Market segmentation is the categorisation of existing and potential consumers based on common characteristics such as interests, needs and wants. Effectively utilising segmentation enables brands to optimise both marketing functions and customer experience. Market segmentation, although potentially financially difficult, fundamentally promotes cost-effective and efficient communication. Beyond this, effectively segmenting markets will help inform and focus the overall strategic direction of brands as businesses. The fundamental aim of market segmentation is to enable brands to better position and target their products or services. There are four main types and categories of segmentation:
Demographic segmentation is the fundamental basis of the segmentation and considered the simplest and most inexpensive type of segmentation. Demographic segmentation sub-divides a group of the general population based on groupings such as age, gender, occupation and income etc. Collation and analysis of demographic segmentation is fundamentally cost-effective and accessible.
There are not substantive barriers to conducting this form of segmentation for organisations small marketing budgets. However, relying solely on this form of segmentation is a flawed approach as it is also considered imprecise and oversimplified. This stems from a lack of emphasis and focuses on individual wants and needs. As such businesses need to use demographic segmentation as a building block and not a sole pillar.
Geographic segmentation is the segmentation based on consumer geography. Interlinked with the geographic aspects of demographic segmentation, these elements are consolidated and further streamlined, becoming geo-demographics. This form of segmentation is generally considered to be objective and specific. At its core, it considers the geographic distinctions of populations and their preferences and consumption.
Analysing and then contrasting different geographic areas and the nature of their consumption forms the basis of this approach. There is a consensus for the areas of geography considered – continental, nationwide, citywide then urban, suburban, rural etc and can become as focused for example postcode.
Geographic segmentation provides a textured understanding of where existing and potential consumers live and the nature of their consumption. Businesses deploy these informational findings to factor into decision making concerning recruitment, advertising and retail locations. Geographic segmentation extends to providing the basis of understanding linguistic distinctions in regions and areas which is fundamental to providing clear, appropriate and relevant communication to varying populations.
Behavioural segmentation segments consumers based on their behaviour through the metrics of usage, consumption, purchasing habits and ownership. This segmentation examines and utilises an understanding of consumers in store and digital footprint and behaviour.
This information collation is easily facilitated by digital tools and analysed through, for example, Google Analytics. This information can also be obtained through electronic point of sales systems, quick response codes, standard product codes and integrated purchasing systems.
This forms the basis of the profession of consumer purchase and transactional data. The collation of this data and its analysis allows businesses to make recommendations and offerings that will more likely appeal with particular market segments.
Fundamental to this and facilitated by this analysis is the monitoring of regional patterns and trends.This then informs both strategic decision-making concerning product/service provision and offering as well as strategic marketing decision making and resource allocation.
Behavioural segmentation also allows businesses to identify the frequency and monetary value of individual purchases, enabling them to identify profitable market segments to target. Social media also allows businesses to monitor and track what consumers are saying about their products’ service.
This allows businesses to gain an insight into customer perceptions and enables these organisations to alter how they communicate with consumers accordingly. Digital and electronic tools and algorithms enable businesses to identify dwell time, bounce rate and instore actions. This enables brands to redesign and/or refocus websites and digital promotions, streamlining offerings and content with a focus on relevant demographics.
Optimised user experience both digital and in-store is only possible through a focus on personalised content and experience. Personalised content and experience are created by and contingent on behavioural segmentation.
Psychographic segmentation is fundamentally concerned with the benefits sought in the consumption choices and behaviour in consumers. There is an emphasis on understanding attitudes and perceptions about products, industries and culture. This form of segmentation is also grounded in psychographics and consumer lifestyles.
Psychographics is concerned with the analysis of consumer’s activities, interests and opinions. Psychographics provides a personalised understanding of existing and potential consumers and it allows brands to put similar consumers into relevant categories. General motivations of consumers towards a range of issues are considered to understand what influences the purchasing process.
Brands must focus on what they want to know, so they can deploy this qualitative information effectively. Relevant information then forms the basis of targeted communication directed at assigned segments. Deploying psychographic findings in strategic marketing functions provide personalised insight into consumers, understanding their likes and dislikes, their cultural identity and fundamentally the overall determining factors of the consumers purchasing process.
Summary of Market Segmentation
Market segmentation is multi-faceted and staged. Demographic segmentation provides a useful but basic inside into consumers. It is an important starting point, but this inexpensive form of segmentation shouldn’t be used in isolation as fundamentally it doesn’t provide a textured insight into consumers.
Geographic segmentation is also crucial and a fundamental building block but doesn’t please emphasis on understanding consumers as individuals and as such doesn’t provide as useful information as less accessible segmentation. In contrast, behavioural segmentation provides a personalised and in-depth insight into consumers as individuals.
While psychological segmentation provides the multifaceted insight into consumers as individuals within a society. it is this understanding that separates highly effective marketing campaigns and functions from those that are generalised and sub-optimal. Segmentation is fundamentally concerned with achieving optimised content and experience alongside hyper-targeted effective communication that achieves optimal results.