The skinny on segmentation

Demographic segmentation: Finding out who the person is on paper

Demographic segmentation is a traditional, straightforward approach that involves dividing a population into groups based on factors such as age, gender, income, occupation, education, marital status, and ethnicity.

Examples

• A toy company could apply insights from demographic segmentation to target groups with age-appropriate toys. For instance, it might develop a line of educational toys for toddlers and preschoolers, focusing on colors, shapes, and basic cognitive development. For older children, the company could create a line of action figures, building sets, or interactive toys that align with their interests and motor skills.
• A clothing retailer could design separate clothing lines for different age groups, aligning with the fashion preferences and lifestyle needs of each cohort. It might develop a trendy and vibrant collection for teenagers, a sophisticated and professional line for working adults, and a comfortable and practical range for seniors.

PROS

• Demographic data is readily available. You can collect it through market research, government records, online analytics, and customer databases.
• Demographic segmentation provides clear, measurable categories for dividing a population. Factors such as age, gender, and income are easily identifiable and quantifiable, making it simpler to target and analyze specific consumer groups.
• This segmentation strategy is applicable across various industries and marketing contexts. It can be used by businesses of all sizes and across different sectors, including consumer goods, healthcare, and finance.

CONS

• While an important aspect of any buyer or user persona, demographic data offers limited insight into individual needs and behaviors, so it shouldn’t be used in isolation. Consider pairing it with other forms of segmentation for a more holistic understanding of consumers and their motivations.
• Demographic studies and their conclusions can easily be tainted by assumptions or biases. A study that predominantly targets a specific demographic group or relies on self-reported data may introduce selection bias, resulting in a sample that doesn’t accurately represent the broader population. Biases can also stem from the interpretation of demographic data. Researchers or marketers may make assumptions about a group’s preferences, behaviors, or needs based on generalizations, leading to inaccurate or incomplete findings and masking the diversity of individuals within a particular segment.

Geographic segmentation: Seeing where your products and services hit home

Geographic segmentation involves sorting customers into segments based on their location, such as their country, region, state, city, or neighborhood. You can easily source this data from the government census, market research surveys, customer databases, online analytics, and geolocation tracking.

Examples

• A fast-food chain could customize its menu offerings based on regional preferences and tastes. It might offer spicier menu items in regions known for a preference for spicy foods, introduce seafood options in coastal areas, or create vegetarian or vegan options in areas with a high concentration of individuals following those diets.
• A telecommunications company could offer different pricing plans and services based on the coverage and connectivity needs of specific regions. It may provide higher data allowances or faster internet speeds in densely populated areas where there’s a higher demand for connectivity, while offering more affordable plans with basic services in rural areas where coverage might be limited.

PROS

• Thanks to the variety of geographic subdivisions available, this type of segmentation enables you to choose the perspective and depth of your analyses. For example, you might gather climate data at the regional level but study economic conditions on a per-city basis.
• Geographic segmentation allows businesses to establish a strong market presence and increase brand recognition by implementing location-based marketing initiatives such as launching geotargeted ad campaigns on social media, sponsoring local events, leveraging out-of-home advertising opportunities, or forming community partnerships.
• Location-based analyses benefit multiple departments. In addition to offering marketing insights, geographic segmentation helps real estate teams pinpoint areas for future development. Likewise, it allows operations teams to optimize their distribution and logistics networks by strategically locating facilities, warehouses, and retail outlets to ensure timely product availability.

CONS

• Geographic segmentation runs the risk of oversimplifying and generalizing the characteristics, preferences, and behaviors of individuals within a particular geographic area. While locational factors can provide valuable insights, relying solely on them may lead you to overlook the diversity of a specific region. Failing to consider nuances such as cultures, languages, and traditions may lead to ineffective marketing messages or offerings that don’t resonate with the target audience.
• Shifting demographics and population fluidity pose challenges to geographic segmentation. People move, relocate, and commute between different areas, blurring the boundaries and making it harder to capture accurate and up-to-date data.

