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Customer Segmentation vs. Market Segmentation

by Mathew Gollow. Last updated on June 13, 2024

Segmenting customers and target markets is a hot topic for today’s marketers. Our customer segmentation tool lets you divide your customers by any metric you choose.

In this article, we’ll look at customer segmentation vs. market segmentation – which approach to use and when? Are these two segmentation practices really that different?

They are. We’ll guide you through the differences below. But first, what is customer segmentation?

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What is Customer Segmentation?

Customer segmentation involves dividing customers by various metrics, such as expectations or demographics. Segmenting customers helps businesses organize their resources to effectively communicate with each customer segment, maximizing their marketing efforts for retention and revenue growth.

The three basic forms of customer segmentation are:

  • Post Hoc. This is the most widely recognized form of segmenting customers. This strategy uses characteristics or demographics to create customer groups sharing the same attributes based on research conducted for marketing purposes.
  • Needs-based. Segmenting by needs calls for grouping customers based on their differing reasons for purchasing a specific item or service, rather than other characteristics such as age or location.
  • Value-based. Like it sounds, this segmentation method groups customers by the value they bring your business. You can use this segmenting information to create a value-based pricing model, for instance.

A specific segment made into a persona or profile is called an archetype. Using segmented customer data, these archetypes help your sales team devise a specific marketing strategy for each segment, such as a free trial strategy for a specific set of customers. Targeted activities, such as an email series, help you maximize value for your customers – and your business.

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What is Market Segmentation?

Market segmentation, on the other hand, divides target markets into smaller, more easily defined categories. Market segments are groups of customers sharing similar characteristics, interests, locations, and more.

There are four types:

  • Demographic segmentation is the most commonly used form of market segmentation and uses statistics regarding a specific group of customers.
  • Psychographic segmentation uses personality and character traits to group target audiences and potential customers.
  • Behavioral segmentation focuses on how a customer behaves, rather than on who the customer is.
  • Geographic segmentation separates audiences into customer segments geographically and is the easiest of all market segmentation types.

Benefits of Customer Segmentation

Every customer is different. Breaking up your customer base into different types of customers ensures you’re giving the right marketing messages to the right customers at the right time in their customer journey.

Customer segmentation helps you:

  • Identify the most valuable segments based on customer needs
  • Improve your marketing ROI by targeting only those customers likely to purchase
  • Dramatically improve your customer loyalty by customizing your products or services for your best customers (or even creating new products for your die-hard followers!)
  • Offer improved customer service which leads to better customer experience
  • Improve revenue
  • Reduce waste

Benefits of Market Segmentation

Market segmentation has its own set of benefits. After market research, you’ll gain insight into how you can do the following for your small business:

  • Design better marketing campaigns and messaging
  • Identify the best marketing tactics
  • Design hyper-focused ads for a specific target audience
  • Attract – and convert – higher quality leads
  • Differentiate your business from the competition
  • Build deeper affinity and customer loyalty
  • Identify niche opportunities

Customer Segmentation vs. Market Segmentation – How are they different?

Customer segmentation offers a lot more detail when you’re creating your buyer personas. In contrast, an archetype is a much broader definition of an ideal customer.

Using market segmentation to build a buyer persona isn’t recommended because it’s such a general overview of the customer, the market overall, and your place in it.

It’s like looking for needles in nicely rounded haystacks – it’s still a needle, and it’s still a haystack.

While customer segmentation offers a much more detailed view of your ideal customer, market segmentation does have its place.

But no segmentation practice will work without data.

How Baremetrics Can Help

Without data, you can’t determine whether different price points, sales, or better messaging will appeal to different segments of your current customers. You could be missing out on real opportunities to effectively market to more profitable segments.

That’s where Baremetrics has a solution.

With our customer segmentation tool, you can divide and subdivide your customers in whatever ways make the most sense for your business.

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Mathew Gollow

Mathew spends his days bringing the brilliant ideas of the Baremetrics team to the blog. When Mathew’s not chasing after his team for more accurate and clear information, you can find him teaching voice at the local music academy.