Five Types of Market Segmentation + Real-world Examples

Let’s say your company makes organic dog treats. You probably won’t have much luck selling them to someone who doesn’t own a dog. So how can you ensure your campaign appears in front of the eyes of the most relevant people online, i.e., dog owners? 

The answer is market segmentation. 

Just as a buyer persona can give deep insights into your target audience’s wants and needs, market segmentation can help you improve your campaigns’ efficiency by taking a closer look at your target audience’s thoughts, behaviors, and interests. This allows you to present your product or service to the people who can benefit from it the most.

In this article, the Galactic Fed digital marketing experts provide the what, why, and how when it comes to market segmentation. We also outline examples of different types of market segmentation so that you can quickly identify what could work for your own business to help you scale. Let’s dive in! 

What is market segmentation?

Market segmentation is the digital marketing activity of segmenting your company’s target market into smaller, more defined segments, allowing you to conduct comprehensive research into your customer base. 

When you undertake market segmentation, you’re able to draw on consumer experience (CX) intel, product development enhancements, ideas to boost brand loyalty, and more. 

Benefits of market segmentation 

Market segmentation allows you to improve the efficiency of your campaigns by focusing resources on the efforts that provide the most optimal return on investment (ROI.)

Improved conversion rates

Performing market segmentation allows your business to attract the right customers that matter through targeted, direct and clear messaging to people who want to buy from you. This can also do wonders for your conversion rates. Check out our complete guide to conversion rate optimization for more tips on improving your CRO.

Lower acquisition costs 

Bring the cost of each acquisition down thanks to the ability to create tailored communications. 

Use these newly acquired messages in both of your ad messaging and advanced targeting on social platforms like Facebook, Instagram, and Google using your in-depth segmentation.

Profit improvements 

Market segmentation makes it possible to evaluate how different groups of customers have different disposable incomes and set your price points according to how much they’re willing to spend on your various products or services. 

This will help your business from under or over-selling itself.

Product development 

The ability to make iterative improvements to your products or services is made possible through insights gained from market segmentation.

You’ll be able to make adjustments and improvements based on your customers’ needs, place them at the heart of your decision-making, and maybe even develop different products that cater to your different customer bases.

Increased customer lifetime value 

Market segmentation can also have a positive impact on your company’s customer lifetime value (CLV.) With valuable data and insight into specific groups of your customers, you can improve onboarding, and your service offer, increasing your CLV over time. 

We explain in detail three easy ways to increase your company’s CLV if this is something you’d like to tackle right away. 

The five different types of market segmentation with examples: 

Demographic Segmentation

Arguably the most well-known customer segmentation, dividing your customer base by demographic sorts a market by elements such as income, education, age, family size, nationality, and occupation. 

Demographic-based is one of the most common and straightforward forms of segmentation because the services and products we are willing to buy, how we use them, and how much we are ready to spend on them primarily comes down to our demographic factors.

Example of demographic segmentation 

An example of companies using demographic segmentation is the marketing of alcohol, given the drinking age is 21+:

VEUVE CLICQUOT RICH - New Year Instagram Campaign from SCOPE on Vimeo.

Source: Scope

Behavioral Segmentation

One of the most popular ways businesses segment their customer base regarding their digital marketing campaigns is through behavioral segmentation. 

Behavioral segmentation is specific to how a customer interacts with your brand. Their unique digital footprint can include data like how the product benefits the customer, how much your campaign prompts the customers to buy, and more. Digging deeper into customers’ purchasing habits, behavioral segmentation produces behavior patterns, like customer loyalty, specific to interactions with a particular company or brand.

Example of behavior segmentation 

Budding athletes may gravitate to brands like Nike, given their popularity with famous basketball and football stars:

Source: Nike

Psychographic Segmentation

Psychographic segmentation focuses on the psychological aspects of consumer behavior by dividing grouping customers segments by lifestyle choices, core values, opinions, personality traits, and key interests.

Example of psychographic segmentation 

Sizable markets like food and beverage use psychographic segmentation when they sort their customers into categories of people who are vegetarian or vegan, like in this Beyond Meat and LA Lakers example:

Geographic Segmentation

It’s all about the geography of where your customers are, as the name of this segmentation implies. Geographic segmentation groups customers based on variables like the city or town they live in, the state they live in, a common climate, to name a few. Geographic segmentation can be a subset of demographic segmentation or a distinct segment in its own right. 

Segmenting using geographic variables becomes more critical when you’re trying to target customers of a particular locality. It’s not uncommon to factor in using different languages and tones of voice for your campaigns if you’re looking to take advantage of geographic segmentation. 

Example of geographic segmentation 

Amtrak’s Northeast Regional train line targets customers who live in a similar, cold climate where road conditions are commonly front of mind: 

Source: Amtrak 

Firmographic Segmentation

Firmographic Segmentation is similar to demographic segmentation, but instead of looking at individuals like demographics do, firmographics looks at businesses. Firmographic segmentation considers variables like company size, annual sales cycle, annual revenue, and the number of employees. This is typical segmentation for B2B companies looking to connect with other businesses that could benefit from their products or services. 

Example of firmographic segmentation 

Foundr, who offer courses and resources to entrepreneurs, used firmographic segmentation for their targeted Instagram ads: 

Source: Foundr

Data-driven digital marketing that drives growth 

Whether you are a small business looking to improve your use of geographic segmentation or an established B2B company eyeing more streamlined firmographic segmentation, Galactic Fed’s team of digital marketing experts can help. 

We recently helped an early-stage telehealth start-up lower their ad campaign cost per acquisition (CPA) by 68% in one week through A/B testing, copy testing, and price tests. Drop us a line today!