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What is Market Segmentation? Definition, Examples, and Types

What is Market Segmentation? Definition, Examples, and Types

by Andrea Knezovic

Understanding your audience is crucial for mobile marketing, where customer preferences and needs are as diverse as ever. This is where the concept of market segmentation comes into play.

This approach helps your business meet diverse customer needs more effectively.

In this article, we explore what market segmentation involves, its types, and its purpose. I’ll also provide real-world examples across various industries to show how it’s a key part of successful marketing strategies.

Market Segmentation Definition

Market segmentation refers to the process of dividing a large market into smaller market segments, i.e. groups of consumers who have similar needs, desires, or characteristics.

This strategy allows businesses to target specific groups more effectively by tailoring their marketing campaigns, products, or services to meet the unique needs of each segment.

By doing so, companies can communicate more directly and personally with their audience, improve the efficiency of their marketing strategies and enhance product development and customer retention.

Segmentation in Marketing

Segmentation in marketing refers to the strategic approach businesses use to break down a large market into smaller, more manageable segments based on specific criteria such as demographic, geographic, psychographic, and behavioral factors.

This division allows companies to tailor their marketing messages and campaigns to resonate with the unique characteristics and needs of each group.

This method stands in contrast to mass marketing, where the same message is broadcast to the entire market, regardless of the diverse needs within it. Segmentation ensures that marketing campaigns are more targeted and relevant, which improves the chances of engaging customers, driving sales, and building loyalty.

Whether it’s creating ads that appeal to specific age groups, developing product variations to suit different lifestyles, or sending personalized email campaigns, segmentation in marketing is all about connecting with your audience on a more meaningful level to achieve better business results.

Types of Market Segmentation

There are 4 main types of market segmentation.

mobile users groups cohort

Demographic Segmentation

Demographic segmentation is one of the most straightforward and commonly used types of market segmentation.

It involves dividing the market based on demographic factors such as age, gender, income, education level, family size, occupation, ethnicity, and nationality.

This method is based on the premise that these characteristics significantly influence people’s buying habits and preferences.

For example, a business might target products or marketing campaigns at women aged 30-45 with a specific income range. Or, a company could create educational software tailored to different age groups, recognizing that each group has unique learning needs and capabilities.

geographic segmentation map region

Geographic Segmentation

Geographic segmentation divides the market based on geographical boundaries. This can include segmentation by country, region, state, city, or even neighborhood.

The idea behind this approach is simple yet powerful:

People’s needs, preferences, and interests can vary significantly depending on where they live.

This type of market segmentation allows you to customize your products, services, and marketing campaigns to suit the local tastes, climate conditions, cultural norms, and economic status of a particular area.

For example, a clothing retailer might focus on selling heavy coats and warm apparel in colder regions, while highlighting lighter, more breathable fabrics in warmer climates.

Geographic segmentation isn’t just about weather, though.

It can also influence product formulation, such as adjusting the product sizes and packaging to match local consumption patterns.

Moreover, geographic segmentation enables you to plan their logistics and distribution networks more effectively so that your products are available in the right places at the right times. It’s also crucial for optimizing advertising campaigns.

company, enterprise

Firmographic Segmentation

Firmographic segmentation is a method used primarily in B2B marketing, where the market is divided based on attributes of organizations, rather than individual consumers.

This approach categorizes companies into segments based on characteristics such as industry, company size (number of employees or revenue), location, type of business, growth stage (startup, growth, maturity, or decline), and other organizational attributes.

This segmentation is crucial for businesses whose customers are other businesses.

It helps in tailoring marketing messages, sales approaches, and product development to meet the specific needs and challenges of different types of organizations.

For example, the way you market a software solution to a small startup will significantly differ from how you present it to a multinational corporation. The startup may value flexibility and scalability, while the larger company might focus on security, integration capabilities, and cost-effectiveness.

Psychographic segmentation customer lifestyle

Psychographic Segmentation

Psychographic segmentation divides the market based on consumers’ personalities, lifestyles, interests, values, and attitudes.

This type of market segmentation goes beyond simple demographic information to understand the psychological factors driving consumers’ buying behaviors. It helps you come up with a business strategy that resonates with the inner motivations and desires of your target audience.

For example, a fitness brand might target consumers who value health and wellness highly and are motivated by self-improvement. This segmentation allows for more personalized and emotionally engaging marketing messages that align with consumers’ identities and values.

customer shopping behavior

Behavioral Segmentation

Behavioral segmentation divides the market based on consumers’ behavior patterns regarding product usage, benefits sought, decision-making processes, and loyalty.

More specifically, this type of market segmentation looks at how consumers interact with products or services, including their purchase frequency, usage rate, brand loyalty, and the specific features or benefits that appeal to them.

Let’s look at an example.

A company might identify a segment of customers who are frequent buyers and offer them loyalty rewards, while another segment might be more price-sensitive and respond well to discount offers.

This approach leads to increased satisfaction and loyalty.

The Purpose of Market Segmentation

The purpose of market segmentation is being able to customize products, marketing efforts, and services to meet the specific needs of different groups within a broader market.

So, why would companies use a market segmentation strategy?

The answer lies in the recognition that a one-size-fits-all approach to marketing is often not the most efficient or effective way to reach potential customers.

Benefits of Market Segmentation

There are so many advantages of market segmentation.

