NARRATOR: As we know, different auto manufacturers target significantly different groups of customers. For example, Toyota normally targets people with middle-range incomes who are looking for vehicles with good value for money. When thinking about Toyota, people think of durability, quality, safety, and reliability.

In contrast, Mercedes-Benz always targets to upper-class drivers who think of luxury, style, and social class. Mercedes-Benz is a brand that evokes images of luxury, wealth, and success. For many people, owning a Mercedes is a status symbol. It is a way to show the world that they've made it.

Market segmentation can help companies to target just to people most likely to become satisfied customers of their products or services. So what is market segmentation, and how to implement it? What are its major types, examples, benefits, and limitations? In this video I will discuss these questions with you.

Section one, What Is Market Segmentation? Market segmentation is a marketing term that refers to aggregating prospective buyers into groups or segments with common needs, and who responds similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.

Section two, Types of Market Segmentation. There are four primary types of market segmentation. Type one, demographic segmentation. Demographic segmentation is one of the most common forms.

It refers to splitting up audiences based on observable, people-based differences. These qualities include things like age, sex, marital status, family size, occupation, education level, income, race, nationality, and religion. One benefit of this kind of segmentation is that the information is relatively easily accessible and low-cost to obtain.

Some products are targeted explicitly toward a specific demographic. For instance, one personal care company might make two deodorant products, one labeled as men's deodorant, and one labeled as women's deodorant.

There are numerous ways to gather demographic data. One way is to ask your customers directly. This can be time-consuming, but getting the information directly from customers will help ensure its accuracy. You can also get demographic from second-party and third-party data providers, including marketing service providers and credit bureaus.

Type two, Geographic Segmentation. Geographic segmentation, splitting up your market based on their location, is a basic, but highly useful segmentation strategy. A customer's location can help you better understand their needs, and enable you to send out location-specific ads. There are several kinds of geographic segmentation.

The most basic is identifying users based on their locations, such as their country, state, county, and zip code. You can also identify consumers based on the characteristics of the area they live in, such as its climate, the population density, and whether its urban, suburban, or rural. For instance, a clothing company will show ads featuring warmer clothing to people living in cooler climates, and show the opposite to people living in warmer climates.

Type three, Behavioral Segmentation. Behavioral segmentation divides consumers according to behavior patterns as they interact with the company. It studies the behavioral traits of consumers, which include their knowledge of attitude towards, use of, or response to a product, service, promotion, or brand. Here are four major types of behaviors you should look at.

Number one, purchasing and usage behavior. Let's use your ride sharing app of choice as an example. A working professional uses the service to commute to and from the office Monday through Friday.

However, on weekends, the user has the extra time needed to drive, park, and walk to their destination. So they never use the service then. Understanding the behavior of this user, the ride sharing service could target discounts on the weekends to incentivize usage on days they otherwise wouldn't use the app.

Number two, Occasion Purchasing. This component of behavioral segmentation considers the timing within a customer's life, year, or day as a determinant of making a purchase. Life milestone purchases, such as an engagement ring or house, seasonal purchases, like holiday decorations and gifts, and daily purchases, like coffee or food, are all variations of occasion purchasing.

Number three, Benefits Sought. Other differentiating factors of behavioral segmentation are the benefits different users seek from an experience. Let's use Starbucks as an example. Some customers are compelled by the convenience of ordering through the mobile app, and coming in to pick it up. Other customers are more interested in the experience of ordering with a barista, and enjoying the ambiance of a cozy coffee shop.

Number four, Customer Loyalty. Finally, users that exhibit loyal behavior to your business should not be overlooked. One of the most common methods marketers use to reciprocate loyalty among customers is establishing a rewards program. A rewards program can be as simple as a buy nine, get the 10th free sort of Mobile stamp card, or provide customer discounts, or cashback. Please keep in mind that the tip to build long term user retention and loyalty among your customers is to treat loyalty as royalty.

Type four, Psychographic Segmentation. Psychographic segmentation is similar to demographic segmentation, but it deals with characteristics that are more mental and emotional. Some examples of psychographic characteristics include personality traits, interests, beliefs, values, attitudes, and lifestyles. Understanding these aspects of your audience can help you to create content that appeals to them more effectively.

A common example of psychographic segmentation are luxury brands that specialize in customization. As we know, luxury brands, such as Louis Vuitton, Hermes, and Chanel, et cetera, are not targeted at people from every class. A certain standard of living and family income is essential to be able to purchase an expensive luxury product.

By using psychographic market segmentation, the marketing team of luxury brands can divide the target market according to their social status first, and then based on lifestyles, attitudes, or personalities. In addition, the organic food industry is one of the fastest-growing industries that focuses on a specific target audience. Here, the psychographic segmentation also play a major role.

Section three, How to Implement Market Segmentation? Generally to effectively implement market segmentation, there are five steps to follow. Step one, define your market.

You should ask yourself, is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace?

Step two, segment your market. You need to decide which of the four criteria-- demographic, psychographic, geographic, or behavior-- you want to use to segment your market. You don't need to stick to just one. In fact, most brands use a combination. So experiment with each one, and find what works best.

Step three, understand your market. You do this by conducting preliminary research surveys, focus groups, polls, et cetera. Ask questions that relate to the segments you have chosen, and use a combination of quantitative and qualitative questions.

Step four, create your customer segments. Analyze the responses from your research to highlight which customer segments are most relevant to your product or service.

Step five, test your marketing strategy. Once you have interpreted your responses, test your findings on your target market using conversion tracking to see how effective it is. And if uptake is disappointing, re-look at your segments or your research methods.

Section four, Benefits. The major benefits of market segmentation include the following. One, increased resource efficiency. Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad-reach approach.

Two, stronger brand image. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at the target audience, a company's branding and messaging are more likely to be very intentional.

Three, greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with the company. More direct and personal marketing approaches may resonate with customers, and foster a sense of inclusion, community, and a sense of belonging.

Four, stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they wait to convey to the market and to competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors.

Five, better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct efforts towards specific ages, locations, or habits via social media.

Section five, Limitations. Despite the above benefits, here are some disadvantages to consider when implementing market segmentation strategies. One, higher upfront marketing expenses. Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.

Two, increased product line complexity. Marketing has the downside risk of creating an overly-complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.

Three, greater risk of misassumptions. Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations within individuals of a given population.

Four, higher reliance on reliable data. Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends, and when market segments may have shifted from prior studies.

All right, that's all for today's topic. If you have any questions regarding this video, please leave your thoughts in a comment below. I hope that you guys have enjoyed this video. And if you did, make sure you give it a thumbs up, and subscribe to my channel. Thanks for watching, and I will see you next time.