Market segmentation is the foundation of any successful long-term marketing strategy.
To get maximum value from your marketing budget, get to the heart of your customers’ shopping motivations by splitting your market into subgroups – then you’ll be in a stronger position to serve your customers’ unique needs.
According to research from SALESmanago, 77% of marketing ROI comes from segmented, targeted and triggered campaigns. So, if your marketing campaigns are falling flat, do more market research to understand what makes your customers tick across each segment.
One of the reasons market segmentation techniques drive more revenue for your business is because they can help you deliver personalized customer experiences. That’s why the best personalization tools let you segment your audience so you can:
- Drive more email and SMS leads
- Lift website conversion rates
- Improve average order values
- Increase customer lifetime value
In this blog, I’ll walk you through the four main types of market segmentation:
And I’ll also cover:
- Transactional segmentation
- Technographic segmentation
- Generational and life stage segmentation
- Firmographic Segmentation
- 8 benefits of market segmentation
What is market segmentation?
Market segmentation is a technique you can use to divide your customer base into subgroups based on shared characteristics, such as age, income, hobbies and location. The aim of segmentation is to tailor marketing efforts to your ideal customer profile (ICP), i.e. the customers most likely to buy your product or service.
For example, a customer at an organic food shop is likely to have some or all of these characteristics:
- Gender: Male or Female
- Age: 25-44
- Income: $100,000+
- Life stage: Home owner, no children
- Interests: Healthy eating, sustainability, sport
Rather than wasting your budget on campaigns that target a broad section of the market, use messaging that resonates with a market segment made up of customers with those attributes. You should also consider which channels are likely to drive the highest engagement.
For this hypothetical organic food shop, a Pinterest campaign marketing products with sustainable ingredients would be a strategic way to appeal to potential customers. Why Pinterest and not another social channel? Well, not only do 9 out of 10 Pinners browse the social media platform for purchase inspiration, it’s also used by up to 80% of Millennial women and 40% of Millennial men.
Why is a market segmentation strategy important?
According to Bain and Company, businesses that tailor strategies to customer segments generate yearly profit growth of 15% vs 5% for businesses that don’t. In short, market segmentation can drive significant growth.
Segmentation techniques are major profit drivers because they help you define your target market and qualify customers as users of your product or service. You can then provide the personalization that 73% of shoppers now expect from brands – sending the right message, through the right channel, at the right time.
Market segmentation also helps you to:
- Enter new markets
- Build products that solve customer pain points
- Streamline sales processes
- Drive more revenue from email marketing
- Drive more revenue from social media marketing
- Increase customer retention
4 Key market segmentation types & examples
1. Demographic segmentation: The who
Widely used by D2C ecommerce brands, demographic segmentation is one of the most simple yet effective kinds of segmentation. You can use demographic segmentation to split your audience and create customer personas based on objective information, such as:
- Level of education
- Profession/role in a company
For example, if you segment your audience based on your customers’ income, you can target them with products that fall within the constraints of their budget. If you’re a small business or new to ecommerce, this is a straightforward type of segmentation with three key advantages:
- It’s easy to collect information
- It’s simple to measure & analyze
- It’s cost-effective
Luxury goods manufacturer Montblanc worked with Yieldify to present a selection of offers across their website. They lifted conversions by 118% with a Father’s Day deal offering a free gift to customers spending over £200 – a threshold that took the spending expectations of Montblanc’s target audience into account.
2. Psychographic segmentation: The why
Psychographic segmentation is the process of grouping people together based on similar personal values, political opinions, aspirations and psychological characteristics.
For example, you can group customers according to their:
- Social status
- Life goals
- Values and beliefs
Because these characteristics are subjective, psychographic is a harder segment to identify – but it’s also the most valuable. The best places to gather data for psychographic segmentation are through your audience analytic tools and social media, but you should also use surveys, interviews and focus groups to strengthen your customer understanding in this segment.
Through psychographic segmentation, you can get a deep insight into your customers’ likes, dislikes, needs, wants and loves. You can then create marketing campaigns that resonate with their psychographic profile.
Yieldify’s personalization technology helps you create on-site experiences that capture more psychographic information about your customers. For example, Heidi, a leading online travel agency, collected information about their customers’ preferred skiing style with layered lead capture experiences.
3. Geographic segmentation: The where
Geographic segmentation is the process of grouping customers based on where they live and where they shop. People who live in the same city, state or zip code typically have similar needs, mindsets and cultural preferences.
