Companies need stronger, faster, and cheaper insights. But how can an insights or marketing team divide their customer base up more precisely to accomplish this task?

Cue, market segmentation.

While groups-based and market-based divisions are useful, segments-based personas will present your team with the strongest data. When defining a target market for your product, each customer is identified by their traits and habits. This informs your main customer personas.

Let's dive into these five types of market segmentation strategies your team can use to unlock employee and consumer insights.

In this guide, you'll learn:

1. The Definition of Market Segmentation

2. Why Market Segmentation is Important

3. How to Conduct Market Segmentation

4. Five Types of Market Segmentation & Segmentation Variables

5. Common Mistakes to Avoid

6. Using Segmentation for Targeting and Positioning Products

What is Market Segmentation?

Market segmentation enables a business to conduct strong market research into customers. It reveals customer experience insights, product development innovation approaches, suggestions for boosting customer loyalty, and more. 

Why is Market Segmentation Important?

A growing customer base paves the way for growing companies. Expanding customer bases makes room for developments in your product. Then, it’s up to your company’s marketing and sales team to break down your customer base into smaller segments. Product teams can also break your customer base into user personas - a strategy that’s customer-centric at its core.

When delivering a product to a growing audience, it can be easy for messages to become lost. As customer interest increases, customer preferences become broader and the demands of the market can become more diverse. 

Overall, marketing segmentation reduces the risk of your marketing campaign strategy losing relevance to customers.

How is Market Segmentation Done?

Market segmentation can be split into four distinct stages within a larger market research method. This is separate from the segmentation divides themselves.

What is the purpose of this market segmentation process? Identify variables of customer segmentation, then develop a hypothesis based on those findings.

Establish a research design, collect data, analyze the results, and develop your segments. This step will validate or disprove your hypothesis in part.

3. Evaluate the target segment

There are a number of potential customers to choose from. For the purpose of segmentation, you must choose your most viable option and move your product forward from there. 

Think of this step as a service to your future customer base. Identify the most specific use case, and your company will be able to offer a more personalized product or service. Think of your company as a resource, not a selling point.

Select your target segment and identify the implications of this segment or persona. Make moves based on target segment, project goals, and product status.

Identify key stakeholders, ideate and communicate the launch plan internally, then execute the project using your target segments.

What are the Types of Market Segmentation?

Your customers have many unique traits. However, they’re all tied together by one thing: your product. There are several ways to break down your customer profile into segments, and each type of segment has a unique purpose. 

In this next section, we'll explore the bases of market segmentation and the classification-based divisions that can be made.

1. Psychographic Segmentation: A Customer’s Lifestyle 

Psychographics are a type of customer segmentation that focus on inner or qualitative traits. Psychographic segmentation variables can include:

• habits
• hobbies, activities, or interests
• values or opinions
• personality or attitude
• lifestyle
• social status

Psychographic attributes are the ones that aren’t obvious just by looking at your customer, like demographic segmentation. Instead, psychographics require deeper analysis.

By defining a customer persona this way, you’ll be more equipped to tailor your marketing strategies. And, you’ll appeal to their tastes. 

Defining Brand Personality Traits Through Psychographic Segmentation

Psychographic segmentation is used to develop a “brand personality,” or brand personification. In other words, the personality traits that your brand exemplifies. 

For example, let’s say your insights team discovers your customer base purchases a new type of running shoe every year. Your market research team also knows that people who are interested in new running shoes value high energy and independence. 

Then, you can use that finding as a feature in your brand style. This could help sell other products related to fitness under those same traits. For example, your commercials might be fast-paced and emphasize the strength of the individual. 

There are a few ways to collect demographics...

1. Interviewing existing clients

Depending on your relationship with a customer, you can more or less ask them directly about their consumer habits. Some quantitative feedback questions might sound like:

• How likely are you to purchase Company X’s sneaker again? 
• If you like Sneaker X, would you try Hoodie Y from the same company? 

If you’re running out of ideas, you might start looking into some unusual places to collect customer feedback. Or, you might begin investigate into potential customers you're not currently interviewing.

When you ask qualitative questions, you can discover meaningful insights about your customers. These questions might sound like:

• What do you enjoy about running? 
• Walk me through your running routine.

These questions lead to further insights into a customer’s lifestyle. These questions, especially when asked to larger groups of people, are typically asked by creating a survey. However, online focus groups are becoming increasingly popular customer feedback tools, as well.

2. Observing customer data 

This type of psychographic probe is more low key, and becoming increasingly efficient with the advancement of A.I. technologies. For companies studying consumers, A.I. systems have allowed for a deeper understanding of consumer insights. 

Some questions to consider:

• Where are your consumers on the internet? 
• How can you use their Instagram or Pinterest clicks to better market your products? 

Analyzing your customer’s social media and digital habits will enable you to optimize your product marketing strategy. An increasingly popular example of this method in play is coming with the rise of voice technology.  

Voice search is an essential asset in psychographic segmentation. Customers use devices like Google Home or Amazon’s Alexa to discuss personal preferences, interests, and other potentially sensitive data. Now, consumer data is available for companies to sculpt customer profiles. 

With this access to detailed customer information comes some concerns over data privacy and the ethical corporate use of it. Some risks can include:

• Data exploitation
• Identity tracking
• Voice and facial recognition

Without consent and transparency, this data could easily make consumers less inclined to share their information with brands. If used responsibly, these technologies can create a fully tailored consumer marketplace, speed up efficiency, and increase time to market. 

