Segmentation Analysis

Market Segmentation Analysis: 6 Powerful Ways to Segment a Market


Acquisition, engagement, and retention of customers are increasingly becoming more difficult for businesses. This is due to the enormity of the market and severe competition. To leverage its resources, businesses should tailor their products and services to the needs and demands of their consumers. This is only possible when they have a sufficient and personal understanding of their consumers.

It is for this very reason that market segmentation analysis is important.

How Market Segmentation Analysis works

In market segmentation analysis, a company divides the target market according to segments based on various criteria. These criteria could be consumer characteristics or preferences in products and services, among many others.

Once segmented, the market becomes easier for businesses to closely observe. They can quickly see types of consumers better and assess their purchase habits. Based on these segments and observations, businesses will also find it much more convenient to identify trends.

As a result of this, they can design or modify their products, services, and marketing strategies that better fit their target market.

How to segment the target market

There are several ways the target market can be segmented according to market segmentation analysis. The most common and important ones are based on demographics, geography, psychography, firmography, price, and time.

1. Demographic segmentation

This kind of segmentation focuses on age, gender, household income, education, occupation, family size, and ethnicity. Grouping customers under this segment is a basic marketing strategy. Customers are firstly influenced by their demographic background above other influences.

An 18-year-old female college student may have completely different needs compared to a 40-year-old male employee. Makeup and other beauty products will attract women customers more than men. An athlete would be inclined to buy sports equipment more than a teacher. A middle-class household would be interested in buying a family van than a luxury car.

Demographic segmentation allows businesses to understand the fundamental factors that shape the demands of consumers.

2. Geographic segmentation

Grouping customers by geography means identifying where the customer lives and understanding their corresponding needs.

A customer living in a tropical country would not be interested in buying an air-conditioner with heating features. Surfing equipment will sell more to people living near the beach than to those who reside in mountainous areas.

Geographic segmentation is a reliable source as the data comes from obvious and more or less stable environmental factors. It is also a tool for businesses to determine whether it is feasible to establish a presence in a particular place. Using this type of segmentation, businesses can reasonably predict whether their products or services will reach a sufficient amount of success considering the existing environmental factors.

3. Psychographic segmentation

This focuses on the behavioral characteristics that define the purchase habits of consumers. In this type of segmentation, lifestyle, interests, personality traits, attitudes, and values are taken into consideration.

As these orientations are not readily obvious, psychographic segmentation can be difficult. Despite this, it is a foremost interest in businesses that primarily cater to lifestyle, such as those belonging to the health and fitness industry. Identifying what types of people are more inclined to sign up for fitness programs will help them concentrate their promotional efforts in the right direction.

Another example is an airline company. It can segment its market by asking customers about their travel frequency, accommodation preferences when flying, and willingness and capacity to pay.

This type of segmentation also tries to figure out the motivation of the consumer in buying a product or a service. For example, it will be helpful for tourism companies to understand a customer’s purpose for a vacation. Do they want to try new activities, learn about other cultures, or simply just relax?

In most cases, segmenting under this category can take more time. There must be repetitions of the same behavior established before a business can make reliable conclusions about their market.

4. Firmographic segmentation

While demographic segmentation focuses on the descriptive attributes of an individual, firmographic segmentation focuses on private and public organizations. This type of segmentation is crucial for business-to-business (B2B) customers.

The data needed for this type of segmentation focuses on information like company size, the number of employees, and annual revenue, among others.

A gym looking to invest in fitness equipment will not be interested in software products. A small firm with a modest annual revenue will be more conservative in spending and would likely choose affordable options.

Determining the needs and financial capacity of a prospect will help businesses determine that they’re not squandering their valuable resources on consumers. They will be able to identify if the needs and capacity of a prospect are different from the product or service they’re offering.

5. Price segmentation

Price segmentation is an offshoot of demographic segmentation under the income category. It delves more deeply into an individual’s personal income.

Those that have higher personal income will likely indulge in buying luxury products and enjoy pricey recreational activities such as eating in high-end restaurants and going to concerts. On the other hand, those that earn a lower income will be more practical in their purchases and would opt out of expensive hobbies.

In identifying the capacity and willingness of a customer to pay, businesses can determine which are likely to patronize their products and services.

6. Time segmentation

Although less commonly used compared to other types, time segmentation can be highly effective in some cases. For example, stores can open earlier and close later during holidays as more people are likely to visit and buy.

Businesses can also offer seasonal products and services. One example is selling greeting cards and offering gift-wrapping services during the Christmas season. Traveling agencies can also take advantage of school vacation seasons such as summer and winter breaks by increasing travel destinations.

How Market Segmentation Analysis Benefits Businesses

When a business understands the core attributes that shape market demands, it can refine its products and services accordingly. It can present more personalized offers to the market, which can lead to a more stable acquisition, engagement, and retention of customers.

As a result of the market segmentation analysis, the business can generate traction and establish a stronger presence in the industry.

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