The real advantage of geographic segmentation is it provides an insight into what your customers’ location says about a number of geo-specific variables, such as their:
- Population density – (urban vs rural)
As with all market segmentation methods, you’ll need to analyze your data to understand how each factor influences your customers’ shopping behavior. For example, people living in colder climates are likely to be in the market for winter clothing and home heating appliances.
You can also use geographic segmentation to solve practical problems. With Yieldify, global fashion brand Nautica used geo-targeting to show different customers when they could guarantee Christmas delivery. Customers in rural areas had to order earlier than urban areas, so Nautica’s delivery countdown timers adapted according to the customer’s location.
4. Behavioral segmentation: The how
Behavioral segmentation is the process of grouping customers based on common behaviors they exhibit when they interact with your brand.
For this type of segmentation, you can group your audience based on their:
- Spending habits
- Purchasing habits
- Browsing habits
- Interactions with your brand
- Loyalty to your brand
- Product feedback
Gather this objective data through your website analytics and you can identify patterns in your customers’ behavior that help predict how they’ll interact with your brand in the future.
Then you can leverage this hypothesis to provide personalized recommendations that address your customers needs. For example, Spotify provides its users with curated daily mixes based on the types of genres and artists they’ve listened to previously.
At Yieldify, we use behavioral segmentation to deliver highly relevant and targeted campaigns based on behaviors including:
- Number of sessions to your website
- Number of pages visited
- Time spent on site
- URLs visited
- Page types visited
- Exit intent
- Shopping cart value
- Campaign history
- Referral source
For example, Petal & Pup tailor their email lead generation messaging for visitors arriving from Facebook.
Other types of market segmentation with examples
Demographic, psychographic, geographic, and behavioral are the four pillars of market segmentation, but consider using these four extra types to enhance your marketing efforts.
Technographic segmentation groups people based on the technology they use and how they interact with it. For example, you could segment early adopters of new tech and target them when you launch a new product to market.
Alternatively, you could present customers with deals depending on what device they use to shop online. For example, you could show Apple products to consumers who use Safari.
Generational and life stage segmentation
Generational segmentation expands on demographic segmentation by grouping customers based on their generation – Boomers, Gen Z, Millennials, etc.
You can also segment customers by factors including marital status, home ownership and number of children.
For example, Bank of America successfully incorporated life stage segmentation in their digital marketing strategy. They invited customers using their Family Life Banking program to specify their life stage circumstances when they signed up. From there, they directed customers to a microsite designed specifically for that segment.
Using transactional segmentation you can group customers based on their previous purchase interactions with your brand, including:
- Source of brand discovery – e.g. social media, organic
- Date of most recent order
- Total number of transactions
- Average order value
Most of the market segments I’ve discussed focus on D2C brands, but firmographic segmentation is a tool B2B companies use to create more impactful marketing campaigns.
Firmographic segmentation is the process of analyzing and classifying B2B customers based on shared company characteristics, and is similar to how D2C marketers use demographic segmentation.
Use these 7 factors to create firmographic customer segments:
- Company size
- Number of employees
- Executive title
- Sales cycle stage
8 Benefits of Market Segmentation
1. Better ROI from marketing
According to research from SALESmanago, 77% of marketing ROI comes from segmented, targeted and triggered campaigns.
2. Set your omnichannel strategy
The deep insights you glean from a strong market segmentation process will help you set an omnichannel strategy that better addresses your customers’ needs. For example, if a high percentage of your customers are from Gen Z, tailor your messaging across all channels to speak to their cultural and social reference points.
3. Build customer loyalty
Market segmentation helps you build the personalized journeys your customers are craving. According to Accenture, 79% of consumers are more loyal to brands that use personalization tactics.
4. Reach new markets
Segmentation helps brands identify gaps in the market. For example, world-renowned camera company Canon took a 40% share in the low-end digital camera market by spotting an opportunity to sell cameras to children without smartphones.
5. Reduce customer acquisition costs
The insights you glean from creating segmented customer personas will make your marketing campaigns more effective. That can be said for both D2C and B2B brands.For example, insurance giant Metlife set annual savings targets of $800 million after streamlining its sales process to consider the behaviors and attitudes of each customer segment.
6. Build better products
With a clearer understanding of who your customers are, you can create products that better serve their needs, desires and expectations.
7. Higher quality email & SMS leads
You’re more likely to get leads into your email and SMS databases by adapting your opt-in form according to customer segments. With Yieldify, American footwear company Rockport drove 30% more revenue per lead using a segmented approach to lead capture.