1. Improved Marketing Efficiency

The main benefit of market segmentation is it allows for more targeted marketing campaigns.

When you understand what each segment needs and prefers, you can use this knowledge to create ads that hit closer to home for each group.

As a result, more people respond, which leads to better ROI on marketing investments.

products in a store

2. Enhanced Product Development

With insights into the distinct preferences and needs of different market segments, you can design or modify products to better suit each segment.

It’s easy to see how approach leads to higher customer satisfaction and loyalty.

3. Competitive Advantage

Segmentation helps you identify niches or underserved segments of the market. It’s a clear path to distinguish your products and secure a unique spot in the marketplace.

4. Increased Sales and Profitability

If you make sure your products and ads match what certain groups want, you’ll see a boost in sales. This, of course, makes your business more profitable.

5. Higher Customer Retention

Understanding the varying needs and behaviors of market segments allows you to build stronger relationships with your customers. This results in an increase in customer loyalty and reduces churn.

6. Better Allocation of Resources

You can allocate their resources more efficiently by focusing on the most profitable segments or those with the highest growth potential.

Market Segmentation Examples

Here’s how popular brands do different types of market segmentation:

Toyota’s Market Segmentation

Toyota segments its market by income and lifestyle.

It produces the luxury Lexus line for affluent customers seeking prestige and the eco-friendly Prius line for environmentally conscious consumers.

With this approach, Toyota caters to the needs and preferences of different customer groups within the automotive market.

nike product shoes

Nike’s Demographic Segmentation

Nike uses demographic segmentation to target people of all ages who are athletes or just into fitness. But it customizes marketing and product development to appeal specifically to young adults interested in fitness and sports lifestyle.

For example, Nike’s marketing campaigns around its Air Jordan line specifically target basketball enthusiasts and sneaker culture. They use celebrity endorsements to resonate with this group.

Walmart’s Geographic Segmentation

Walmart applies geographic segmentation to stock products that meet the local preferences and needs of its customers in different regions.

In areas with a higher concentration of Hispanic customers, for example, Walmart might offer a larger selection of Latin American food products. That way, the brand is directly catering to the local community’s tastes.

McDonald’s Menu Customization

McDonald’s uses geographic and cultural segmentation to adapt its menu in different countries.

In India, where a significant portion of the population is vegetarian, McDonald’s offers a range of vegetarian burgers, such as the McVeggie. Similarly, in Japan, McDonald’s sells the Teriyaki McBurger, which aligns with local tastes.

iphone mobile phone smartphone

Apple’s Behavioral Segmentation

Apple segments its market based on user behavior and preferences.

It offers different product lines for different market segments.

For example, Apple markets the iPhone SE to users who prefer smaller, more affordable smartphones, while the iPhone Pro Max is targeted at users who are into cutting-edge technology and larger screens.

Apple’s marketing campaigns for each product emphasize features designed to appeal to each segment’s specific behaviors and preferences.

Market Segmentation Process

The market segmentation process involves several steps, each critical for identifying and targeting specific groups within a larger market.

1. Identify Your Goals

Begin by clearly defining what you hope to achieve with market segmentation. This could be increasing market share, entering new markets, increasing sales, or increasing customer loyalty.

Your goals will guide the entire segmentation process.

research

2. Research Your Market

Gather as much information as possible about your market.

This includes understanding customer needs, industry trends, and the competitive landscape.

Use both primary (surveys, interviews) and secondary (industry reports, studies) research methods.

3. Develop Segmentation Criteria

Decide on the bases for segmentation, such as demographic, psychographic, geographic, or behavioral factors.

The criteria you choose should be relevant to your objectives and offer the clearest path to differentiating between segments.

4. Segment Your Market

Using the segmentation criteria, divide your market into segments.

Each segment should be distinct from the others, with clear reasons why consumers or businesses fall into one segment over another.

segmentation audience market

5. Evaluate Each Market Segment

Assess the viability of each segment by considering its size, growth potential, accessibility, and alignment with your business goals.

Not all segments will be worth targeting, so it’s important to focus on those that offer the best opportunities.

6. Select Target Segments

Choose which segments are the most attractive and viable for your business.

These should be segments where you can offer significant value and stand out from competitors.

7. Customize Your Marketing Mix

For each target segment, come up with a custom marketing mix—the right product, price, place, and promotion strategies that will appeal to the segment’s unique needs and preferences.

8. Implement and Monitor

Launch your targeted strategies and closely monitor their performance.

Pay attention to sales data, customer feedback, and other indicators of success. Be prepared to adjust your approach as you learn more about what works and what doesn’t.

It’s important to remember that market segmentation isn’t a static process; it requires ongoing revision and refinement as markets evolve and new information becomes available.

Market Segmentation for Apps and Games with Udonis

At Udonis, we specialize in pinpointing the right audience for mobile apps and games through expert market segmentation. Our process involves digging into the mobile market to understand different user groups, and then creating ad campaigns that speak directly to them.

We constantly update our user acquisition strategies based on the latest trends and data so that your app or game stands out to those who’ll appreciate it most. That makes us a go-to partner for mobile app and game developers looking to make an impact.

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About Udonis

Udonis is an independent full-service mobile marketing agency that acquired more than 300,000,000 users for mobile games since 2018.

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