Since people are incredibly diverse—in their behaviors, needs, attitudes, lifestyle, and purchasing habits, for example—a market segmentation study helps brands identify audience segments (sets of customers) or buying occasions. With a thoughtful segmentation strategy, brands can create personas for their customer base, distinguishing the similar characteristics or attributes different groups and subgroups of potential customers have in common.
The benefits of market segmentation are many, and b2c and b2b companies alike have a lot to gain from segmentation studies. For one, Equipped with these insights, brands can improve their product development and services pipeline, make marketing efforts more relevant to their target customers, and effectively prioritize decision making for the business.
While there are many simple ways to segment a market, a true segmentation study is a robust undertaking that leverages both art and science to paint a picture as rich and nuanced as your target market. Let’s dig in.
You might already know your brand would benefit from a segmentation study, but the question remains: what types of market segmentations are out there, and which one is right for your business? It’s important because finding the appropriate approach for your unique situation can make all the difference for your customer experience down the road.
To set your market research endeavors up for success, we’ve pulled together a list of the most common types of segmentations you may consider. We’re also including examples of the business challenges most effectively served by each type so you can make an informed decision for your needs:
A person-based segmentation is the most common consumer segmentation study. Just about any large brand or small business needs a clear understanding of the types of customers they can address in their marketing campaigns. The business-to-business (B2B) analog of person-based segmentation can either group people (e.g., IT decision-makers) or organizations (e.g., ACME Corp.).
While there are several types of person-based segmentation techniques, two have recently increased in popularity: demographic segmentation and attitudinal segmentation, which are discussed below.
As its name implies, demographic segmentation groups segments by relatively straightforward demographic data. It can include personal traits like education level, age (think generational groupings), family size, sex, household income, and marital status. In the B2B space, demographics can also translate to firmographic segmentations where attributes like industry, revenue, company size (number of employees) are considered. Geographic segmentations (think physical location or population density) are also accounted for in this category.
Demographic segmentations have been popular for decades because they are often inexpensive, easy to understand, and relatively simple to target and buy media against. However, demographic segmentations aren’t especially useful for building marketing strategies against as the profiling on category needs, attitudes, and behaviors tends to be flat and undifferentiated. Demographic segmentations are increasingly being promoted by DIY software platforms as an efficient, cost-effective way to build a segmentation study, but they don’t always offer the strategic benefits of other study types.
Psychographic segmentations can add another layer of nuance to the equation that can make your segmentation strategy more effective. This involves defining subgroups by leveraging psychographics such as lifestyle and values-based information to inform long-term innovation, or to position commodified or image-driven products (like water or perfume).
Delving deeper into the approach for psychographic segmentations, an attitudinal segmentation is a more in-depth version of a person-based segmentation study which offers insights into the beliefs, needs, and wants of consumers. Understanding this kind of customer data can tell companies how to position their brand and promote it to people through messaging and media (i.e. the “what” to say and to whom).
With an attitudes and need-state segmentation approach, a person-based segmentation study allows brands to monitor and explore their segments in future research by using an efficient and accurate algorithm or short-form survey (also known as a typing tool). If the brand has rich behavioral data in their database, they can also tag or score their database with likelihoods of segment membership. That helps them map their existing customers to the various segments, adjusting customer service and communications on a segment-specific basis.
The other broad category of segmentation studies has multiple names: need-state segmentation, occasion-based segmentation, or “jobs to be done.” This kind of behavioral segmentation study identifies specific situations with unique customer needs and consumer behaviors and allows the same customer to exist in different need states on different occasions, when they are likely buying different brands to accomplish different jobs. For example, a customer may purchase a given soft drink to quench their thirst after a workout, and they may also purchase the same beverage as a late afternoon pick-me-up.
Due to the complexity of understanding that a person can belong to more than one segment throughout a given day, month, or year, this type of needs- or occasion-based segmentation study is not entry-level stuff. Rather, it’s most appropriate for companies who already understand how to market differently to different groups of people.
Need-state segmentations are common when a client has a brand portfolio—different categories, products, or sub-brands—and wants to either position each of the products for the right types of occasions or get insights that can inform innovation activities.
Since segments in a needs- or occasion-based segmentation are situations, not people, there is little need for an algorithm or typing tool since you can’t classify a survey respondent into one need state. This allows for tremendous flexibility in how to statistically create the segments (one of several splashes of art in an otherwise scientific process).
When a brand has a large portfolio of sub-brands or products, there can be unnecessary overlap between them that requires rationalization. A demand landscape, which is a cross between a person-based segmentation and a need-state segmentation, is an effective tool to do just that.
A demand landscape tells you who to talk to and what to promote to them, depending on their segment and situation. The framework, which requires conducting a person-based segmentation first, followed by a need-state segmentation, is extremely effective in identifying innovation opportunities. While some companies like to do both studies in a single survey, modern best practices in data collection encourage separate surveys to protect the representativeness of your sample and the quality of the data collected.
To offer a better sense of which types of segmentations apply to specific business situations, we conducted an unscientific “segmentation of segmentation types.”
Here are a few illustrative examples to help you understand which segmentation type may be right for your business situation, whether its inspiring customer loyalty and increasing customer retention or expanding into new or niche markets:
Whatever its final design, an effective market segmentation study helps you identify the most valuable groups of customers and prospects and prioritize them by their receptivity to your brand’s offering, accessibility in the market, alignment with your strategy and brand purpose, and the size of the economic opportunity.
Learn more about our approach to market segmentation, and when you’re ready to partner, contact LRW (now Material) by filling out this form.