8. Drive more revenue from email marketing
Build your own market segmentation strategy
I hope this blog has given you a clear understanding of how you can use market segmentation tactics to optimize your market strategy. If you want more information about how you can leverage market segmentation on your ecommerce website, check out this page on Yieldify’s audience segmentation capabilities.
Market Segmentation FAQs
What is meant by market segmentation?
Market segmentation is the process of dividing the market into subsets of customers who share common characteristics. The four pillars of segmentation marketers use to define their ideal customer profile (ICP) are demographic, psychographic, geographic and behavioral.
What are the 4 types of market segmentation?
The four main types of market segmentation are:
What are the advantages of market segmentation?
Market segmentation helps you qualify customers of your product or service and serve them with more personalized marketing campaigns that speak to their unique needs. A good market segmentation strategy will help you:
– Drive more marketing ROI
– Reach new markers
– Cut customer acquisition costs
– Build better products
– Increase brand loyalty
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What Are Some Market Segmentation Examples? One example of market segmentation in action is Victoria's Secret and their teenage-targeting brand PINK. Victoria's Secret primarily targets women, while their brand PINK is targeted more toward teenage girls and women.What is psychographic segmentation in the real world examples? ›
Examples: Psychographic segmentation examples include luxury items and articles that appeal to a particular lifestyle such as vegetarians and pescatarians. Examples of behavioral segmentation include choosing one product over another due to variation or functionality.What is McDonald's market segmentation? ›
McDonald's divided their items into categories based on psychographic, behavioral, and demographic factors. Children, learners, families, and businessmen are all targets for their products. McDonald's targets these market sectors because of their enormous size, as well as the projected growth rates.How does Coca Cola segment the market? ›
Coca-Cola's market segmentation focuses on four various elements, namely geographic, demographic, psychographic, and behavioral.What is demographic segmentation with example? ›
Demographic segmentation is a precise form of audience identification based on data points like age, gender, marital status, family size, income, education, race, occupation, nationality, and/or religion. It's among the four main types of marketing segmentation, and perhaps the most commonly used method.Does Netflix use market segmentation? ›
Netflix. Netflix uses behavioral segmentation to deliver customized content to its 158.3 million subscribers every day on an automated basis. It relies on Machine Learning (ML) to learn about its customers via their behavior on the TV streaming app.How does Nike use market segmentation? ›
Nike creates sub-segments based on needs, demographics, priorities, shared interests, and behavioral and psychographic criteria. The process of identifying the segments will vary from company to company.What is real world segmentation? ›
In this approach you divide up the market by age range, income, ethnicity, gender, profession or family status. When you're marketing tampons, for instance, you want to reach a female audience. For diapers, you target consumers with babies. Psychographic segmentation looks at the mindset that fuels consumer purchases.What is Coca Cola psychographic segmentation? ›
Coca-Cola Psychographic Segmentation
The Coke targeting approach also has a strong focus on what's known as the “conscious progressive” personality type – consumers who value independence, learning, personal growth and being true to oneself, and who seek out those traits and experiences in the brands they consume.
An example of geographic segmentation is an ice cream company segmenting a country by how hot different regions are and targeting those specific areas that are hottest and therefore more likely to buy ice cream.
2.5 Psychographic Approach.
|Type of segmentation||Segmentation criteria||McDonald's target segment|
|Psychographic||Social class||Lower, working|
KFC uses demographic segmentation to serve the target market that has both vegetarian and non-vegetarian customer segments. Its offerings cater to kids, young adults, and almost all age groups. KFC's target audience can be categorized into four groups: Children.What is restaurant market segment? ›
What Is Market Segmentation for a Restaurant? Market segmentation for a restaurant is simply the process of dividing your entire customer base into smaller groups based on similar demographics or traits.What is Burger King segmentation? ›
As behavioral factors, Burger King dividing the customer by benefits by speed and economy, regular occasion and regular user, a fast food restaurants which affordable food products that can be prepared and served within a short stipulated amount of time.How does Pepsi segment their market? ›
The advertising strategy for Pepsi is heavily based on pop culture, and tries to appeal to the younger and upcoming consumer market. In this way, it successfully maintains a 'cool' edge that ensures the brand stays at top of mind among target audiences.What segmentation strategy does Pepsi use? ›
PepsiCo uses multi-segment type of positioning and accordingly, it targets more than one customer segment at the same time with different products or service packages.Who is Nike target market? ›
Although with apparel and sports the market can be broad, for the most part Nike primarily targets consumers who are between the ages of 15-40. The company caters to both men and women athletes equally, and is placing an increasing focus on tweens and teens to build long-term brand loyalty.