2. Demographic Segmentation: A Customer’s Profile

Demographics are the breakdown of your customer personas in the market for cursory traits like age or gender. These traits offer basic information on your customers, and are often considered one of the more broad segmentation types. Examples of demographic segmentation include age, income, family size, education, or gender.

Dive into these segments to cut down on time and resources to understand your target audience. Or, tap into potential customers that have yet to be honed in on. Demographics are generally less invasive to collect than other segmentation types.

Other demographic segmentation variables can include:

• Occupation
• Marital status
• Political party status 
• Race
• Religion
• Living status (if your subject is a homeowner or renter)

3. Behavioral Segmentation: A Customer’s Choices

Behavioral segmentation digs deeper into customer habits than demographic segmentation. It’s also one of the most popular customer profile types to be integrated into a marketing plan.

This type of segmentation is comprised of behavior patterns, like customer loyalty or engagement level. This is specific to customer interactions with a brand or company. Other behavioral segmentation variables can include:

• benefit sought from product or service
• readiness to buy or purchase
• usage-based segmentation

Behavioral segmentation is used to gain insights into customer experience, allowing for improvements in customer success. Some questions to consider:

• How engaged are your customers throughout the buyer’s journey? 
• What specific trends in timing or occasion do your customers tend to prefer your products? 
• How much time are your customers spending in the buyer’s process? 

Behavioral segmentation is also used for marketers to determine future customer leads. It’s also used in determining which prospects in the market are more likely to purchase your product.

Similar to psychographics, behavioral segments are primarily collected based on a customer’s digital footprint. New improvements in technology compile metadata from customers in order to better understand their preferences. 

4. Geographic Segmentation: A Customer’s Home

Geographics are the study of your customer based on their physical location, which can effect more physical interactions in the market. Customers grouped together in similar locations may share similar preferences. This makes them an ideal aspect to consider when determining how to group your consumers. 

Geographic segmentation variables can include:

• city
• state
• country
• population density
• economic status
• zip code
• regional climate 

For example, consider a company that is advertising a subscription model lawn care service. The company would likely be more successful in targeting a suburban area where residents need extra yard care. The campaign would be less successful in an urban area, where customers might be more interested in a food delivery service.

Studying customer geography can also help target search results in your customers’ region.

5. Firmographic Segmentation: The Customer’s Company

Firmographics are used to describe the attributes of firms or businesses. Put simply, firmographics are to firms and investors as demographics are to people. Companies can use this type of segmentation to determine whether or not a smaller firm is apt for an investment.

With millions of firms across the globe, businesses can use firmographics to identify prospects based on size, scale, and funding. Firms can also be broken down into sections of:

• non-profits
• businesses
• governmental entities
• agencies
• small-retail shops
• independent contractors

Investing in a smaller firm or company always comes with a risk. Therefore, investors have to be precise in segmenting venture opps in order to minimize that risk. 

Segmentation variables for firms typically include things related to a smaller company’s potential. For example, before investing in a new application, venture capital firms look for company strengths. These can include things like the vision of the executive team or the product’s target market.

Other firmographic segmentation variables can include:

• performance and annual revenue
• average sales cycle
• size and employee population
• ownership (public, private, government, etc.)
• organizational trends

Common Segmentation Mistakes to Avoid

Once you’ve created segments, keep an eye out for common mistakes that marketers and researchers make. 

Making your segments too small or specialized
Segments that are too small will be more difficult to organize or inaccurate, and they can distract from your objective. Like sample size, an over-segmented group can yield data that is not statistically or directionally significant.


Not allowing your segments to change
Stay focused on ROI. If your strategy isn’t working efficiently for your business, it may be time to switch things around. 

Ignoring new potential personas   Customer profiles change. Don’t get too attached to your segments, as they will evolve with the market.

Types of Marketing Segmentation Strategies

Targeting and Positioning

Targeting and positioning are the next steps in the roadmap following market segmentation. In order to evaluate the potential commercial value of a segment, use these strategies to evaluate the following criteria:

• Market Size. The market share for that segment must be large enough to justify spend. 
• Segment Differences. What’s different about each segment, and what is the value of those differences? Is one segment distinct from the others?
• Profit vs Spend. The segment must return on the budget allocated for a campaign or project. 
• Accessibility of Segment: Is the segment available to your team? If not, how can your brand overcome the barriers to that segment

After settling on a target segment, move on to product positioning, which presents the benefits of your product to the chosen target segment. A simple way to evaluate your best positioning opportunities is to map them out. 

Follow these steps to create a simple product positioning map:

1. Define “hot buttons” or customer feedback trends about your product through surveys or focus groups
2. Ask your customers to rate competitor products based on that given feedback criteria
3. Place your product and competitor products on a scatter plot and evaluate the gaps
   

Summing Up Market Segmentation 

Whether it’s conducting an interview or writing a survey, the next phase of your research can sometimes be unclear.

When collecting massive amounts of segmentation data, keep the greater brand or marketing in mind. Rather than relying on one or two sole strategies to characterize your customer segments, combine the efforts of multiple strategies. For researchers, this allows for a more complete perspective on target customers.

Marketing segmentation allows companies to define and optimize future products and advertising your product to customers in the future.

So you’ve segmented your customers, but how are you organizing their thoughts?