What is Market Segmentation?

Market segmentation can help you better understand and define your ideal customer for improved target marketing strategies.

You’ve decided to run a marketing campaign for your business. As you start laying out your campaign strategy, you realize you need to define certain parameters such as which age, gender, location, and income level to target, or how to develop a campaign that appeals to your customers’ likes and purchasing patterns. You also want to personalize your campaign better so that your audience doesn’t immediately dismiss your ad as irrelevant or spam.

That’s where market segmentation comes in. Market segmentation is a strategic tool that marketers and business owners use to understand and define their ideal customer. It is a process of categorizing your audience into groups based on characteristics such as demographics, interests, behavior, and more. 

With proper market segmentation, you’ll be able to deliver more effective marketing campaigns that resonate with your audience. Knowing where your ideal customers shop, how they get inspired, what their opinions and spending habits are, and how they prefer to be engaged with will allow you to formulate the right target marketing strategy that improves conversions and grows your business.

Types of market segmentation and how to do market segmentation

While there are many types of market segmentation you can use, the four main ones are:

  1. Demographic
  2. Geographic
  3. Psychographic
  4. Behavioral

These four main types of market segmentation may also be broken down into smaller sub-categories. They can always be combined to create a more niche audience that’s highly specific and relevant to your business.

1. Demographic

Categorizing your customers into groups based on demographic data is one of the most popular types of market segmentation. It is easy to define who goes into which segment. 

Due to its statistical nature, demographic segmentation is widely used in mass-market research and marketing analytics platforms such as Google Analytics

Demographic market segmentation examples: 

  • Age
  • Gender
  • Ethnicity
  • Religion
  • Education
  • Annual Income
  • Family 

A luxury brand selling men’s formal wear would want to have their marketing campaign target men (gender) aged 30 and above (age) earning at least $30,000 annually (income). 

On the other hand, a business selling handmade baby booties would get better results targeting women (gender) aged 21 and above (age) with at least one child under the age of 2 (family).

2. Geographic

Geographic segmentation defines your target audience based on their physical location. Much like demographic segmentation, geographic segmentation is easily definable due to the clear-cut nature of categorizing your audience. 

Geographic market segmentation examples:

  • Postal code 
  • City
  • Region
  • Country
  • Climate
  • Urban or rural
  • Radius around a chosen location

A florist in Pasir Ris offering urgent half-day shipping of bouquets to addresses in eastern Singapore would want to run a marketing campaign that exclusively targets customers based on their postal code.  

A business offering childcare services would want to target parents with young children who live or work within a certain radius of the childcare center. This is an example of how two types of market segmentation (demographic and geographic) can be combined to define your ideal customer.

3. Psychographic

Psychographic segmentation categorizes your audience based on their personalities, motivations, and interests. Unlike with demographic or geographic segmentation, these factors are hard to identify, requiring in-depth research to uncover.

Psychographic market segmentation examples:

  • Beliefs 
  • Values
  • Interests
  • Attitudes
  • Lifestyles
  • Personality traits
  • Motivations
  • Priorities

Due to its subjective nature, psychographic segmentation may be the most challenging type of market segmentation, but getting it right offers unparalleled insight into your ideal customer, allowing for incredibly effective marketing that resonates with your audience on a personal level. 

Singapore brands like Statement, Mightyjaxx, and Slickieslaces are great examples of how psychographic segmentation can build effective target marketing strategies that strengthen customer loyalty. 

Rather than targeting audiences based on age, gender, or location, these brands built their businesses by appealing to those with specific attitudes (having a wicked sense of humor or passion for sustainability) and niche interests (love for novelty shoelaces or designer toys).

4. Behavioral

Behavioral segmentation categorizes your customers based on their actions and interactions with your brand, including browsing habits, time to conversion, and purchasing patterns. This type of market segmentation is most useful for retargeting campaigns.  