An important example of behavioral segmentation is customer loyalty. As a brand, you shouldn't overlook the customers who exhibit loyal behavior to your business. A popular method marketers leverage to spread loyalty among customers is establishing a rewards program.What is an example of gender segmentation? ›
For example, Nike as a sportswear company has separate portfolio for both male as well as female. As a company, Nike will have to come out with different strategies to market products differently for male and female. The company even has to create a separate segment for both men and women in the showroom itself.What companies use behavioral segmentation? ›
Starbucks uses behavioral segmentation to target their regular morning customers with an incentive to get them back in for another purchase later in the day.
Netflix is distinctly more popular with younger consumers in the United States than with older generations. According to the findings of a recent survey, around 75 percent of respondents aged 18 to 34 subscribed to Netflix as of mid-2021, compared to just 44 percent of those aged 65 or above.What is psychographic segmentation of Netflix? ›
Netflix Psychographic Segmentation
Netflix aims to appeal to a wide range of psychographic segmentations, reflected in the broad content streamed on the platform, from kids entertainment, to documentaries, rom coms, action movies and comedy.
Apple's target audience consists of middle-class and upper-class users who can pay higher for products that provide them with an incredible user experience. This means that these users have a higher disposable income and are willing to pay more for as high-priced products as Apple's.How does Gucci use market segmentation? ›
Gucci mainly segments customers by age and gender. Those who are rich or (upper) middle class enjoy the lifestyle represented by Gucci. Gucci is suitable for those who want to be considered fashionable and luxurious.How does Louis Vuitton use segmentation? ›
Market Segmentation of Louis Vuitton
Louis Vuitton divides their customer base into demographic groups based on age, gender, and disposable income. Louis Vuitton specifically targets women aged 18 to 54 with high yearly salaries of $75,000 or more, indicating considerable discretionary money.
Geographic Segmentation Example — McDonald's
The fast-food chain divides its target markets into segments by country, region, and cities, then customizes the menu by local preferences. These different market segments have very different preferences and McDonald's does an excellent job of localizing its products.
Market segmentation is one of the best ways to understand your audience. It refers to the process of dividing consumers into distinct categories based on aspects such as age, gender, physical location, income, ethics, priorities, aspirations, values, family size, or anything else that's relevant to your brand.How is segmentation done in real time? ›
Real-time Segmentation operates against streaming data as the data arrives into Treasure Data in real-time. The advantage of Real-time Segmentation is that it can be used to create segments from even the most recent actions taken by someone on your website, including visitors coming to your website for the first time.What is Starbucks customer segmentation? ›
The market segmentation of Starbucks is typically divided into four variables - demographic, geographic, behavioral, and psychographic. These variables will be the basis for specifying a company's target market.What is the segmentation of Nestle? ›
Nestlé's client segmentation is based on age, gender, income, and educational attainment. Nestlé never provides the same product to people of various ages. It provides milo for youngsters and coffee for adults, for example.
Companies that use psychographic segmentation successfully. Starbucks is a big fan of psychographic segmentation, and this largely defines their relatability as a brand. For example, they have the, “Non-coffee drinkers who still want to socialize” (catered too by selling frappuccinos and sandwiches in-stores), and the.Is Coca Cola a geographic segmentation? ›
The Coca-Cola Company's operational structure includes four geographic operating segments: Europe, Middle East & Africa; Latin America; North America; and Asia Pacific. The company reporting structure also includes the non-geographic segments of Global Ventures and Bottling Investments Group (BIG).What is geographic segmentation in KFC? ›
It is division of the market into different geographical units, for example states, nations, regions, cities, countries, or neighborhood. KFC deals internationally and has number of outlets in various countries.
Geographic Segmentation: Apple's retail stores are located in highly populated cities around the world. Global presence, with online presence/ official websites in 88 countries. Demographic Segmentation: Ages 14 - 55, students and business professionals, etc.What is Chick Fil A psychographics? ›
The typical Chick-fil-A customer is white and between 45 and 54 years old, according to data provided by analytics firm Numerator. These customers tend to be either adult couples, or large, young families. They likely live in the suburbs, with a high income and a full-time job.What is loyalty segmentation examples? ›
The most common examples of customer loyalty segmentation can be reflected in the travel industry which regularly promotes frequent flier programs and the finance industry who offer rewards for big-spending platinum credit card members.What is an example of a food segmentation? ›
Segmentation by Cuisine
Both restaurants and commercial food companies can choose to identify themselves as belonging to a particular genre. For example, a quick service restaurant might segment itself by whether it serves burgers, chicken, Mexican food, pizza, sandwiches or other foods common in that industry.
