Market segmentations can be powerful tools for companies, big and small. By tailoring your strategy based on the needs of your key customer segments, you can better appeal to the customers that matter most. But how do you segment your audience, and what are the different forms of segmentation you can use?

Market segmentation is a crucial strategy for businesses to target and cater to specific customer groups effectively. Behavioral data, purchase, and customer behavior determine market segments. By understanding customer behavior and purchase decisions, businesses can create personalized experiences, retain loyal customers, and effectively reach their target audience. Various types of behavioral segmentation can be employed to achieve these goals.

Purchase Behavior: Analyzing purchase behavior is a common approach to market segmentation. It involves segmenting customers based on their buying patterns, such as frequency of purchases, average order value, or product preferences. This segmentation helps businesses identify different customer segments, such as frequent buyers, occasional buyers, or high-value customers, allowing them to tailor their marketing efforts accordingly.
Loyal Customers: Loyal customers are valuable assets for any business. They strongly prefer a specific brand and consistently make repeat purchases. Identifying and segmenting loyal customers allows companies to develop targeted loyalty programs, personalized offers, and incentives to enhance customer retention and foster brand advocacy.
Personalized Experiences: Personalization is a growing trend in marketing, and behavioral segmentation plays a crucial role in delivering personalized experiences. Businesses can gather insights into customers’ preferences, interests, and past interactions by leveraging behavioural data. This enables them to create tailored marketing messages, recommendations or offers that resonate with individual customers, ultimately enhancing customer satisfaction and engagement.
Customer Retention: Retaining existing customers is often more cost-effective than acquiring new ones. Behavioral segmentation helps identify at-risk customers or those more likely to churn. By understanding the factors influencing customer attrition, businesses can proactively implement retention strategies, such as targeted communication, exclusive offers, or loyalty programs, to increase customer loyalty and reduce churn rates.
Target Market: Behavioral segmentation helps define the target market more precisely by identifying specific customer behaviors and characteristics. This segmentation considers purchasing habits, product usage, brand interactions, and engagement levels. Brands can optimize resource allocation, improve message relevance, and enhance customer acquisition by focusing marketing efforts on the target market’s behavioural profiles.
Types of Behavioral Segmentation: There are various approaches to behavioral segmentation. Some common types include occasion-based segmentation (segmenting customers based on specific occasions or events), benefit sought segmentation (segmenting customers based on their desired benefits from a product or service), and usage-based segmentation (segmenting customers based on their usage patterns or intensity). These segmentation methods enable businesses to understand customer needs and preferences better, leading to more effective marketing strategies.

Leveraging behavioral data and understanding customer behavior and purchase decisions are critical elements of market segmentation. By employing different types of behavioral segmentation, businesses can create personalized experiences, retain loyal customers, and effectively target their desired audience. Utilizing these insights can lead to more impactful marketing efforts, increased customer satisfaction, and, ultimately, business success.

There are five main types of market segmentation

Segmentation divides the market up into distinct groups of customers and identifies those that are most valuable to your business. There are 5 main ways you can do this.

Geographic segmentation

The first and most basic form of segmentation is geographic segmentation. This approach to segmentation looks to create groups of customers based on the following factors:

Country
Region
City
Area, e.g. urban, suburban, rural
Climate or season
Timezone
Language

Geographic data is some of the easiest data to obtain and analyze, and for some businesses, this can be a useful way of segmenting the market. Imagine you’re an automotive manufacturer selling a four-wheel drive. Segmenting the market based on location could be useful as a starting point, as you’re likely to have much greater success targeting those in rural locations than urban centers. But this example shows that the effectiveness of geographic segmentation is limited. There are a number of other factors that play into a willingness to buy a four-wheel drive – income level, life stage, previous purchase patterns, attitudes and values all play a role too.

This demonstrates that, in most cases segmenting on geographic factors alone is insufficient. Doing so can lead you down a dangerous path. Assuming that all customers are the same simply because they live in the same place is reductionist and can risk stereotyping and, as a result, alienating customers.

