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Market Segmentation: Definition, Benefits, and Types

Last updated: Jul 10, 2023

What Is Market Segmentation?

Market segmentation is the process of dividing the market into different groups based on similar characteristics, needs, preferences, or consumer behavior.

The goal is to identify market segments that have the same needs and characteristics.

That way, companies can develop marketing strategies that are right on target and optimize the use of available resources.

Benefits of Market Segmentation

The segmentation process can have various benefits for companies, such as increasing marketing effectiveness and resource efficiency.

Here are some elaborations on the benefits of market segmentation:

1. Help Creating Campaigns

The segmentation is the process of identifying the most relevant segments for products or services and understanding customers.

This process can help create digital campaigns that are optimized with SEO strategies so that they are right on target and can be personalized.

2. Create Personalization

Customers tend to make purchases when they receive relevant messages that offer solutions that match their needs and desires.

Therefore, companies need to understand the preferences and needs of each segment. Here, the segmentation serves as a tool that can be used by companies to carry out such a  process.

3. Using Time and Resources Efficiently 

Companies can allocate resources efficiently if they understand the characteristics of each market segment.

This understanding can help companies focus on segments that have high potential and avoid wasting time and resources on irrelevant segments.

4. Help Design Products with Quality Value

Segmentation is a tool for understanding the needs and preferences of consumers in each market segment.

That way, companies can design products or services with a higher quality value by adjusting the features, quality, and price of their products or services.

5. Increase Conversion Rate

Another benefit of implementing this segmentation method is the increased conversion rate. This can happen because the campaign has a message and runs in the right market segment, so the opportunity to convert leads into customers will increase.

6. Increase Customer Satisfaction and Retention

If companies understand the preferences and needs of each market segment well, they can provide consumers with a more personalized and satisfying experience.

As a result, there is an increase in user experience as well as a strengthening of customer loyalty and retention.

Types of Market Segmentation

There are five types of market segmentation. The following is an explanation of each type:

1. Geographic

This type of segmentation involves separating markets based on geographic locations, such as countries, regions, cities, or neighborhoods.

Geographical location itself can have an influence on local climate, culture, and customs. This will have an impact on consumer preferences and needs.

An example of geographic use in segmentation is the targeting of winter products in subtropical countries.

2. Demographics

Variables for the divide are age, gender, income, education, occupation, marital status, and other demographic characteristics.

This type of segmentation is found in every industry, such as automotive, beauty products, technology, lifestyle, and others.

An example of the implementation of this segmentation is the use of bright colors such as pink or yellow for women's products and dark colors such as navy blue or black for men's products. 

3. Behavior

The market can also be divided based on consumer behavior segmentation, such as:

  • Purchase habits
  • Product use
  • Response to ads
  • brand loyalty
  • Stages in the buying cycle

To carry out this type of segmentation, it is necessary to consider the origin of the traffic, the understanding of the products or services, as well as the purchasing decisions made by the customer.

An example of behavioral segmentation is the promotion of a loyalty program targeted at regular customers.

4. Psychographics

Psychographic segmentation involves segmenting markets based on psychological characteristics and attitudes of consumers, such as personality, values, interests, lifestyles, and attitudes.

In its application, this type of segmentation uses a method that focuses on customer psychology.

That way, companies can identify people based on the way they think and the kind of life they want.

An example of the use of psychographics here is that environmentally friendly products will be promoted to market segments with high environmental interest.

5. Price

Segmentation based on the price factor divides the market based on the price range or price sensitivity of consumers.

By using this type of segmentation, companies can consider the economic strength of potential customers when purchasing certain products or services.

An example of implementing this segmentation is a sports car that is offered to potential customers with an income of more than $1 billion per month. 

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