In the U.S., the coffee market has been segmented into two major categories: mass-market and specialty coffees. Mass-Market: Mainly lower-priced product sold through grocery retail outlets and convenience stores.How do hotels use market segmentation? ›
Hotel market segmentation is the process of grouping hotel guests into categories based on their booking patterns and travel habits. By segmenting hotel guests into market groups, hoteliers are able to identify where their business is coming from, spot new business in the area, and drive hotel revenue.What is market segment in hotel industry? ›
Hotel market segmentation is the process of grouping hotel guests into categories based on their booking patterns and travel habits. By segmenting hotel guests into market groups, hoteliers are able to identify where their business is coming from, spot new business in the area, and drive hotel revenue.
Psychographics: This includes factors like interests, beliefs, hobbies, etc. These factors allow restaurant owners to recognize people with similar interests to what their restaurant is offering. For example, A sports cafe can identify and segment people who love sports, making it easier to find their target customers.What is segment in food industry? ›
The foodservice industry is divided by segments including full service, quick service, eating and drinking and retail host. Everything from fine dining in a restaurant to midday meal services at schools all fall under the umbrella of the food service industry.Who is Wendy's target market? ›
Wendy's target customers are mainly young people and millennials. By manufacturing the most suitable products for this group of people, Wendy's successfully increased its customer base and realized sustainable growth.What is Alibaba segmentation? ›
Segmentation is a process of categorizing customers into several groups based on common characteristics. We can use many variables to segment our customers. The information such as customer demographic, geographic, psychographic, technographic, and behavioral are often used as a differentiator to segment our customers.How are breakfast foods segmented? ›
Breakfast Food Industry Segments
The breakfast food market is segmented by product type, distribution channel, and geography. Based on product type, the market is segmented into cereals, beverages, snack bars, ready meals, and other product types.
Segmentation variables refer to the factors marketers use to categorize their audience into different groups. The 4 main types of segmentation variables include demographic, geographic, psychographic, and behavioral traits.What are the 4 types of target market? ›
The four target markets are geographic, demographic, psychographic, and behavioral.What is target market segmentation examples? ›
Dividing a target market into segments means grouping the population according to the key characteristics that drive their spending decisions. Some of these are gender, age, income level, race, education level, religion, marital status, and geographic location.What are the four segmentation alternatives list and explain? ›
Marketers choose among four basic segmentation alternatives: mass marketing, market segmentation, niche marketing, and direct (one-to-one or individual) marketing. Depending on the size of an organization and the resources available, an organization may employ several of these alternatives at one time.What are the examples of geographic segmentation? ›
- Location (country, state, city, ZIP code)
- Climate and season.
- Cultural preferences.
- Population type and density (urban, suburban, exurban or rural)
The four broad bases of segmentation are demographic, geographic, psychographic, and behavioral. Specific variables within each segmentation base can be used to segment the market.What are the 4 steps of market segmentation? ›
The process of market segmentation consists of 5 steps: 1) group potential buyers into segments; 2) group products into categories; 3) develop market-product grid and estimate market sizes; 4) select target markets; and 5) take marketing actions to reach target markets.What type of market segmentation strategy is used by Disney? ›
Disney Psychographic Segmentation
This is evident in Disney's wide range of entertainment content and merchandise, from classic Donald Duck to Disney Princesses, Marvel superheroes and Star Wars.
Small businesses often target customers by gender or age. For example, a women's clothing retailer directs its promotional efforts at women. Conversely, a large and tall men's shop focuses its marketing efforts on tall and heavier men. Similarly, some small companies market to specific age groups.What is target market strategy example? ›
Targeting a specific group of customers based on their purchasing behaviors can be an effective strategy for growing sales. For example, a business might decide to target customers who leave items in an online shopping cart for a period of time before buying a product.What is the most common segmentation method? ›
Demographic segmentation variables are among the most popular bases for segmenting customer groups because demographic data are plentiful and customer wants and needs often link closely to these variables.What is the geographic segmentation? ›
Geographic segmentation is a component that competently complements a marketing strategy to target products or services on the basis of where their consumers reside. Division in terms of countries, states, regions, cities, colleges or Areas is done to understand the audience and market a product/service accordingly.How do you use behavioral segmentation? ›
- Understand how to address the particular needs and desires of customer groups.
- Tailor your product or service to meet those needs and desires.
- Discover opportunities to optimize the buyer's journey.
- Quantify their potential value to your business.