Internet or TV ads advertising chocolates, flowers, and jewelry in the weeks preceding Valentine’s Day or the sudden appearance of PEEPS and chocolate bunnies before Easter.

Usage-based segmentation identifies various segments of users based on how much they use a product. Consumers are typically divided into groups of non-, light, medium, and heavy product users.

did you know

As a general rule, companies target heavy users because, although heavy users may be a relatively small percentage of the market, they generally account for a high percentage of total purchase. This is actually called the Pareto principle in marketing, which asserts that 80 percent of a company’s revenue comes from the top 20 percent of repeat or loyal customers.

Psychographic segmentation breaks down consumer groups into segments that influence buying behaviors, such as lifestyle, personality variables, and values.

A person’s lifestyle provides insight into what they value, or how they spend their time and money. Marketers analyze three lifestyle dimensions, commonly called AIO (activities, interests, and opinions) variables:

• Activities focus on a person’s daily routine and/or hobbies. For instance, if you’re an urban dweller who rides your bike to work and works out regularly, your buying patterns are probably going to be vastly different from someone who drives to work and doesn’t work out.
• Interests drive passions. What are your interests? Crypto investing? Gaming? Photography? That’s important information to marketers because by identifying your interests (assuming you’re a target consumer), they can more easily determine what marketing messages will appeal to you.
• Opinions matter, and especially in the age of social media, opinions spread fast. Companies monitor social media sites to gain insight about consumers’ opinions of their products or services and respond accordingly—and quickly! Companies such as PepsiCo and Mastercard continuously monitor 24/7 all social media postings about their companies, products, and competitors worldwide.

EXAMPLE

With Lululemon’s Like New program, you can bring in any used Lululemon gear, trade it in at the store, get an eGift card for use at a Lululemon store, and 100 percent of the Like New profits are reinvested in the company’s sustainability initiatives.

Suppose a company called Stride Athletics wants to segment its market:

IN CONTEXT: Stride Athletics

Stride has a premium running shoe, that is quite a bit more expensive than their other shoes and the brands on the market. They might create market personas, which is essentially segmentation based on the different customers. Let’s see what that might look like:

Persona 1: Emma, the Fitness Enthusiast

https://www.pexels.com/photo/woman-stretching-her-leg-8456009/

Geographic:

Austin, TX (urban/suburban, warm climate)
Demographic:

32, female, $105K/year, marketing professional, bachelor’s degree
Behavioral:

Buys high-quality athletic shoes every 6–12 months; prefers eco-friendly products; uses fitness apps; brand-loyal
Psychographic:

Active lifestyle, health-conscious, socially conscious, goal-oriented, values sustainability and wellness
Marketing Angle:

Highlight eco-friendly materials, performance features, and community engagement through social media campaigns and loyalty programs

Persona 2: Jake, the Casual Runner

https://www.pexels.com/photo/young-man-standing-on-one-leg-and-doing-stretching-exercise-4852743/

Geographic:

Chicago, IL (cold winters, urban)
Demographic:

28, male, $100K/year, software engineer, bachelor’s degree
Behavioral:

Runs 2–3 times per week; looks for comfort and durability; price-sensitive but willing to pay for value; shops online mostly
Psychographic:

Practical, routine-focused, enjoys tech gadgets and apps to track fitness, values convenience and efficiency
Marketing Angle:

Emphasize comfort, durability, and value; use targeted online ads with reviews and comparisons

Persona 3: Sarah, the Trendy Athlete

https://www.pexels.com/photo/woman-tying-her-hair-8520585/

Geographic:

Los Angeles, CA (urban, trendy, year-round outdoor activities)
Demographic:

24, female, $90K/year, fashion and social media influencer, bachelor’s degree
Behavioral:

Buys multiple shoes per season; influenced by trends and celebrity endorsements; shares purchases on social media; willing to pay premium
Psychographic:

Fashion-conscious, outgoing, status-driven, adventurous, enjoys being seen as a trendsetter
Marketing Angle:

Focus on style, limited-edition releases, influencer partnerships, and visually appealing campaigns on Instagram and TikTok

As you can see from each of these personas, the company is better able to market to the person knowing their geographic, demographic, behavioral and psychographic information.

Now that you know a bit more about how marketers divide up the market, we’ll take a look at two overarching strategies: push and pull in our next lesson.

REFERENCES

AdFuel. (2024, October 3). The daily ad exposure: How many ads does the average person see each day? Digital Marketing Company | USA & Canada. goadfuel.com/the-daily-ad-exposure-how-many-ads-does-the-average-person-see-each-day/

Jones, A. (2015, January 20). Starbucks’s Geographic Segment update. Yahoo! Finance. finance.yahoo.com/news/starbucks-geographic-segment-173101323.html