What is Market Segmentation? A Comprehensive Guide for 2023

In a competitive world filled with choices, market segmentation is the key to understanding the diverse needs of your customers and targeting the right audience with the message around your product. It is a simple yet powerful marketing approach that allows brands to cater to their target audience and reap long-term benefits. That makes it important to understand exactly what marketing segmentation is, and why you should care about it. In this guide, we will take you through everything you need to know about marketing segmentation – benefits, examples, types, objectives, and levels – to help you find efficient ways of targeting your products and services.

What is Market Segmentation?

It is the process of dividing the target market into smaller groups. These segments enable companies to get a better understanding of their target audience. They can be segmented on similar characteristics such as interests, needs, location, demographics, priorities, and personality traits. This exercise helps brands create marketing strategies, advertising, and sales, and further optimise their products.

Benefits of Market Segmentation

• Efficient targeted digital advertising: Allows companies to create better-target advertising according to age, interests, location, and spending patterns, among other things.

• Creating clear and specific marketing messages: Marketing segmentation helps companies understand the needs and expectations of their targeted group; this lets them communicate directly with their target audience.
• Effective marketing efforts: Understanding the target audience can help companies develop marketing strategies that clients will be more responsive to.
• Attracting potential customers: Direct marketing messages enable companies to reach out to the right clientele and potentially convert them into customers.
• Increasing profits: The process can save time, resources, and money in marketing campaigns, and ultimately enhance a business’s profitability.
• Differentiate from the competition: Clear marketing messages can make the brand stand out in the market.
• Increasing brand loyalty: Understanding the target customers can help companies connect with their clients and build brand loyalty.

Also Read:  Marketing Funnel- Complete guide on how to build one

Examples of Market Segmentation

• Local sales: For local events like sales, market segmentation can be done based on the location of the customers. This can be used to create local marketing promotions.
• Anti-aging beauty products: The anti-aging beauty products can be done based on the gender and age of the customers. 
• Sports brand: Sports brands can be segmented based on sportsmen, sportswomen, athletes, and gym lovers. 
• OTT streaming service: OTT streaming services can segment their market based on child versus adult content. 

Objectives of Market Segmentation

• To identify the needs, priorities, buying motives, and preferences of the customers.
• To make a customer orientation approach for the company.
• To define marketing goals, targets, and strategies.
• To identify areas for potential customers.

Importance of Market Segmentation

It allows companies to tailor their services, products, or marketing to the specific needs of their target group. Without this, brands develop one strategy for all target markets—this leads to wasted marketing efforts. Knowing the customer ensures that the company consistently resonates with them, resulting in profits, retaining customers, and improving brand loyalty. 

Types of Market Segmentation

So far, we have covered what market segmentation is, its importance, and examples. Let’s understand the different types of market segmentation: 

• Demographic Segmentation

Demographic segmentation divides customer demographics on the basis of age, income, gender, nationality, education, and race, among other parameters.  

• Geographic Segmentation

This groups customers based on geographical boundaries. It assumes that customers in the same area can have similar interests and requirements.

• Behavioural Segmentation

This relies on the customer’s reaction, purchasing process, and decision-making. Here customers are grouped based on their market interaction to develop personalised, targeted strategies.

• Psychographic Segmentation

This process segments groups based on the customers’ lifestyle, political opinions, personal values, aspirations, and psychological characteristics. Data for this segmentation can be hard to identify; however, it produces excellent results.

• Firmographic Segmentation

Firmographic segmentation groups customers based on shared company attributes. It considers factors such as company size, status, industry, locations, and the number of employees. 

Levels of Market Segmentation

• Mass marketing: Markets one product for the entire market.

• Segment marketing: Divides the entire market into different segments based on factors such as gender, behaviour, and location.
• Niche marketing: A very narrow customer segment with a highly specialised level of marketing.
• Local marketing: Focuses on local markets to reach customers.
• Individual marketing: Brands focus on individual customers through direct marketing.

The Best Market Segmentation Strategy

Developing segmentation strategies include targeting the audience based on parameters such as age, geography, or income. The best marketing strategy should focus on various, overlapping, or specific segments, and should be created separately for each marketing segment.

Advantages of Market Segmentation

Segmentation is becoming an important issue amongst market research companies in India. To have a better understanding of the advantages of market segmentation in India, we have listed some of the compelling benefits:

• Business Growth

It provides informative insights into several markets and all the new products that businesses can sell to satisfy customer requirements. Besides, it can uncover niche markets with a customer database that can potentially become new revenue sources and product development opportunities. In a nutshell, it provides a scope to businesses for expanding into new venues.

• Effective Marketing

Market segmentation helps in adding both focus and strength to marketing efforts. Furthermore, it provides actionable information to businesses regarding specific customers. And this enables them to speak directly to their customers only to better understand their needs. Thus, this will allow them to retain their business.

• Lower Expense

Segmented and concise information regarding a customer base eliminates the requirement for revising a market strategy. Besides, it also removes the need for greater efficiency in translating a company’s messages to its target audience. So, with lower expenses, you will have more time and funds to focus on all other aspects of the business.

• Enhanced Customer Experience

The customer segments who think that a company understands and addresses their needs through its services are more likely to exhibit brand loyalty. Market segmentation can eventually increase customer satisfaction, thereby leading to prolonged customer retention.

Drawbacks of Market Segmentation

• Market segmentation can sometimes become an expensive proposition.
• Producing products for each specific segment is not feasible. 
• A company has to create different channels and services for each segment.
• Targeting small market segments can lead to unprofitable goals.
• Marketing for each segment can also become expensive. 

Build a Career in Marketing

Understanding your target customer is the most critical aspect of every business; it can significantly impact your business growth. If you want to have a better understanding of what market segmentation is and learn how to develop successful marketing strategies, check out the online digital marketing courses on Emeritus to build those skills.