Needs-based segmentation: Uncovering what your customers want

Needs-based segmentation accounts for individuals’ unique needs, preferences, and motivations. This approach recognizes that consumers have different underlying reasons for purchasing a product or service. To collect information for needs-based segmentation, you can perform market research, create surveys, engage focus groups, and solicit customer feedback.

Examples

• A company that specializes in skincare products could create a range of moisturizers formulated for customers with various conditions, such as dry skin, oily skin, or sensitive skin, addressing their unique requirements.
• A travel agency could offer tailored vacation packages based on different customer needs and preferences, such as adventure travel for thrill-seekers, family-friendly packages for those with children, or luxury getaways for individuals seeking premium experiences.

PROS

• Needs-based segmentation can help you differentiate your company by demonstrating that you understand and can address specific customer needs that competitors may overlook. This tactic empowers businesses to establish themselves as industry leaders in meeting those unique requirements.
• This methodology enables businesses to allocate resources more effectively by prioritizing segments that align closely with their offerings. Needs-based segmentation helps you identify the groups with the highest potential for success, allowing you to concentrate your efforts, budgets, and resources on the most valuable opportunities. This in turn leads to greater efficiency and a better return on investment.
• Needs-based segmentation allows you to target customer segments with great precision. By grouping customers according to their specific needs, desires, and motivations, you can tailor your marketing efforts and boost your conversion rates.

CONS

• Due to its complexity, needs-based segmentation calls for in-depth data collection and analysis. This extensive research can require significant time, resources, and expertise. Additionally, obtaining reliable data on customer needs may pose challenges since consumers’ preferences and behaviors can evolve over time, making it crucial to regularly update and validate the data used.
• Needs-based segmentation, by its nature, focuses primarily on customer needs, potentially overlooking other elements at play. While addressing needs is essential, it is important to consider other aspects that may contribute to a more complete understanding of customers and their purchasing decisions.
• Needs-based segmentation may lead to a narrower market focus, targeting only those who have specific needs that align with your offerings. This approach might exclude potential customers who haven’t expressed those needs explicitly or who fall outside the defined segment. By narrowly focusing on a subset of customers, you risk leaving key audiences untapped or failing to identify emerging needs that could present opportunities for business growth.

Firmographic segmentation: Tackling an entire company

Great for business-to-business marketing, firmographic segmentation involves classifying customers based on company-specific characteristics, such as its industry, number of employees, annual revenue, age, and organizational structure. To collect firmographic data, you can look to public records, industry databases, business directories, company websites, and specialized data providers.

Examples

• A company that sells accounting software could offer product packages and features suited to the needs of different types of businesses, accounting for their distinct decision-making processes and budgetary constraints. For instance, it might provide a basic package for small startups with limited accounting requirements, a comprehensive package for medium-sized enterprises with complex financial processes, and an enterprise-level solution with advanced features for large corporations.
• A supplier of office furniture could develop product lines that cater to the specific needs of different types of businesses. For example, it might provide ergonomic furniture options and collaborative workstations for technology companies focused on employee well-being and teamwork but offer modular furniture systems and space-saving solutions for startups with limited office space

PROS

• Firmographic segmentation is a valuable tool for implementing account-based marketing strategies. By identifying target companies based on firmographic factors, businesses can create personalized marketing campaigns and experiences that are specifically designed to engage and nurture those high-value accounts.
• A company-centric approach can contribute to improved customer retention and loyalty by helping you gain a deeper understanding of the nuances and intricacies within specific industries and tailor your products, services, and customer experiences accordingly. This ability is especially valuable for businesses navigating the complex compliance requirements of highly regulated industries like healthcare or finance and for companies whose industry is driven by fast-paced technological advancements.

