What is Market Segmentation? Types and Benefits

Market segmentation: that reason to which many of the challenges that occur during the development of a marketing strategy can be attributed.

But why is it so important?

Since it is an indispensable element in any planning, it is likely that its importance is taken for granted. However, we are of the idea that understanding such an important concept in more detail can help us not only to understand our objective a little more, but also to set goals that are attached to reality.

Therefore, in this post we want to share a key definition, the main segmentation methods, as well as some of their benefits.

What is market segmentation?

Market segmentation is a methodology used in market research to refer to the creation of sets of potential buyers into groups or segments, based on their common needs and their response to a brand’s calls to action.

For companies, market segmentation allows them to direct their offer to different targets and categories of consumers, as it helps them to identify who perceives the value of their brand differently from other segments, that is, who prefers their offer over other similar ones. .

To do this, companies usually use three segmentation criteria to identify their market.

• Homogeneity: It is the degree to which the tastes and needs of a market segment are identical (or very similar, in any case). This criterion allows the marketing area to consolidate a segment under the same solution.
• Distinction: These are the characteristics by which each of the segments is distinguished from one another. This criterion is applied when the offer of the brand appeals to different sectors.
• Reaction: it is the response of the different segments to the same message. In general, this is what is measured to know if a strategy is successful or not.

For example, let’s think of a brand of automobiles, which, as a product, are manufactured with the same technology.

The brand in question may have in its catalog products aimed at a family segment, so the offer would be adapted to the needs of a family of –say– five members: five seats (at least), a large trunk, and even centers entertainment for passengers (for example, screens).

However, this car brand can also be considered as a key segment of its offer to young professionals looking to buy their first vehicle, so the product may offer a smaller engine, with low energy consumption, and a palette of colors less sober

In short, market segmentation is an extension of market research that aims to identify which consumer groups are most interested in what type of offerings, and then adapt their products (through design and branding) to what their key segments consider to be attractive.

Types of market segmentation

As we have already established, market segmentation is a methodology that strengthens the results of comprehensive and comprehensive market research. Or in other words, it is a tool that adds to the variety available to find out who to direct the offer of a brand or company to.

Now, there is no single type of segmentation that is more or less valid or effective than another. The key is to analyze the problem that is presented and choose the one that best suits your resolution.

Let’s take a look at some of the most commonly used segmentation types in the industry.

Demographic

Perhaps one of the most common methods, since as its name indicates, it basically consists of segmenting the market based on basic demographic data: age, sex, income, education, etc. We’re exaggerating, but it wouldn’t make any sense to advertise a razor to people under the age of 10.

The premise from which demographic segmentation starts is that individuals whose demographic characteristics are similar tend to form similar needs.

For example, the video game industry, for some time now, has begun to transform its offer: the mechanics have become more complex, the narratives touch on more sensitive issues and even the price of the products has increased.

This can be attributed to the fact that the target segment of the industry grew along with the technology, so those who were children or adolescents during the first iterations, today are adults with disposable income.

Firmographic‍

This type of segmentation focuses on the same data set as demographics, with the exception that instead of analyzing individuals, it focuses on obtaining data about groups or organizations.

Among the data that interests you are the number of employees or members, the number of clients, the offices they have, or their annual income. This type of segmentation is useful for companies that offer services to other companies.

An example would be a software provider, who might offer their product to a multinational company with customizable features and pricing adjusted to the number of users. But you can also offer your services to a segment of smaller companies, creating a monthly subscription package with the essential functionalities, which are increased as the company grows.

Geographic

For many, geographic segmentation is an accessory to demographics: it would be necessary to start by delimiting the area that a company intends to impact. However, since digital advertising is an important part of any marketing mix, this type of segmentation has become more relevant.

Furthermore, considering it as a data set itself adds variables such as weather, ground conditions, and even public safety issues. Some companies – especially those that are in the growth stage – even take it into account when deciding where to open new offices and attract the best talent in the area.

Likewise, we can see its application in retail companies. For example, clothing stores tend to give preference in their creatives to the elements of their collection that best suit the climate of each city.

Behavioral

This type of segmentation addresses groups of consumers based on how they have interacted with similar products in the past. That is to say, it assumes that the purchasing habits that are generated from the uses and customs of consumption are indicators of consumer preferences in the future, without forgetting that the trends are evolving.

Therefore, for behavioral segmentation, the data obtained from market preferences, consumer actions, as well as decision-making patterns, are essential.

An example of this is how the same category of products is affected by generational changes. Let’s think about how the most recent generations, such as Millennials and Gen Z, have developed a taste for craft beers, unlike past generations, much more attached to national brands (without forgetting that their consumption is not exclusive to a single group, but only characteristic).

Psychographic

Considered the most complex type of segmentation, psychographics aims to classify consumers based on their lifestyle, personality, opinions, and interests.

Why is it complex? Mainly, it is because segmentation criteria of this type are fully subjective: the way in which our age changes is successive and constant, but our opinions can vary from one day to the next. The data obtained in these exercises is usually limited by these conditions.

However, with great risks come great rewards, since betting on a psychographic segmentation exercise can result in groups that are identified by their internal motivators (preferences, feelings, tastes).

Really, a psychographic segmentation answers the big question: what is the consumer looking for?

An example of those who seem to have deciphered this question are streaming services. Currently, the content that is available on these platforms appeals to the feelings and beliefs of the audience. The representation of different points of view, in accordance with the cultural climate, is a constant in the entertainment offer of these companies.