Market Segmentation: What It Is, Types of Segmentation, and Its Main Stages

If an organization wants to increase sales volume, it should have a good understanding of its customers: their fears, doubts, desires, needs, interests, problems, and unique characteristics. Such information helps to find an audience that is genuinely interested in purchasing the product. Otherwise, promotion becomes a useless waste of budget.

To make wise use of finances, study the audience, conduct market segmentation, and focus on acquiring the right consumers.

Why to manage market segmentation

Market segmentation involves defining the target audience and dividing customers into different groups. This approach allows for the calculation of market share, the development of positioning and strategy.

To sell a product or service, it is important to understand how to attract and retain customers, and to emphasize the particular features of the product. Understanding the desires, preferences, and problems of your audience can help with this.

When you are familiar with your customers, it is easy to establish long-term relationships with them, choose the right communication channel, and increase loyalty.

Market segmentation varies because there is no universal method for everyone. Organizations individually choose the criteria for market segmentation.

Types of segmentation

There are several types of market segmentation in business for consumers:

• Demographic segmentation: gender, age, religion, marital status, presence of children, solvency, etc.

• Geographic segmentation: place of residence – country, city, climate, local peculiarities.

• Psychographic segmentation: hobbies, interests, values, beliefs, fears, and doubts (a complex factor, as it is subjective).

• Behavioral segmentation: specific patterns of customer interaction with the brand, such as readiness to make a purchase, the stages of the customer journey, level of loyalty to the company.

Additionally, customer databases can be segmented by activity:

1. Active: are regularly interested in the organization's products/services, consistently make purchases.

2. Semi-active: rarely purchase products but keep an eye on the company's news and updates.

3. Passive: are subscribed to your mailing list but do not open emails or visit the website. If you interact with passive customers correctly, they can transition to the "semi-active" or even "active" group.

There is also another segmentation criterion: by type of product. Different groups of consumers prefer certain categories of products.

The audience is divided based on:

• motivation – why the customer makes a purchase, what they are guided by, whether they need the product now or it is just an interest;

• situation – when and under what circumstances the customer makes a purchase;

• needs – what desires the customer fulfills thanks to the product.

The main stages of market segmentation

The main stages of market segmentation are as follows:

1. Preparation

Look at your product through the eyes of the consumer:

• What problems and tasks does it solve?
• How do customers choose it?
• What expectations do the clients have?

Determine the main characteristics and requests, moments, and influences that affect the decision to purchase the product or service.

2. Collecting Information

At this stage, information about real and potential customers is collected. The following methods can be used for this purpose:

• surveys and questionnaires;

• reviews;

• discussions on social media;

• special forums;

• accounting programs that provide reports on customers;

• registration forms;

• CRM.

3. Analysis of collected information

Next, a detailed analysis is conducted, and characteristics are compared. Track how customers use the product: whether it meets their needs and solves their problems.

4. Division into segments

Customers are divided into groups with similar behavioral characteristics. Segments should be fundamentally different from each other. When choosing criteria for segmentation, follow this algorithm:

• Determine the products that make up 70-80% of the sales volume;

• Characterize them: what benefits do they provide to customers;

• Find out which people your product is relevant to;

• Choose criteria that distinguish your target audience from other people;

• Form groups.

Example of market segmentation for car sale

5. Identifying target segments

This stage involves testing hypotheses and identifying target segments. The evaluation of the selection is based on:

• alignment with the company's goals which are the most important at the moment;

• quantitative values, such as the number of potential customers, market size;

• feasibility of the segment, whether it is reasonable to focus on this category of customers;

• accessibility through various distribution channels;

• expected profit and effectiveness of working in this segment;

• competition in this area;

• risks for the brand.

6. Development of marketing strategy

After conducting segmentation based on important criteria for the company, start targeting the identified customer segments. Develop a marketing strategy that takes into account all the unique characteristics of the targeted group of customers.

What to do next? There are several options:

• Improve the offer to completely solve the problems of potential consumers.

• Use advertising techniques that capture the attention of a particular segment: remove doubts and fears, demonstrate the benefits and advantages of the product.

• Come up with personalized offers for each separate group.

Examples of market segmentation

Let's go over examples of market segmentation using different marketing tools. Apply these recommendations to communicate with your target audience.

• Facebook*

The advertising customization options in Facebook are very extensive. There is segmentation by demographic characteristics, interests, geography, and other criteria. To attract people from different cities, you can set up an ad by location. Below there is an example of Facebook advertisement configured by location and age.

• Chatbot

A convenient way to interact with potential customers is a chatbot that segments them. To do this, you need to assign certain tags to action buttons. For example, you sell confectionery products. Divide consumers based on the type of product they are interested in and then use this information for personalized offers.

• Subscription form

To expand the customer base and communicate with buyers, a subscription form is used. It helps to segment consumers even at the very beginning of acquaintance. For instance, the online shop Fabletics offers to view a specific range of products for a certain group of visitors. People indicate what kind of goods they want to see.

The purpose of segmentation is to interact with customers who are truly interested in the product. Remember, dividing consumers into groups is a regular process. Distribute the target audience based on average check, types of purchased goods, loyalty, etc. This approach contributes to stimulating sales and maintaining strong relationships with customers.

Conclusion

Mass typical advertising is not interesting to customers. When a company does not know the needs, interests, doubts, and problems of its target audience, it gets lost among stronger competitors.

Market segmentation is necessary to stand out among other companies. Through it, the company finds its customers and builds the most effective relationships with them.

However, it is not enough to simply divide consumers into groups. First, it is necessary to conduct analysis, gather information, and then decide which groups of customers are worth interacting with. The resulting segments must be measurable, substantial, and accessible for communication through different channels.