Oct 08 — Written By: Andy Quella

05 Types Of Market Segmentation You Need To Know

Market segmentation has evolved as a fundamental tool for businesses aiming to enhance their understanding of human behavior and preference. By dividing markets into smaller, more defined segments, brands can tailor their message to maximize engagement and relevancy. When digital experiences and recommendations are personalized, organizations can reduce customer acquisition costs and more effectively drive people to purchase, subscribe, or visit in-store.

Depending on the industry sector and overarching business objectives, the digital strategy will likely consist of multiple target segments, each with their own unique set of traits, interests, locations, and behavior patterns. These segments incorporate a mix of broad and refined targeting attributes that help narrow your focus to reach the right audience in the most cost-effective way. This often includes a combination of demographic, geographic, psychographic, contextual, and behavioral segmentation.

01. Demographic

Demographic segmentation involves categorizing individuals based on quantifiable attributes such as age, gender, income, education, and occupation. This form of segmentation can facilitate a deeper understanding of the diverse needs of certain demographic groups. For instance, a premium bicycle company may target households with more disposable income and adjust their strategy to resonate with an affluent audience. Demographic segmentation is an effective method to reduce acquisition costs because it excludes relatively large groups of people that are less likely to buy your product or service.

02. Geographic

Geographic segmentation is the process of dividing markets with respect to geographical boundaries including location, climate, population density, and cultural preference. This may require targeting an entire state or concentrating on a defined zip code or household address. Location-based targeting offers advanced levels of creative flexibility with the option to adapt headlines, imagery, or exclusive offers within a designated region. Geographic segmentation is ideal for businesses with physical locations looking to drive in-store traffic, increase relevancy, or grow market share in a given territory.

03. Psychographic

Psychographic segmentation classifies individuals based on lifestyle, attitude, interests, and personality traits. While demographics define who your potential audience might be, psychographics refer to why a customer may purchase a product or service. The methodology explores subtle aspects that motivate behavior. When applied, businesses can build experiences that resonate with a unique mindset or belief system. For example, if you own a food delivery service with customers who care deeply about the environment, consider using biodegradable containers and market the program to inspire conversation.

04. Contextual

Contextual targeting focuses on understanding behavior within a specified context or theme. It considers where and how users interact with a product or service. Contextual targeting is a broader form of segmentation that works to position the brand next to relevant content based on a curated list of keywords or topics. For instance, if you see an advertisement about hiking equipment on a publisher website dedicated to the outdoors, you are likely being targeted contextually. Contextual segmentation is a productive method to increase emotional sentiment by reaching people who are passionate about a particular activity.

05. Behavioral

Behavioral targeting is a sophisticated framework that segments individuals based on their engagement patterns, purchase activity, and loyalty level. This entails sourcing first or third-party data to analyze past interactions and identify certain groups of people that have a high propensity to complete a desired action. Alternatively, targeting users with a low propensity score can help businesses capture the attention of less likely audiences. Common examples of behavioral segmentation include retargeting prospects who engaged with a particular product or parsing active customers to improve retention rate.

Conclusion

According to a recent study by Proxima Group into the state of digital marketing, many companies are inefficiently allocating between forty to sixty percent of their budget. When activated, poor targeting strategies and the inability to derive actionable insights from data cannot only elevate acquisition costs but poses a risk to brand integrity and reputation. Developing strategic partnerships can help organizations optimize in-market performance and deploy advanced segmentation methods to ensure efficient resource allocation.

Shifting focus from short-term gain to long-term growth requires a bold reimagining of the brand purpose. Start by establishing a detailed understanding of the intended audience including demographic characteristics and motivational triggers. Surface relevant insights to define a set of marketing objectives that can be embedded into business operations and communicated with external partners. The output will provide a foundation for strategic planning and the successful activation of dynamic experiences that encourage action and repeat engagement.