Market segmentation: Benefits, Types & Methods

Your target customers have unique identities and also have different needs and preferences, this means that we cannot use one solution for all. Every customer responds differently to promotions, advertising, communication, pricing, etc. 

Traditional marketers used to rely on billboards, Tv ads, radio commercials, and print ads for their marketing campaign with the hope of their message to reach their target audience. But now, there are better tools and techniques available to improve the market segmentation system in the marketplace. 

Market segmentation is a business practice in which brands divide their target market into smaller, more manageable groups of people based on shared interests in order to optimize their marketing, advertising, and sales efforts. Simply put, customers in each market segment share characteristics that businesses can use to their advantage.

Market segmentation explains the dissection of a random market into some homogeneous groups and businesses need to use market segmentation to understand their target audience and ideal customers.

Now let’s talk about the benefits of market segmentation.

  • Increases clarity

The first and most important benefit of market segmentation is the development of clarity. After cleansing and mining your market data, you will be able to obtain the most accurate and relevant market information. The primary goal of market segmentation is to eliminate information clutter. This will improve clarity automatically.

  • Develops consumer insights

Knowing your potential customers is a constant challenge for any business. It has become more complicated in the current digital era when your customers are only a click away. You can learn more about your customers by using contact profiles and customer segmentation.

  • Improves brand loyalty and customer engagement

Customer engagement is one of the most important benefits of market segmentation because it is critical to influence customers’ needs and interests. You can collect customer behavioural data from social platforms, mass media, or any other source and use it to develop customer and market psychographic segmentation to better meet thei needs.

Market segmentation has improved customer engagement through motivational efforts and communication. Finally, this has had a positive impact on brand loyalty.

  • Streamlines mass customization

This is yet another of the most significant advantages of market segmentation. Market segmentation has made it easier for businesses to provide tailored services or products to customers based on their specific needs in a given segment.

  • Optimizes for cost efficiency and resource management

Market segmentation, on the other hand, has become an essential tool for maintaining a competitive advantage and developing business intelligence. It can provide businesses with a more in-depth understanding of the market and assist them in identifying customer segments with higher profit potential.

  • Grows niche marketing capabilities

Market segmentation data is critical for identifying hidden market dynamics and developing better marketing strategies. Segmenting market data can assist businesses in releasing potential niche markets in order to grow.

  • Promotes the application of business data

At the moment, every business generates data and has access to data from other industries. Companies can benefit from using post-hoc and prior-hoc segmentation methods. More data visualization can be used to improve segmentation as well.

  • Enhances reliable assessments

Marketing efforts can be made more manageable by segmenting the market. Measuring the success of segment-specific policies, strategies, and practices has also become simpler. Growing access to data allows businesses to better analyze and assess marketing performance, as well as re-segment it.

  • Maintains freshness and new data

Customers are currently being bombarded with data. This may have long-term consequences for their preferences. Market segmentation, on the other hand, can assist you in assessing your audience based on new data and developing strategies accordingly.

  • Higher Customer Satisfaction

Market segmentation directs businesses’ marketing efforts toward the market or the consumer, allowing them to better serve their customers. This will ultimately lead to higher levels of customer satisfaction.

  • Increases ROI (Return on Investment)

Marketing campaigns are very costly and it is very difficult for companies to cut the cost, but market segmentation can surely help businesses to reduce the campaign budget and provide good results, with it you can easily decide your campaign budget for selected audience segments who are interested in your product and services. By this, you can easily increase the efficiency of your marketing campaigns to generate good revenue and reduce the risk of your money going to waste without providing good results. 

Types Market Segmentation

Geographic Segmentation

Geographic segmentation focuses on customers based on a predefined geographical boundary. Interests, values, and preferences differ dramatically across cities, states, and countries, so marketers must recognize these differences and advertise accordingly.

Demographic segmentation

One of the most well-known types of market segmentation is demographic segmentation. It is also one of the simplest and most widely used types of segmentation. Demographic segmentation divides a market based on factors such as age, gender, education level, family size, occupation, ethnicity, income, and other factors. Because specific products cater to obvious individual needs relating to at least one demographic element, this type of segmentation is widely used.

Age is perhaps the most obvious variable of all, and it is critical for marketers to understand due to the rapid nature of preference changes throughout the various stages of life.

Even media consumption varies greatly between generations, so it’s critical to understand your target age range and the channels they use to consume information in order to ensure your tailored message reaches them appropriately.

Psychographic Segmentation

Psychographic segmentation is a technique that divides an audience into multiple groups based on their personality traits, lifestyle, values, opinions, customer interests, subconscious and conscious beliefs, and so on. Unlike geographic and demographic segmentation, psychographic segmentation focuses on the inherent characteristics of your target customer.

Methods such as focus groups, surveys, interviews, audience testing, and case studies can all be used to successfully compile this type of conclusion in order to understand your target audience on this level.

Behavioral Segmentation

Behavioral segmentation uses measurements similar to psychographic segmentation, this type of data is collected in the same way that psychographic data is, but it focuses on specific reactions of customers and their attitudes toward your brand, how they go through their decision-making and purchasing processes, how they use and interact with it, and their knowledge base.

Brand loyalty is a great example of behavioral segmentation in action. It results in a consistent buying pattern, which is classified as a behavioral trait. Marketers work hard to make customers love and remain loyal to their brand in order to maintain a consistent purchase cycle.

Many companies will offer rewards programs to target customers who have strong brand loyalty in the hopes of capturing new loyal customers as well.

Methods of Market Segmentation

K Means Cluster analysis

This method identifies similar groups of the answerer based on selected qualities by using a formula that can handle huge numbers of respondents. 

The main goal of k means is to group the data points into definite non-overlapping subgroups. This method gives a better understanding of customers to the businesses.

Two-Step Cluster Analysis

Two-step cluster analysis is a statistical process that is used to identify similar groups cluster of audience within the data sets. 

This method uses hierarchical analysis that can easily handle large data sets. It also allows users to obtain full information, giving a good explanation of decision-making purposes. 

Latent Class Cluster Analysis

The latent class analysis involves the construction of latent classes which are unobserved subgroups or segments of cases. This method can predict the patterns in different variables like behavior or requirements. 

The latent class cluster also includes secondary variables such as demographics and brand handling. 

Latent Class Choice Modeling

Respondents in the survey select their most and least preferred sets of product benefits and rate the impact of these benefits on their purchase decision. Latent class choice modelling divides customers into segments based on their preferred product benefits. This type of segmentation is ideal for tailoring product offerings or bundles to segment preferences, allowing the firm to maximise business performance.

Market segmentation is critical, and the advantages of market segmentation cannot be overstated. However, in order to reap the full benefits of market segmentation, you’ll need the right tools and experience. To learn more about the advantages and drawbacks of market segmentation, take a look at the market segmentation benefits and limitations.