Five bases for market segmentation

Why is this market segmentation necessary? Simply put, your marketing messages will land better when they’re tailored for different audiences. When you segment your customer base you’ll have the foundation for creating highly targeted marketing campaigns that will resonate with different groupings. 

In this article, we’ll give you an overview of why market segmentation is important and discuss 5 crucial bases of market segmentation that you’ll need to think about when segmenting your market. 

But first, let's dig a little deeper into the importance of conducting market segmentation. The goal of market segmentation is to develop detailed profiles of different categories of consumers. Once you’ve done that, you’ll be able to realize a wealth of benefits that could make a direct contribution to your bottom line:

Market segmentation is the key to business success is to get to know your customers at a deep level. Only then will you know what they really desire and what needs are currently unmet—putting you in an excellent position to be able to satisfy them.

Through the use of market segmentation, you can develop new products and enhance existing ones in a way that is cost effective and has the potential to maximize returns. Distilling your market into different segments and identifying their specific needs will help your product development team to create products that satisfy different segments’ pain points.

Often, businesses that undertake market segmentation find entirely new markets to serve. For instance, after low-carb diets became popular, manufacturers of ketone strips—test strips designed to alert people with diabetes to medical issues—soon found they had an entirely new segment to serve. Conducting market segmentation research will help you recognize new opportunities and untapped markets.

Insights gleaned from market segmentation research can help you to develop highly effective marketing campaigns that have impact. In this way, you can optimize media spend, and improve the cost-effectiveness of your marketing campaigns.

These are just a few of the advantages of market segmentation. For a deeper dive, take a look at one of our recent articles about how to reach your target market. 

There are many different ways to segment markets. Let’s look in more detail at five of the most common bases of segmentation. 

Psychographic segmentation divides people into groups based on unobservable aspects of their psychology, such as their personalities, lifestyle, social status, activities, interests, opinions and attitudes. In other words, it’s a way of categorizing customers on the basis of how they think, how they consider themselves, and what they aspire their life to be like. These aspects are important because they have a major influence on buying behaviors and consumption habits. 

Let's take a look at some examples of psychographic traits, and why they might be of value for your segmentation activities. 

Examples of psychographic segmentation include: 

Are you an ISTJ, an ESFP or an ENFJ? Knowing your customers’ Myers-Briggs types could actually be surprisingly useful information. Of course, Myers-Briggs isn’t the only way to understand different personality types. The point is that different personalities have different approaches to shopping and consumption. For instance, if you’re marketing vegetarian foods, it would be worthwhile to know how many customers consider themselves to be idealistic and values-driven, and how many would describe themselves as pragmatic and flexible. 

These two categories of customers are likely buying vegetarian food for very different reasons: the former are probably very loyal customers, while the latter might be occasional buyers. 

Even where customers share personality types, they might have very different attitudes towards things. For example, some vegetarians might have a strong belief in the importance of shopping locally, while others don’t have a strong opinion about it. Understanding attitudes can help you to craft products, services and marketing messages that are right for that audience.

Gathering data about your customers’ interests, hobbies and the types of activities they tend to get involved in will tell you a lot about your customers. Asking customers about their preferred sports teams, how they keep themselves entertained or what they tend to do at the weekends will give you crucial insight that will help you in executing successful advertising and customer acquisition campaigns.

Social status is the position that people hold, or aspire to hold in society. For instance, many female consumers in lower socioeconomic categories will own at least one luxury purse, which reflects an aspirational psychological state.

Demographic segmentation involves identifying consumers on the basis of their ascribed and inherited characteristics such as their age and gender, and is probably one of the most common bases of segmentation. That’s because, as we’ll see next, people with common characteristics tend to have similar characteristics that influence their purchasing decisions and habits.

Some of the demographic traits you can use to segment your market include:

A common way to segment your customers is on the basis of their age, which has a heavy influence on their preferences—and should therefore impact your marketing activities. For example, streaming services market reality television to younger audiences and certain categories of lifestyle content to older people. Another way to think about segmenting by age is generational segmentation. For instance,   Baby Boomers (those who were born after the Second World War tend to have high spending power while Generation Y, or Millennials tend to be more technologically advanced and more globally minded. 

It is often worthwhile knowing the gender breakdown of your market since people of different genders often have different needs. However, make sure that segmenting by gender is meaningful. As Bic found when the pink pens they designed for women failed to resonate with that target audience, the demand for certain products does not necessarily vary by gender.

This is important for two reasons. First, there’s a link between occupation and income, which has knock-on effects on things like demand, average spend, and purchasing habits. Second, people in different occupations desire different goods. For instance, graphic designers and artists tend to need more powerful laptops than people who use computers for word processing jobs.

