How to Define Your Customer: The 4 Types of Market Segmentation

Posted by Maziar Adl
Maziar Adl
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Illustration: different marketsEffective product management requires a deep understanding of your target audience. It is crucial to identify what your potential customers want from the product type you are developing to create an exceptional product.

Conducting in-depth customer research is vital in creating excellent products, and adopting a market segmentation strategy is an invaluable method that can assist in achieving this goal.


What Is Market Segmentation?

Market segmentation involves breaking down the target market into smaller groups with common characteristics; these include age, income, location, personality traits, behavior, and interests. Understanding your market is crucial as it allows you to effectively reach your target audience by tailoring sales and marketing strategies that speak to them directly about your product.


The 4 Types of Market Segmentation 

When examining a large market, it is easier to break it down into smaller groups of customers who share similar needs, characteristics, or behaviors. There are four distinct types of market segmentation:

  • Demographic 
  • Geographic 
  • Psychographic
  • Behavioral


What Is Demographic Segmentation?

Illustration: demographic segmentationDemographic segmentation divides the market based on age, education, race, gender, occupation, marital status, and household income. This type of segmentation offers a wealth of information about the products and services we buy and how much we are willing to pay for them. 

Demographic data is also useful when planning products, as it allows an organization to predict future behavior, as customer segments with similar demographic characteristics tend to behave in a similar way.


What Is Geographic Segmentation?

Illustration: geographic locationsAnother way of segmenting your potential customers is by their geographic location. This involves dividing your market into groups based on their geographical locations and includes distinctions such as country of residence, timezone, cultural preferences, languages spoken, and urban and rural differences. 

As customers from different areas have unique needs, preferences, and interests, it is crucial to understand these factors as it can help a product manager to identify the products they need and where and how to sell them. 


What Is Psychographic Segmentation?

personal-profilePsychographic segmentation categorizes the target audience based on behavior, lifestyle, attitudes, and interests, dividing markets by psychological aspects of consumer behavior. 

By understanding your customers' thought processes, you can gain insight into their motivations and understand why they might want a specific product. Psychographic segmentation helps businesses to take a more personalized marketing approach appealing to their social status, interests, and opinions.


What Is Behavioral Segmentation?

Illustration: behavior segmentationBehavioral segmentation focuses on understanding how customers behave and make decisions. This approach involves dividing markets based on behaviors such as purchasing habits, consumption patterns, lifestyle choices, and usage trends. By focusing on these specific behaviors, marketers create marketing campaigns focusing on what they know the customer is interested in. 


The 4 Ps of Marketing

When it comes to market segmentation and working with the data to develop products and services, a product manager will use the information to determine the following:

  • The type of product they will build
  • The price they can realistically charge for the product
  • The place they should sell the product
  • How should they promote the product


Determining the Product

Illustration: focus one productA product manager is responsible for determining which products to build. Market research helps them to establish who needs the product and why they need it. It is essential to understand the customers' pain points and develop a product that meets their needs. It is also crucial to research competitor products to determine if you can differentiate your product enough so it stands out from the rest. 


Determining the Price

Illustration: pricingThe price of a product is determined by what consumers are willing to pay for it. Product managers must consider the product's perceived and actual value, as well as factors like supply costs and competitor pricing. It is common to increase the price of a product to make it seem more luxurious or exclusive or lower the prices to encourage more people to try it. 


Determining the Place

storefrontWhen it comes to selling a product, placement is a crucial consideration. This involves deciding whether the product should be sold online or in physical stores and how it should be presented to potential customers.

Products must also be visible to the individuals most likely to purchase them, so marketing teams may choose to place a product in select stores and showcase it in the most appealing manner.

Product placement can also refer to the process of promoting a product through the appropriate channels, such as advertising in media that will capture the attention of the desired audience.


What Is Promotion? 

Illustration: go to market and marketingPromotion serves two main purposes: firstly, to inform customers about the availability and uniqueness of their products, and secondly, to convince them that the product is superior to its competitors and to remind them of its benefits. Marketers typically combine promotion and placement strategies to effectively target their main audience.


What Is the Difference Between Market Segmentation and Product Segmentation?

Product segmentation refers to the process of altering a product to create various versions that cater to different customer needs or target diverse markets. On the other hand, market segmentation involves modifying the marketing approach to achieve the same goal. By conducting product segmentation, companies can simplify market segmentation by directly catering to the target audience.


Market Segmentation Strategies

When analyzing your target audience and developing a market segmentation strategy, there are several steps to follow.

  1. Define your target market by defining your desired audience and the type of product they need.
  2. Segment your target users by geographic, psychographic, demographic, and behavioral factors.
  3. Understand your market by using surveys, focus groups, and polls. 
  4. Create your customer segments by analyzing the research data.
  5. Test your conclusions by designing customized marketing and advertising strategies for your target audience. If you are not achieving the desired results, revisit your segments and refine your techniques.

Once you have accurately segmented the market, you can test your product by creating a minimum viable product (MVP) and presenting it to the customer. Use the feedback to adapt the product and iterate where necessary.


What Are the Benefits of Market Segmentation Strategies? 

By focusing on market segmentation, a product manager is better equipped to achieve the following:

  • Attract the right customers
  • Get a better product market fit
  • Increase brand loyalty
  • Differentiate their brand
  • Conduct more targeted advertising
  • Deliver stronger marketing messages

When creating customer segments, it is important to analyze the research data to create usable information to help inform the decision-making process. Factors such as how large the customer segment is and how much this market is willing to pay are crucial when deciding which segments to target your product to. 


Outline Your Market Segmentation Strategy and Provide Clarity With Product Roadmaps

Gocious product roadmap management software is a tool that can help you streamline your processes and understand your products and their markets better. Book a free demo with Gocious to see how our product management tools can help you. 

Topics: Market Segmentation

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