Market segmentation is a technique for using market research in order to learn all you can about your customers. The purpose of market segmentation is not just to sell products and services, but to inform research and development.
Customers appreciate marketing that is specifically directed at them, designed for them, and that efficiently presents the information they need to make a sound purchase. The more a business knows about a target market, the easier it becomes to persuade the consumer to differentiate a product, service, or brand.
When a market researcher knows what is valued by a consumer (or consumer group), they know how to market the product and how to tailor the advertising in a way that appeals to that group.
Market segmentation is most easily established by exploring and analyzing many different characteristics of potential consumers.
Market Segmentation: Tier One
Tier One includes the most common and familiar of the attribute groups—demographic, socioeconomic, and product usage.
This category includes attributes related to age, city or region of residence, gender, race and ethnicity, and composition of the household. While these are all important attributes, the relationship between these characteristics and consumer behavior may be quite small. Demographic attributes function best as a foundation for more specific segmentation of the research.
This category includes attributes related to household income, level of education, occupation, the neighborhood of residence, and membership in various associations. These characteristics tend to be more refined in terms of the relationship to consumer behavior—particularly as a reflection of a consumer's lifestyle, brand preference, price sensitivity, and the array of services used by the consumer.
Brand Affinity/Product Usage
Consumers who exhibit a brand affinity or actual product usage are segmented on the basis of their behavior. This makes brand affinity and the product's usage one of the strongest categories to use when developing market segments. This is why inbound marketing works as well as it does—essentially, consumers create their own segments through their inbound marketing activity.
Market Segmentation: Tier Two
Tier Two is an extension of the Tier One attribute group. Tier Two attributes are obtained by drilling deeper into the Tier One attributes.
This category includes attributes related to specific lifestyles, hobbies, personality, attitudes, opinion, and even voting behavior. The relationship between these psychographic characteristics and consumer behavior is fairly strong and can provide an effective avenue of communication with potential consumers.
This category includes attributes related specifically to an identifiable generation cohort group. Segmentation by generation addresses similarities in people who are born in the same time period. These generation cohorts tend to exhibit an orientation to life that has been (or is) strongly influenced by the economic, technological/scientific, political, educational, and political experiences they have shared.
This category includes attributes that are related to the geographical area in which consumers reside and work. Consumers in this category may be similar along with a number of important dimensions, such as political orientation, religious affiliation, and options for transportation and shopping. These consumers may share an affinity for regional cooking or show strong preferences for certain kinds of apparel.
This category includes attributes that combine geography and demographics, which may cluster into identifiable groups. Segmentation based on geodemographic strategies tends to be implemented through commercial software packages developed for this purpose. This category of attributes is best when combined with other segmentation strategies.
This category of attributes is related to the benefits that consumers seek when they shop for products and services. The benefits that consumers seek can vary widely depending on what they want to buy. Brand loyalty, brand affinity, and consumer brand attitude cannot be measured collectively. Rather, these attributes may be brand-specific, or maximally, categorically specific. For instance, a consumer may shop thrift stores for clothing or household goods but exclusively shop for food at expensive, organic food markets.
Once Tier One and Tier Two of the market segmentation process are complete, the marketer is ready to create personas or profiles of potential consumers.