Behavioral market segmentation examples: 

  • Spending habits (how much)
  • Purchasing habits (how often)
  • Browsing habits
  • Interactions with the brand
  • Repeat purchases
  • Brand loyalty
  • Product ratings

A common use of behavioral segmentation is to differentiate between new customers, returning customers, dormant customers, and VIP customers. Based on these categories, your marketing messaging will be vastly different: 

  • New customers: Welcome! We’re so pleased you’ve joined our mailing list. 
  • Returning customers: Join our loyalty program and save now!
  • Dormant customers: We’ve missed you! Use this 10% discount code and get shopping again. 
  • VIP customers: Thank you for your loyalty, here’s a free gift on us!

What are the benefits of market segmentation?

Market segmentation gives you a framework for building better marketing strategies based on your customers’ unique characteristics, allowing you to differentiate your business in a highly competitive landscape. It can also help identify untapped opportunities in your market for business expansion.

More efficient marketing

The key purpose of market segmentation is to know your customer. Once you have that information, you’ll be able to market to the right people, in the right way, on the right platforms for optimum conversion. Without proper market segmentation, you risk wasting resources on ads that target the wrong audience or messaging that doesn’t appeal to your ideal customer.

Better business differentiation

Before even considering promotional strategies, market segmentation can make a huge difference during the business planning stage by helping you strategize how to make your business stand out in a competitive landscape. Cult brands, for example, usually start with a very niche target market first, building traction and brand recognition with a smaller audience before expanding into the broader market.

Market expansion

The market segmentation process can potentially help you identify key market opportunities for expansion – through researching your ideal customer, you may uncover unmet needs or gaps in the current market that you can capitalize on. This insight can then be used to inform the development, design, and expansion of your product line.

Common questions about market segmentation

What is the purpose of market segmentation?

Market segmentation helps marketers and business owners better understand and define their ideal customer. This allows them to build better targeted marketing strategies that will successfully reach, appeal to, and eventually convert their target audience into paying customers. Well executed, market segmentation can lead to higher conversions, market expansion, and stronger brand loyalty.

Why is market segmentation important?

Having a deep understanding of your customers should be a top priority for any business owner, and market segmentation is key to achieving that. Not only will market segmentation help you develop a stronger marketing strategy, it can also add value during the business planning stage – the segmentation process can potentially help you uncover untapped market opportunities for better market and product differentiation.

How do I create a market segmentation strategy?

Now that you're aware of the benefits of market segmentation, your next question might be: how do I start formulating my own market segmentation strategy? All successful marketing stems from understanding your customer, so start by researching your target audience. You can do this by:
Surveying customers
There's no better source for insight than your customers themselves. Surveying your customers is exceptionally valuable in uncovering information for psychographic segmentation, which involves personal values, interests, beliefs and motivations.
Analyzing existing data
Website analytics can offer all sorts of behavioral information to help you with market segmentation, including how to identify your top-paying customers, where most of your referral traffic is coming from, and how long it takes from when a customer lands on your site to when they make a purchase.
Researching your competitors
Don't have any existing customers yet? If you have a competitor with a very similar business model to yours, researching their customers can help you build a demographic, psychographic and behavioral profile for your ideal customer. Forums and social media channels are an excellent place to start.

Improve your target marketing strategies with Shopify

Drawing up a target marketing strategy that will successfully reach, appeal to, and convert your audience is easy with Shopify’s wide selection of marketing apps that integrate seamlessly into your store. 

Launch, measure and learn from your marketing campaigns with Shopify’s Marketing Activity and Sales Attribution reports, which consolidates data from all your marketing channels – including Facebook, Google, and MailChimp – onto a single dashboard for seamless access and analysis. You can also integrate analytics apps into your digital sales channels to understand your customers’ behaviour for better conversion rate optimization. 

And if you need any additional help, you can always reach out to our trusted Shopify marketing and sales experts for advice on how to grow your business.