What is Market Segmentation?

Updated on December 21, 2017
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Heidi Thorne is an author and business speaker with over 25 years of experience in sales, marketing, advertising, and public relations.

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Market segmentation is dividing up an economic trading area into segments based on any, many or even all of the following parameters, with examples provided for each:

  • Type of Product, Service or Industry: mobile phones, fast food restaurants, designer handbags, agriculture.
  • Age of Customer or Business: senior citizens, new businesses, high school students.
  • Income Level: middle class, upper income.
  • Geography: urban, suburban, rural, Midwest United States, Chicago.
  • Gender: male, female (only two!).
  • Professions: lawyers, accountants, managers, plumbers.
  • Lifestyle and Family: senior assisted living, single family homeowners, LGBT, married, new moms.
  • Hobbies and Interests: pets, motorcycling, crafting.
  • Psychographics: behaviors, attitudes.

This looks very similar to marketing demographics and business demographics. That's because it is! Demographic information is used to define segments of the buying public to help zero in on those groups of customers which present the highest sales potential for an organization, based on their similar needs and wants. Limiting marketing activities to these high potential groups saves marketing budget dollars spent on those who are not likely to buy, allowing for more efficient revenue and profit building.

In addition to individual businesses, industry associations and the government watch performance and trends of market segments to determine future directions for policies and programs.

Market Segmentation on Multiple Parameters

Typically, marketers will segment target populations on multiple parameters from those listed above. Why? As discussed in Marketing Demographics Definition, segmenting on just one parameter still may be too broad and waste effort and expenses.

In that article, the example of motorcycle riders is provided. Simply selecting the population of all motorcycle owners does not take different riding styles and personalities, sometimes even age, into account.

While all motorcycle riders can appreciate all bikes and may own multiple types, there is a huge difference between a Harley-Davidson rider and a Ducati sportbike rider. Harley owners love cruising on the open road and are more interested in the community aspects of ownership and riding. Ducati riders usually have a "need for speed," are performance driven and may be younger riders (riding performance bikes isn't called a "sport" for nothing!).

In this example, the following multiple parameters could come into play when selecting a mailing list to target one or the other group of riders:

  • Hobbies and Interests
  • Product (make and model)
  • Age
  • Income

There could even be additional selections for female riders, geography or even profession. Brought to the extreme, a list could target female motorcyclists in California, who are Harley-Davidson owners, are over 30 years old, with incomes over $500,000 and who just happen to be lawyers. That would be a very small mailing list!

While choosing multiple parameters will help get to a population of ideal customer prospects, there is the possibility of over-targeting to such a granular level that there is an insufficient volume to sustain the business' sales. Therefore, select just enough parameters to not only include the ideal, but those who could be on the fringes of the segment.

Psychographic Segmentation

How can a market segment even be created on attitudes and personality? More easily than one might think using psychographic data. This is a continually developing marketing arena, especially as online and mobile behavior tracking data becomes more available to marketers.

Behaviors are signals of values and personality. And, yes, mailing lists can be purchased according to these behaviors. Examples:

  • Credit card user. Willing to use credit and may be more prone to impulse purchases. However, this is not as much the case as it used to be, with more and more people using electronic forms of payment to facilitate purchases both online and offline.
  • Bargain hunter. Frequently uses discount sites or promotions. May be looking for good deals and would be motivated by special offers.
  • Internet buyer. Forget going to the mall! These folks want convenience. They may also be bargain hunters.

One of the developments in the psychographic arena is remarketing. Commonly used with systems such as Google AdWords and AdSense, remarketing shows ads to website visitors based on their previous visits to sites with similar products and services. The tracking system has monitored the behavior and targeted the user as a potential buyer.

Disclaimer: Any examples used are for illustrative purposes only and do not suggest affiliation or endorsement. The author/publisher has used best efforts in preparation of this article. No representations or warranties for its contents, either expressed or implied, are offered or allowed and all parties disclaim any implied warranties of merchantability or fitness for your particular purpose. The advice, strategies and recommendations presented herein may not be suitable for you, your situation or business. Consult with a professional adviser where and when appropriate. The author/publisher shall not be liable for any loss of profit or any other damages, including but not limited to special, incidental, consequential, or other damages. So by reading and using this information, you accept this risk.

Questions & Answers

    © 2013 Heidi Thorne

    Comments

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    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      5 years ago from Chicago Area

      Got that right, epbooks! Psychological pricing models are a very interesting branch of the marketing arena. The book Predictably Irrational by Dan Ariely makes for some interesting reading about how people behave in the marketplace. Thanks for stopping by & Happy Weekend to you, too!

    • epbooks profile image

      Elizabeth Parker 

      5 years ago from Las Vegas, NV

      Interesting hub and makes perfect sense. I've heard of the Psychographic Segmentation and also psychology pricing, ($99.00 versus $149.00, etc._ Voted up. Have a fantastic weekend!

    • heidithorne profile imageAUTHOR

      Heidi Thorne 

      5 years ago from Chicago Area

      Thanks, billybuc! Just getting some writing done while the landscapers do their thing. Happy Weekend to you, too!

    • billybuc profile image

      Bill Holland 

      5 years ago from Olympia, WA

      I just dropped by to wish you a great weekend, Heidi! Well done as always.

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