The Only Four Types of Market Segmentation You Need to Know

People want to feel heard. They want to feel understood.

So if your marketing messaging makes your prospects feel understood, you’ll differentiate yourself from your competitors. 😌

But there’s no faking this level of understanding. When someone lives with the struggles of their job, day in and day out, they know when someone understands how they feel.

Whether you’re marketing to lawyers, accountants, or salespeople, there’s no making up for the ground you lose when you fail to speak their language.

That’s where market segmentation comes in. ☝️

In this article, we'll discover:

What is market segmentation?

Market segmentation is the practice of breaking your target audience up into groups based on shared characteristics. This teaches you more about your customers and their diverse needs, improving the ROI of your marketing campaigns.

When you understand each group of customers better, you can target them more effectively with bespoke campaigns. With more effective messaging, for example, that speaks directly to their particular pain points. You can demonstrate more empathy, and use a more persuasive tone of voice. You can even build more trust, speaking to customers in the language they use every day.

The four levels of targeted marketing

Segmenting your market isn’t the only way to go, but there’s no getting around the need to understand your customers at a deep level.

Here are some of the other targeted marketing options available to you:

1 - Mass marketing strategy 🌎

As the name implies, mass marketing has you blast a single, universal message out to as many people as possible.

Not only is this expensive, but it misses out on all the benefits of segmenting your market.

For an undifferentiated marketing strategy to work, you need a product or service with near universal appeal, as well as a huge marketing budget to throw behind getting that message out to all people in all places.

You’ll also need to have laid a strong groundwork of brand authority, making yourself a household name.

2 - Niche marketing strategy 📦

Effectively targeting a single niche can constitute an edge all of its own, known as a niche competitive advantage.

When you target a single niche, you position yourself to solve one part of the market’s problems better than everyone else.

This strategy is great for small businesses, or those with limited resources, with a lot of on-staff expertise. This usually comes when the founder, or another key member of the organization, is a member of the target segment themselves.

Even these businesses will need to do some segmenting, though, to properly define the key characteristics of their chosen niche and learn all they can about it.

3 - One-to-one marketing strategy 🤝

As targeted as it gets. One-to-one marketing has you selling to key, targeted individuals. These individuals need to be of extremely high-value, since there are so few of them.

Often, the one-to-one marketing strategy will see businesses naming their key individuals and targeting them specifically through their marketing strategy.

Alternatively, you’ll take a softer approach and use this as a more targeted variant of the niche marketing strategy. You’ll target one kind of person within a single niche market segment.

4 - Segmented marketing strategy 🍊

Segmented marketing sits neatly between mass marketing and niche on the targeted marketing spectrum. Segmentation has you split an entire market into groups, then market only to those groups you believe to be high value prospects.

So which is right for you?

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Often, which you choose comes down to prioritization. Do you have the resources at your disposal to reach, and serve, many customers? If the quality of your service drops as you serve more people, there’ll come an inflection point, past which it only makes sense to scale back if you want to continue offering a high-value service.

Why is market segmentation important?

So we know what market segmentation is, and where it fits on the targeted marketing strategy spectrum, but why should you go to the effort of segmenting your market?

Here are some of the primary benefits of market segmentation.

1 - Identify new market opportunities

Market segmentation is a great way to kick-start a market opportunity analysis. When you combine your knowledge of market segments with that of the competitive landscape, you can identify under-served markets just aching for a solution to their unmet needs.

Even if you choose not to pursue such opportunities for yourself, you’ll know they exist as potential areas of expansion for competitors, so you can strategically plan for that growth accordingly. Much better than being taken by surprise, right?

2 - It’s the starting point for other crucial marketing activities

Effective segmentation lays the groundwork for the rest of your marketing strategy. Once laid, the positive consequences trickle down to make later activities more effective.

In fact, market segmentation is the starting point for crucial activities like the development of ideal customer personas (ICPs). In that sense, your marketing strategy effectively begins with a solid understanding of your target market - and that means segmentation.

Effective segmentation lays the groundwork for the rest of your marketing strategy.

Think about how an engineer solves a problem by reverse engineering. They take something incredibly complex, and break it down into simple parts.

Smaller parts are more manageable, with fewer associated variables. This makes identifying problems, patterns, and solutions easier.

When you segment your target market, you’re doing this same thing. You’re making it easier to identify which groups fit, and which don’t, within the scope of your marketing strategy. You also better understand what individuals in each segment desire, so you can tailor your marketing messaging to call out emotional benefits from your product's features. From there, you’ve a solid foundation for launching a successful marketing campaign.

3 - Better company alignment

If you’re not crystal clear on who your target audience is and why, you’ll never be able to communicate it to others in the business. This makes it harder to get buy-in for campaigns, and to justify your decisions when they’re challenged.

Most importantly, though, it makes it difficult for other stakeholders to play their part in making your campaign a success.

When everyone understands who the target audience is, what their pain points are, and what makes them tick, it’s easier for members of any team to keep this front of mind while carrying out their daily duties.

Sales teams can bear it in mind while they perform objection handling with decision-makers. Product teams can bear it in mind while they’re putting together development roadmaps.

As a result, the buyer journey for each segment becomes more cohesive, building trust and winning faster, easier sales.