CONS

• Firmographic segmentation efforts can be limited by the availability of data, particularly for smaller or less publicly accessible companies, making it challenging to implement on a large scale.
• This research strategy focuses primarily on organizational-level characteristics, potentially overlooking individual differences within a company. It may fail to capture variations in preferences, needs, or decision-making behaviors among individuals in an organization, limiting the effectiveness of targeted marketing efforts or personalized customer experiences.
• Because it focuses on high-level criteria, firmographic segmentation may not effectively identify the decision-makers within a company. This shortcoming can result in ineffective communication strategies, as your messaging may not reach those who control or influence the organization’s purchasing decisions.

Behavioral and geosocial segmentation: Believing that actions speak louder than words

Behavioral and geosocial segmentation are closely related methodologies that distinguish customers by their on- and offline activity. Behavioral segmentation considers variables such as purchase history, website visitation, and channel preference, while geosocial segmentation looks more narrowly at location-based social media data to analyze the interests and values consumers express through posts, comments, and other interactions. You can access this data through platforms such as SiteZeus Market, which use mobile location tracking, loyalty data, and other real-time information to paint a complete picture of your customer base.

Examples

• By analyzing their social media behavior, a cosmetic brand could identify segments such as beauty influencers or makeup enthusiasts who actively engage with beauty-related content, share makeup tutorials, and provide product reviews. The brand could then collaborate with these influencers and develop products that cater to the trends popular with their followers. The company could also leverage social media data to understand the interests, values, and lifestyle choices of its customers, using these insights to create targeted campaigns and foster a sense of community around its brand.
• By analyzing customers’ social media posts, likes, hashtags, and comments related to food, a food delivery service could identify segments such as food enthusiasts, health-conscious individuals, or vegan/vegetarian communities. It might offer exclusive discounts on gourmet meals for food enthusiasts, promote nutritious meal options for health-conscious individuals, or curate a special menu with plant-based choices for the vegan/vegetarian segment.

PROS

• A behavioral and geosocial approach offers remarkable accuracy by providing data straight from the source rather than requiring you to rely on questionable inferences and extrapolations. Analyzing how individuals actually behave and why they do so can help you understand your target audience on a more personal level and translate that knowledge into captivating campaigns.
• In addition to — or perhaps in spite of — being the most sophisticated, this advanced approach is the fastest. When applied via an A.I.-powered platform, it offers access to real-time data for instant insights, empowering you to quickly identify changes in consumer behavior and adjust your campaigns to reflect the latest trends.
• This methodology supports healthy sample sizes by drawing upon large collections of website, social media, and mobile data and layering it for a multidimensional approach that ensures maximum accuracy.

CONS

• Extracting actionable insights from behavioral and geosocial data while protecting consumer privacy might require businesses to invest in their technology infrastructure or employ external analytics tools. Fortunately, you can mitigate privacy concerns by partnering with a third party that uses anonymized data to deliver precise results without sacrificing security.
• While behavioral and geosocial segmentation provide insights into observed behaviors, they might not always capture the full context, emotions, or psychological factors that influence consumer decisions. For this reason, they’re best paired with a psychographic analysis or refined to focus on behaviors that are strongly tied to value systems.

Top takeaways

Whether you’re focused on customer acquisition, expansion, or retention, you should take a close-up look at your customers. Get to know your target audience by analyzing sales data, conducting surveys, studying social media activity, and using segmentation software.

Done right, segmentation will equip you with the insights you need to

• uncover hidden growth opportunities,
• prioritize marketing initiatives,
• maximize your campaign budgets,
• address consumers’ specific pain points and preferences,
• speak to them in terms they understand,
• reach them consistently by targeting the channels they frequent,
• position your company as a trusted partner and industry expert,
• streamline the adoption of your products and services,
• improve customer satisfaction,
• encourage audience engagement, and
• foster long-term loyalty.

Remember, when it comes to segmentation, there’s no foolproof method or one-and-done solution. As consumer preferences and behaviors evolve, so must your marketing strategy and the segmentation studies behind it. You’ll need to pick the right segmentation style(s), compile detailed data, and reanalyze it regularly for the best results. Wondering where to get started? See how SiteZeus Market can help you home in on your core customers and put an end to missed marketing opportunities.