Market Segmentation Explained for Beginners

Market segmentation is a set of actions necessary for dividing specific markets and consumers’ groups and subgroups into categories based on their specific characteristics. The main mission of the process is to identify potentially profitable and scalable market segments.

For marketers, segmentation comes as the process of the aggregating target audience into classifications following equal demands and needs in terms of consumption tendencies. For investors, segmentation provides extended market research with the chance to identify the most favorable niches and companies from an investing perspective.

The Use of Market Segmentation from Business Perspectives

Either you are an investor or business owner, market segmentation is a crucial stage of development. It helps to identify the most favorable sector within different market segments.

• Businesses use the process to classify target audiences by demographics, age, spending capabilities, gender, and other crucial parameters. Having this crucial data in mind, they can launch personalized ad campaigns, promotions, and special offers that ensure maximum user acquisition.
• Investors use segmentation for a better understanding of various market niches as well as potentially string stocks issued by certain companies. Besides, different market segments make it possible to establish a diversified portfolio that brings increased chances to generate higher profit.

No matter which side you belong to, segmentation requires in-depth market analysis and understanding of some financial and economical basis.

Market Segmentation Types

Proper segmentation makes it possible for organizations to leverage sales and enhance some of their promotion or ad campaigns. A company that has a market well-segmented comes with huge competitive advantages and a clear direction to scale business. This is where business owners need to clarify several baseline segmentation types:

1. Demographics – the simplest segmentation process helps to sort out consumers or the market by typical demographic factors such as gender, education, social background, age, occupation, nationality, etc.
2. Geography – geographical segmentation is a subgroup of demographic type. It is used to classify different groups by their location and consider their potential interests taking into account climate changes, interests, and needs depending on the region they live in.
3. Behavioral – the process of sorting out individuals by their consumption behavior. The idea is to consider the way they make decisions on whether to buy a specific product or not. This type of segmentation involves lifestyle and purchasing patterns’ analysis.
4. Firmographics – while the three first segmentation types are focused on consumers, firmographic segmentation is applied to companies. It helps to analyze an organization by its size, staff, the number of employees, revenue, and other crucial factors.

Simple Steps to Identify Different Market Segments

To recognize different market segments, they have to meet three baseline criteria. The first one involves homogeneous subgroups. Secondly, each member of the subgroup or element of the segment must feature equal characteristics. Last but not least, a certain segment is supposed to have a similar response to implemented market strategies and techniques.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.