Industry Analysis: Performing Market Segmentation

by Sean Ross

3 min read

Market segmentation analysis can be a powerful tool for your business. Let’s say you sell or market to a diverse group of consumers; market segmentation lets you tailor your outreach to the needs and wants of smaller, more targeted groups. Contrast this with a mass marketing strategy in which you pitch the same message to an entire market.

The Basics of Market Segmentation

There are four major methods of segmenting a market: geographic, demographic, psychographic, and behavioural. You may run into lists with more sub-segments, but these main four cover just about everything. The idea is to use these segmentation methods to identify common characteristics in a sub-market, then create refined products or pitches tailored to those characteristics. When using market segmentation, keep in mind the following:

  • Segmentation works best when you can objectively define and measure the target characteristics.
  • Segments should be large enough that you can always collect non-random data from them.
  • Customers within the market segment should demonstrate a preference for similar product qualities.

Segmentation Type 1: Geographic

Geographic segmentation divides consumers based on their physical location. Most geographic regions presents unique needs, opportunities, and cultural habits. For example, consumers in Canada or the northern United States likely have much greater use for winter coats than consumers who live in Mexico or South America. If you wanted to start somewhere, the simplicity of geographic segmentation can be attractive. If you have a physical storefront for your business, you may also consider the geography surrounding your store as a segment. If you think that most of your foot traffic and product orders will come from nearby, you may want to adapt your marketing strategy to reflect that.

Segmentation Type 2: Demographic

Demographic segmentation is, in many ways, the basic building block of market segmentation analysis. It divides potential consumers according to common demographic fields – gender, race, age, income, and religion. What you want to see are groups of people with similar demographic characteristics and who exhibit certain common patterns of consumer behaviour. Let’s say your company use demographic segmentation and identifies two groups with distinct buying behaviours. The first group is made up of Caucasian females between age 35 – 45 and with incomes between $45,000 – $60,000. The second group includes South Asian males between age 20 – 24 and who just entered the workforce. Offers attractive to one group may not be attractive to the other, so you alter your products or pitches to accommodate those differences.

Segmentation Type 3: Psychographic

If demographic segmentation targets external characteristics, such as age and gender, then psychographic segmentation targets internal characteristics, such as lifestyle, attitude, and values. Try to understand the emotional and psychological motivations of the segment and, once you know that, deliver products that satisfy the segment’s unique needs. Some brands lean very heavily on the psychographic angle. For example, Whole Foods targets grocery shoppers who think of themselves as contentious, while Arc’teryx apparel targets those who feel connected to the rugged outdoors.

Segmentation Type 4: Behavioural

It can be easy to confuse psychographic with behavioural segmentation, but they refer to different characteristics. Psychographic characteristics refer to individual lifestyle behaviours, such as whether or not the consumer enjoys hunting and fishing. Behavioural characteristics have to do with economic behaviours – how does the consumer shop for and purchase goods? You may market differently to impulse buyers than you would careful buyers. Similarly, you may consider playing up your brand pride if your consumers exhibit the behaviours of loyal shoppers. Market segmentation is not a perfect science, but that shouldn’t stop you from experimenting with segmented analysis. The better you know your customers, the better you are able to serve them and the more likely they are to help your business thrive.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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