What Is Segmentation? (With Definition and Benefits)

By Indeed Editorial Team

Published June 1, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Segmentation means dividing your target audiences into specific markets based on a variety of traits. Segmentation gives companies the ability to identify and target their messaging to their most valuable audiences. Understanding how segmenting works can help you build a more effective marketing strategy. In this article, we answer, "What is segmentation?" discuss what its benefits are, learn the different types of market segmentation, discover what makes for a good market segment, and explore how to segment your audience.

What is segmentation?

Understanding the answer to, "What is segmentation?" can help you determine how to isolate potential target audiences to determine which might result in the highest engagements and conversions in your marketing efforts. Segmentation considers a person's age, gender, income, interests, needs, behaviours, and buying habits. Effective segmenting gets to the core of your audience and their values to understand what might attract them to your brand and drive them towards a purchase.

What are the benefits of segmentation?

There are many benefits to be realized in effectively segmenting your audiences. Listed below are some of those advantages:

  • Create more effective messaging: Instead of generic or vague copy, segmenting allows you to speak directly to your targeted groups in ways that resonate most strongly with their values, needs, and desires.

  • Develop more effective marketing strategies: Knowing your target audience can help you refine the methods and tactics to which your audience responds.

  • Increase your response rates: By targeting your message to the correct audience, you can more effectively address their questions, concerns, and requests

  • Lower your conversion costs: Finding the right people can result in spending less money to convert them to your product or service.

  • Attract the right customers: Using segmentation attracts customers who are interested in your product or service and who are more likely to remain loyal over the long term.

  • Increase brand loyalty: Customers are more likely to support brands that embody the same values, ethics, and principles they do.

  • Differentiate yourself from your competitors: Help make your brand appear more unique and more aligned with your customers' values through the use of segmentation.

  • Identify new markets: Through research and understanding of your audience, you can find new customers in underserved markets.

  • Stay on message: Targeting your message can help you stay consistent across all platforms and increase your marketing effectiveness.

  • Drive growth: As you learn more about your customers, you can develop new products and services to meet their needs, which can result in increased sales of the brand.

  • Understand pricing levels: Knowing your customers' income levels and buying habits can help you decide how high to price your product or service. You might be able to charge more for specific audiences without having to change the product.

  • Improve product development: The more you know about your customer, the more you can develop and improve products to meet their needs and desires, turning one-time customers into loyal followers that increase profit over the long term.

Related: What Is a Market Segment? Definition, Benefits, and Steps

Market segmentation types

Effective market segmentation relies on the practice of grouping people based on various traits and characteristics. There are five types of market segmentation that can help identify your strongest target markets listed below:

Demographic

Demographics refer to someone's age, race, gender, income, education level, occupation, sexuality, and marital status. This is the most commonly used form of segmentation because it's simple to uncover and these factors often dictate what types of products and services people buy. Small businesses often use demographics to target customers who might be interested in their business.

Related: What Is the Average Canadian Salary by Age Group?

Firmographic

Use this type of segmentation in business-to-business or B2B marketing, where one company sells products or services to another company. Firmographic characteristics focus on the needs and attributes of the company they're targeting, which include information about the size, profitability, and number of employees a company might have. This is a common approach used by small businesses that research their targeting businesses and craft their messages accordingly.

Psychographic

Psychographics highlight the core values, lifestyle choices, personality traits, values, opinions, ethics, and interests of potential consumers. For example, the fitness industry uses psychographics to target customers who value healthy living and longevity. Another example are environmentally friendly brands that target consumers who care about climate change issues. Psychographics can also help you determine if there is a correlation between a customer's demographics to help target them even further.

Behavioural

Behavioural analysis understands how your ideal customers might interact with your product or service. If you're selling a high-tech product, then you might want to focus on people who are comfortable embracing new technology. If you sell a luxury travel product, then you might want to focus on people who are willing to pay a lot of money for a high-end vacation. Understanding these characteristics can help you determine what your ideal customers are most likely to buy.

Geographic

This is a subset of demographic information, but is valuable in its own way, especially if someone is operating a physical business. Restaurants, shops, or hair salons, for example, rely on the geographic information from their customers. There is little value in targeting someone for a haircut if they live on the other side of the country. Customers can often have specific needs, wants, and interests, depending on where they live. The climate and landscape can also affect how people buy products. For example, a manufacturer of winter jackets might not want to advertise in places where it never snows.

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Characteristics of a good market segment

After your analysis, ensure your market segment is one you can make use of. Test the effectiveness and potential viability of it by ensuring it meets the criteria outlined below:

Measurable

Ensure the habits of your segment are measurable and predictable. For example, if you sell a seasonal product, it might be important to understand the highs and lows of the purchasing cycle so you can plan your year accordingly. You can also introduce other products that encourage year-round buying.

Attainable

If your ideal audience can't afford your product, then they might not be a strong audience. If you're selling luxury products, you may want to consider that even if someone seems like an ideal consumer based on psychographic factors, they might not be able to purchase what you're selling. When building audiences, consider all the various parameters that might make them your ideal target.

Substantial

If your ideal audience is small, they might not be a good candidate for segmentation. To make your marketing efforts more cost effective, consider targeting segments that comprise a large group of people. A segment that consists of only a few people might not buy enough product to make your marketing efforts worthwhile.

Related: Top 5 Marketing Fields to Explore for a Successful Career

Unique

Though it's inevitable to have some crossover between your audiences, a successful segment has distinct characteristic and attributes from your other chosen segments. A well-segmented audience has many traits that are similar to each other, while being distinct enough from your other audiences to ensure you can tailor specific messaging for them.

How to segment your audience

Follow these steps when performing market segmentation:

1. Define your market

Think about the existing market and what products and services are currently being offered. Consider where you fit within that market and how much share you have. Define how large the market is and if its large enough to be a good candidate for segmentation. Establish a goal for what you want your market to be and how you can position your products.

2. Segment your audience

Decide which of the five criteria you want to use to segment your audience. You might consider more than one to get a clear idea of who your target is and get as specific as possible. Finding the right audience might require you to experiment.

3. Understand your audience

Using surveys, focus groups, polls, and social media, ask questions about your customer. You can also conduct live interviews at events in a public setting to ensure higher engagement. Another idea is to email your newsletter subscriber list or have a spot on your website where people can offer feedback. Questions can be a mix of quantitative and qualitative. Quantitive data like age, income, or gender is easier to compile, but asking open-ended questions in qualitative questions can help offer surprising insights.

Related: What Is Product Differentiation? A Complete Guide

4. Test your strategy

Once you've identified your audience, set up a campaign to target them and establish the goals you want to achieve, whether that's sign-ups, engagements, or conversions. You can now see if the messaging and distribution you've identified to appeal to your audience is effective. If you don't get the results you expected, you may want to review your segments or the research methods you used. Test your audiences and make adjustments overtime to get your desired results.

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