There are major differences in buying behavior among higher and lower income people so this is a key basis of segmentation. However, you should also think about segmenting on the basis of individual income, as well as household level income, depending on the types of products and services that you sell.

Level of education shapes buying behaviors considerably. For example, people with higher levels of education may scrutinize marketing messages more carefully. It's common, when using market research surveys to capture the data used for segmentation, to ask a question about the highest level of education respondents have achieved, or the number of years of schooling completed.

So, as you can see, there are many different ways that demographic segmentation can be performed. 

Behavioral segmentation describes consumers’ behaviors throughout the purchasing journey,  such as what they want, why they want it, the benefits they’re looking for, and how they try to meet their needs.  For instance, some consumers exhibit a greater tendency to be loyal towards retailers, while others are more willing to shop around. Knowing your customers’ behaviors will help you cultivate successful strategies that can really drive sales. Let’s take a look at some specific examples.

You might think that the purchase itself is the most important part of the buying process, but being able to distinguish between customers on the basis of purchasing reasons means that you’ll have the information you need to ensure needs are met and to drive future purchases. For instance, in 2007, after Dunkin’ Donuts realized that their customers wanted to take their coffee home with them, they struck up a deal with thousands of grocery stores nationwide to sell their coffee bean in packages.

When customers purchase is just as important as what they purchase if you are to create marketing activities that have impact. For example, supermarkets know that some grocery shoppers purposely shop late in order to hunt for bargains—that’s why they sell off soon-to-expire products at low prices right before closing time.

Different categories of consumers seek out different features and benefits from the products that they buy. Some people who buy televisions are looking for high resolution, some are seeking a large screen size, while others might be looking for a compact TV. Each of these segments should be served with different product lines.

Marketing professionals often use the term customer involvement to describe different levels of engagement that consumers exhibit in the buying process. This describes the amount of physical and mental effort that a consumer puts into a buying decision. Think about vacationers booking a hotel. Some will spend weeks scouring for the best deals, and comparing hotel facilities, location and room types. Others will quickly secure a reservation at the most central place they can find. Knowing the difference will have a major impact on your ability to turn customer searches into sales.

Geographic segmentation is segmenting people based on where they live, work or travel. For some companies, such as those that sell high value goods online, geographical traits may be relatively unimportant. However, if you serve local markets, it's important to know exactly where your customers are in order to best reach them.

Examples of geographic segmentation include:

 If you serve a global market, you should definitely segment by country, since this will have an impact on things like the languages you should use in your marketing materials, and the need to cater to local tastes. McDonald’s is a great example of a company that segments by country. Its Japanese outlets serve Teriyaki burgers, for instance, while in India, beef is not on the menu at all.

Segmenting customers by state location will also help you best serve their interests. For example, customers of a nationwide gym that are based in sunny California will probably get a lot of value out of an outdoor pool. Customers in North Dakota?  Not so much.

Even if you only serve customers in a single state, geographical segmentation at the level of the city might be of use. Electric scooters are a great example—their popularity is highest in metropolitan areas that are less served by public transport.

Finally, segmenting by neighborhood is crucial for highly localized businesses like food delivery apps and gardening services.

The first four bases of segmentation all describe traits of individuals—handy for firms serving consumer markets. But, what if you’re following a B2B model?  Firmographic segmentation explains business target market characteristics and is used to segment business markets. In other words: what demographics are to people, firmographics are to businesses. 

The types of firmographic traits you should use to segment a business market really depends upon the types of businesses you serve. However, you might want to consider the following factors:

Some companies serve businesses in just one or two industries, but if you serve a diverse range of businesses, industry classification will be important. Think of  the customers of a security services company: the security needs of a retail store and a tech business are likely to be very different indeed.

This is important because it impacts who makes decisions in the company. When trying to sell to another company, you’ll need to pinpoint the decision maker. So, it's a good idea to distinguish between sole proprietors, LLCs and other types of business on the basis of ownership status. 

Legal status has an impact on things like: how profits can be used, what types of goods can be purchased (and not purchased) and degree of capitalization. These will all shape buying and consumption habits. Consider categorizing your business market into non-profits, for-profit business, government agencies, independent contractors, and the like.

Companies of different sizes have different needs. The IT support needs of a company of 500 workers is going to be vastly different from the needs of a one-woman-band, so segment accordingly. 

So, understanding differences in consumer characteristics, marketing professionals will be able to better understand consumers’ different needs and preferences. This allows the marketing strategy and marketing mix to be tailored in such a way as to meet their specific needs. If you’re ready to do some market segmentation and easily find your ideal consumer segments, start here. Or, if you want to discover even more about market segmentation, read one of our latest guides about how to reach your ideal target market and segmentation.