4 - Optimize your marketing efforts & strategy

A solid understanding of your customers helps you optimize all your marketing efforts.

You can:

Stop investing in market segments with low ROI.
Identify yet-to-be-targeted segments that represent golden opportunities.
Create personalized offers that act as powerful emotional motivators for decision-makers to take action.

Segmentation's your starting point.

Decision-makers at startups might be having a nightmare doing payroll each month, for example. Your messaging to them would heavily focus on how much time they could save each month on payroll duties.

Enterprise customers, on the other hand, might want stability and easy compliance reporting more than ease of use. Enterprise decision-makers want to know they can save their teams time and cut costs when they don’t have to deliver the same reports three times over. Here, you’d optimize your marketing efforts to target these individuals.

The four most important segmentation methods

Of all the possible ways you can segment your market, there are four that have stood the test of time.

When intelligently combined, these segmentation methods make for effective, insightful segments with high ROI and strong predictive power.

But there’s a utility vs difficulty-to-acquire data continuum at play here, which is a fancy way of saying the easier the data is to acquire, the less useful you’re going to find it.

Information like the country a buyer purchased from, or which age bracket they fall into, for example, has less predictive value than their aspirations, political leanings, or their status as a frequently recurring visitor to your website’s blog.

Here are the four types. 👇

1 - Demographic segmentation

Demographic market segmentation gives you basic background information about your customers, aiming to answer the question, “Who are my customers?”.

Demographic segmentation deals with attributes including:

Age.
Gender.
Ethnicity.
Income.
Marital status.
Education.

In a B2B context, you might segment the company’s decision makers by:

Time in position.
Role within the company.
Level of seniority.

Or perhaps the businesses themselves:

Industry.
State of growth.
Number of staff.

This kind of information can tell you a bit about who’s buying your product, but it won’t tell you much about their motivations.

Herein lies the principal downside of demographic segmentation: it’s basic. For this reason, it’s best to combine it with other types to make your segments more useful.

The upside? Demographic data is easy to get hold of compared with other data types. It’s available for purchase from third parties, for free as census data, or available from your customers themselves if you’re willing to do primary research.

2 - Geographic segmentation

Geographic segmentation aims to answer the question, “Where are my customers buying from?”

This doesn’t just break down to which country the purchase was made from. You might also segment geographically by looking at:

Languages
Cities & counties.
Postcodes.
Regions (e.g. mountainous regions for skiing resorts)

Again, on the utility to ease-of-acquisition scale, this geographic data is not too dissimilar to demographic data. It’s easy to acquire, but is less useful than other types.

That’s not to say geographic segmentation is without its uses, though. It can answer some pretty important questions for you, such as what language it makes most sense to communicate in. The answer will change with your audience (English speakers in Silicon Valley? Or a wealthy, multicultural hub in Geneva?).

A single message isn’t likely to hit a home run across cultures either. Having solid geographic segments gives you an off-ramp to optimize your messaging for audiences across cultures.

3 - Behavioral segmentation

Behavioral segmentation aims to answer the question, “Why and how are my customers buying?”

When building out segments based on behavioral data, you’ll look at the ways your customers buy and, when they do, the types of behaviors that accompany a purchase.

Here are some examples:

Time on-site before buying.
The on-site elements buyers engage with before making a purchase.
Where they engage the least.
Have they downloaded a lead magnet previously?
Are they a member of your newsletter, or your members-only forum?

If you sell an app, have they downloaded that app? How long have they been using it for? If they allow you to collect usage data, how active are they on it?

Questions like these belong to behavioral segmentation, and the answers are valuable. Info like this takes more time and investment to collect and analyze, though.

4 - Psychographic segmentation

Psychographic segmentation aims to answer the question, “Why do my customers buy?”

Specifically, psychographic data is concerned with the deep, underlying emotional motivators for buying decisions. Those tied to things like your customers’ values, hobbies, goals, and political affiliations.

As with behavioral data, psychographic data is difficult to collect.

It often requires close tracking across the internet. For example, what kind of content do your customers engage with in their free time? What do they upvote on social media? What pages do they follow, and can those pages be categorized?

If many high-value potential customers are environmentally conscious and this is one of only a few boxes you don’t currently tick for them, investing in environmentally friendly packaging and becoming carbon-neutral could constitute a massive win for your business.

Common segmentation errors

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Segmenting your target market effectively isn’t easy.It’s a complex process with a lot of moving parts. Make sure you read up on the ten most common market segmentation errors you need to avoid to make sure, when you tackle it, the process goes smoothly.

Get the playbook on positioning your brand

Competitive insights can inform business strategy across all four corners of business. But when it comes to positioning your brand in a competitive market, there are pitfalls to sidestep, and best practices and processes to implement.

Inside the Competitive Positioning Playbook, we give you best practices and processes, covering:

⏰ How not to waste your internal resources and data sources to save yourself hours of time.

🧘 What “minimum viable positioning” is, and why it’s a key milestone early in the process.

🙅‍♀️ The three steps you must not skip in crafting competitive positioning.

These aren't just our opinions - we consulted with some of the best in the industry to put together these insights. (Oh, and it won't cost you anything).

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The only four types of market segmentation you need to know

Alex Walton