Demographic segmentation

As the name suggests, a demographic segmentation seeks to create customer segments based on demographic information, including:

Age
Gender
Income level
Level of education

As with geographic segmentation, this is one of the easiest ways for a company to approach segmentation, as demographic data on existing customers is easy to collect and, in many cases, is already readily accessible in a company CRM system.

It does have some uses. For instance, if you’re a luxury brand, focusing on existing or potential customers who earn above a certain income threshold is a no-brainer, as it means you’re able to focus your resources on the people that are most likely to be able to buy your product.

That said, segmenting on demographic factors alone has been largely discredited, as whilst people may be the same age or earn a similar amount, this does not mean they are all the same.

That said, many brands still seem to be falling into the trap of targeting based on generational differences and the current obsession with “millennials” or “Gen Z” is case in point. Joon, Air France’s failed attempt to create an airline for millennials shows the danger in doing this. The airline played into all the stereotypes about this segment – hip and trendy uniforms for the crew, digital services including VR headsets on board and quinoa front and center in the in-flight menu. Unsurprisingly, the concept alienated target and non-customers alike, and the airline flopped.

Firmographic segmentation

A firmographic segmentation is often used for segmenting B2B customers. It relies on similar principles to demographic segmentation, looking at factors about current and target companies such as:

Company size
Industry
Job title

Like geographic and demographic segmentations, this type of data is readily available either in a company CRM system or online, so it can be a good starting point for businesses wanting to segment the market and focus on the customers with the most potential. But when working in B2B, we mustn’t forget that the clients we are dealing with aren’t just companies. They are people too. A marketing manager in a small firm in the professional services sector might have more in common with a marketer in a large FMCG firm than with their peers, as their motivations and values may be similar.

Behavioral segmentation

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More sophisticated forms of segmentation look not just at who consumers are but at how they behave in relation to your brand and category. Behavioral segmentation does what they say on the tin; they analyze customers based on their past behaviors such as:

Spending patterns
Browsing history
Interactions with the brand

Behavioral segmentation has become popular with digital-first brands and B2B firms embracing marketing automation, as not only can this data be easily gathered and analyzed, but once the segmentation has been finalized, it’s possible to allocate customers to a segment and then tailor comms accordingly – all within the digital ecosystem. For instance, a first-time buyer will receive different promotions and messaging from a returning customer. This can be very powerful, ensuring that marketing campaigns have more cut-through and result in greater conversion.

However, there are some drawbacks. Behavioral segmentations are predominantly based on a consumer’s digital footprint. As we’re all aware, this only tells half the story. Whilst you might be able to identify that a customer is looking for a new pair of shoes, you won’t know why. As such, marketing strategies based on behavioral segmentations tend to be quite product-focused and won’t necessarily connect with consumers on a deeper level. Behavioral segmentations are also less helpful for informing product development. Sure – you’ll be able to ascertain the product or service a customer is interested in right now, but behavioral segmentations don’t take into account customer needs which can reveal opportunities for innovation or to optimize your existing offering.

Needs-based segmentation

The fifth and final type of segmentation is needs-based segmentation. Needs-based segmentation look to segment customers based on attitudinal factors such as:

Needs
Values
Motivations
Priorities

Needs-based segmentations are widely regarded as the most effective approach to take segmentation and, as such, make up the vast majority of segmentations used by businesses nowadays. Why?

Needs-based segmentations don’t assume that people are the same simply because they share geographic or demographic characteristics or because they’ve bought the same thing. Instead, they look deeper, creating groups of people based on shared needs and values.

This can be extremely powerful as it allows you to understand how your product or brand fits into customers’ lives, helping to put their needs at the heart of your strategy and allowing you to be more customer-centric as a business.

Segmenting based on needs can power innovation by illuminating unmet needs or areas where your product or service falls short. It can provide inspiration for powerful marketing campaigns that align with consumers’ attitudes and values, creating a strong connection with the brand and fostering loyalty.

Market segmentation studies can be powerful tools for any business. Find out more about our capabilities in this area or get in touch to discuss a new project with us. We’d be happy to share our expertise.