7 Types of Market Segmentation

Udemy Editor

There are many different reasons for a business to segment their market. In its simplest form, the needs of individual customers differ, so it makes sense that a business creates separate offers for each segment of the market. This gives customers a better solution (whether it’s a product or a service), and helps raise profitability in the entire business.

Market segmentation is also a very effective means of discovering how to reach your customers. When you look at a broad market, there are a variety of ways you can use marketing to reach them, but it’s also very difficult to measure the impact of a scattergun approach. If you break down the large market into smaller groups, specific sets of customers – you can target the exact strategies needed to reach each group of customers. This can give you a competitive edge, as you are focused on customer needs, while allowing you to stay on top of the latest trends and opportunities in the market. Planning this effectively is a key part of writing a winning business plan, which you can go through step by step in this course and get it right the first time.

Market segments can be viewed from two perspectives. They can be:

A group of products, or service providers in an industry
A particular group of buyers

The best example is the mobile phone market, which can be used to describe either the group of companies selling mobile devices and services, or the consumers who are purchasing them. A good business owner will be interested in both market segments. Using the information you can determine your businesses share of the market, and find opportunities to increase your own market share. It also allows you to target segments of people that have purchased items like what you are selling in the past. This increases the potential for sales because past behavior is an excellent predictor of future behavior. It also allows you to target purchasers of a major product, selling add-ons and additional services.

When you find customers that are already used to buying a particular item you will find them easier to convince to buy your own. As an example you may find that clients who enjoy haircuts at a salon are interested to buy hair styling products, spa services or any additional marketing opportunities that arise. For the owner of the salon they are also going to be very interested in how the entire group of salons in the area are performing, and how their services compare to competitors. If you’ve never done market segmentation for your business you can take this course which focuses on the technical tools you need to conduct a sound market segmentation.

As well as helping your business reach new customers, targeting your approach to existing customers through market segmentation can reinforce and solidify the loyalty of your current customer base. By asking for targeted feedback from specific groups of customers you can find very practical solutions for improving your overall product. Better yet, actually implementing suggestions made from key segments of your market proves you’re aware of what they are looking for and help you to build a connection to each customer. This is fundamental in creating brand loyalty.

For an ideal market segment, there are a number of key criteria it must have for it to be ideal, and worthwhile to target. As follows are what you need to consider:

It must be possible for the segment to be measured.
The segment has to be large enough so that you can earn a profit from it.
It needs to be stable and not vanish after a period of time (i.e. a fad or a trend).
You need to be able to reach your potential customers through your marketing activities.
You need to be able to convert potential customers into buyers cost effectively.
Customers in the market segment must have a preference for similar product qualities.
Potential customers from different segments have different quality preferences.
Your target consumers must always respond to certain marketing actions.
There is enough supporting data so that you can follow allow a targeted sales approach.

As you start to consider segmenting your market, there are many different factors to consider. The more targeted you make each segment your end result will be only a very small population of potential customers. The upside is that it gives you a base of the more viable customers for your products, and can target them accordingly. This means you’re not wasting your marketing and advertising dollars on prospects that have a low potential. If you’re new to marketing strategy, this course is a great introduction to targeting specific groups of customers.

Ultimately, by having a better knowledge of the market segments your business is both operating in and selling to – you can build the right goals to strive for. It means you’re not comparing yourself to competitors that are largely irrelevant, or trying to achieve impossible targets. a small bakery selling cookies doesn’t need to compare itself to Wal-Mart and their own range of cookies, and they certainly won’t be able to achieve the volume that the large box retailers see. By segmenting your markets properly, you can build this into your business plan and set yourself up for success. This course is great and walks you through creating a great business plan, step by step.

These are the main ways you can segment a market:

1. By Products or Services Offered

You could take a broad category like computers or tap into specific niche’s like windows tablets. Alternatively, looking at it from a service perspective you could consider a broad category like auto repair, but specifically target it to brake and muffler distributors. The trick is to be as specific as possible, as being targeted makes it easier to compare between competition, and find the ways you can reach specific groups of people that are your potential customers. A broad approach makes it much more difficult to convert, and there are plenty of fantastic niches out there! If you’re stuck for ideas you can get a little inspiration from this recent post.

2. By Industry

This is similar to defining a segment by products, for example defining the agriculture industry it can include everything from massive food producers to boutique family farms. You could narrow this further by segmenting by products like dairy, meat, organics, and so on. The more specific you are, the better position you are in to define your market to begin with – and keep track of developments in the industry.

3. By Demographics

Demographics are a great way to differentiate between your customer base. You can segment markets by many different characteristics, such as age, income, gender, race and so on. Building on this you can look specifically at the actual ages of your consumers, or break it down into the life cycle stages of a product, or the heritage of competitors in your industry. When you have your customers grouped by demographics, you can target your strategies to reach them specifically, as people from certain demographic groups often react the same way to marketing.

4. Geographically

Segmenting your markets based on where they are located is another great tool. You can break up your markets whether they’re global, national, regional or simply local. It all depends on the services you offer, because based on your business there will be a logical segment for you to target. A landscape gardener needs to focus on their local market, but a large internet business may have a global base of customers and a local approach may not be optimal for them. Different regions also have different product needs, for example rainy parts of the country having a higher need for raincoats and umbrellas, and a lower desire for solar panels and outdoor pools. All of this must be considered and built into your business plan.

5. By Profession

Your customer base can be further defined by classifying your customers by their profession, or specific segments within a certain profession. For healthcare workers you could break the group down further into doctors, nurses, or even hospital administrators. For lawyers you could categorize them into the specific branch of law being practiced, whether it’s real estate, civil litigation, or even taxes. This allows you to focus your value proposition and win more business!

6. By Lifestyle

This segment aligns to demographics, but reflects that people and families have different product and service needs throughout their life. It also captures the needs of different types of households, like single parents, married with children or seniors. You can break this down even further into the types of home being lived in, whether it’s an apartment, townhouse or a single family home. This type of segmentation is also called psychographics, and is measured using information captured on the activities, interests and opinions of your target customers. Using this information you can build a picture of how people enjoy their leisure time, and what they are more likely to be responsive to. By defining the activities and interests of your target market, you can develop products and services that are uniquely tailored to their needs.

7. By Interest

Though it may seem trivial because it is so targeted, there are hobbyists that love everything from grooming pets to look like other animals to appearing in the background of live newscasts. Despite the very niche appeal, if you can identify and connect with these customers they can become very brand loyal, and long term customers.

Market segmentation is a sound marketing practice, because it allows you to target your sights on specific areas of the market that are the most lucrative for your business. This process helps give you a base for creating effective advertising campaigns and designing products that are exactly what your customers are after. In addition you even get feedback and insight that can help you develop new products! The goal is effective market positioning, that aligns with what your customers are after while being different from the competition. You can learn more about mastering product positioning in this course.

Remember that market segmentation only needs to be as difficult as you make it. There’s no right or wrong way to segment your own market, and depending on your business it may even require a little creativity. Try to make segments of your own market that suit your own business situation, and keep your eyes and ears open for when things inevitably change. Your business will thank you!