Originally Posted On: https://www.acxiom.com/blog/market-segmentation-psychographic-vs-demographic-vs-behavioral/

The Future of Personalized Marketing: Market Segmentation Psychographic vs Demographic vs Behavioral

Market segmentation has never been so important in creating engaging brand experiences. Understanding the difference in psychographics vs demographics vs behavioral segmentation is a crucial piece of this puzzle.

In a competitive market, where people have seemingly endless choices, segmenting audiences enables relevant, personalized experiences that create meaningful connections. People are complex, dynamic characters, and their expectations for exceptional experiences continue to rise. What’s more, their interests, needs, and preferences are constantly changing.

By dividing your customer base into groups with shared characteristics, you can adapt your marketing strategy to speak directly to whatever is happening in their lives. You can define your high-value, or top-performing audiences and create seamless, cross-channel experiences that exceed their expectations.

Let’s take a look at some common use cases, as well as explore the different possibilities for market segmentation: psychographic vs demographic vs behavioral.

Market segmentation use cases

So what does effective market segmentation allow you to do? Here’s just a handful of the use cases for market segmentation:

• Maximize ROI by fine-tuning each marketing campaign to the interests, intentions, and channel preferences of the target audience.
• Develop products and services, or identify upsell opportunities, based on precise insights into a group of high-value customers.
• Acquire customers by identifying look-a-like clusters that share characteristics with your best-performing segments.
• Increase loyalty and retention by tailoring your brand loyalty program and strategy to the needs of individual audience segments.

Take a look at our customer story to find out how ScottsMiracle-Gro achieved an 11 x campaign lift, and more than doubled buy actions, by scaling three key audience segments in its digital marketing campaign.

Psychographic vs demographic vs behavioral segmentation

As both the importance of market segmentation and the number of use cases to which it can be applied continue to rise, so does its complexity. There are so many ways your brand can categorize its audience, that it can be difficult to know where to begin.

Let’s explore three common types of market segmentation – psychographic, demographic, and behavioral – to understand what they are and what information they can provide about your audience.

Psychographic segmentation explained

Psychographic segmentation is a way of grouping your customers – or potential customers – based on psychological factors such as lifestyle, interests, and personality traits. Because it allows brands to understand what motivates the way people behave – why they would choose one brand or product over another for example – psychographics can help you tailor messaging or experiences to each customer segment and create a genuine connection.

There are multiple attribute types that combine to deliver psychographic insight. Psychographic segmentation examples include:

• Lifestyle: Lifestyle attributes are related to the activities, concerns, and obligations that come with a person’s role in life. A full-time student, for instance, will probably spend their time very differently than a self-employed parent with young children, and the immediate concerns or priorities of the two individuals are likely to vary considerably.
• Interests and attitudes: Attributes in this category relate to an individual’s hobbies and interests – the way they spend their leisure time. What sports do they play? What type of books do they prefer? What do they like to eat? What type of vacations do they enjoy? They also relate to attitudes. Do they have a particular interest in protecting the environment, or in supporting certain charities or movements?
• Personality traits: A third element of psychographic segmentation relates to the individual’s personality type. Are they extroverts or introverts? Are they more academic, practical, or creative? Do they absorb information best through seeing, hearing, or doing? Are they shy and quiet or outspoken and opinionated?

Psychographic characteristics can be collected in a variety of ways. Market research techniques such as surveys and questionnaires are often used, with individuals indicating the extent to which they agree or disagree with several attitudinal statements, or answering a series of questions to reveal a particular personality trait.

Demographic segmentation explained

Demographic segmentation focuses on external or statistical factors including:

• Age
• Gender
• Ethnicity
• Income
• Occupation
• Marital status

Demographics is the most widely used form of market segmentation and delivers basic customer insights that can inform broad audience segments. A travel brand promoting luxury cruises, for example, might focus its attention on older customers with high income levels, while a pharmaceutical brand promoting pregnancy-related products would look for female audiences within a specific age range.

However, demographics alone will not deliver a particularly sophisticated form of segmentation compared with psychographics. People are complex, and sharing an age, gender, or income level doesn’t mean they have the same needs, interests, or intentions. If your brand relies heavily on demographic information, you need to be cautious of stereotypes that could alienate your audiences.

Behavioral segmentation explained

Behavioral segmentation looks for similarities in individuals based on their actions – what they actually do. Examples of the types of behavioral data used in this category of segmentation include:

• Purchase behavior: What do people buy? When and how often do they buy it? Do they buy online or in store? Do they always buy from the same brand or do they shop around?
• Browsing behavior: What do people look for online? Do they repeatedly visit favorite websites or seek out new ones? How long do they spend browsing?
• Media consumption: What genre of movies do people watch? Do they watch short-form or long-form content? What style of music do they listen to? Do they stream music or listen to the radio? Which media platforms do they use?

By analyzing past actions, behavioral segmentation allows you to group individuals with similar behaviors. It also allows you to predict future behavior, and tailor your marketing strategy to influence the buying decisions your customers will make.

Segmentation solutions enable a combined approach

Rather than choosing one of the above approaches to customer segmentation, most brands will want to take a combined approach. It’s not really a question of psychographic vs demographic, or behavioral vs psychographic. It’s about finding synergies between them and combining all three to create nuanced customer segments.

Your brand might start with demographics as a first cut but then layer in behavioral data to understand what customers do, as well as psychographic data to understand why they do it. This strategy delivers a robust multi-dimensional view of the buyer persona that will allow you to identify precise segments and create meaningful experiences.

As a simple example, consider a business that sells and installs solar panels.
Demographic: At a basic level, the business needs to know whether a potential customer is a homeowner that lives in the geographic area it covers. This information comes from demographic data. Psychographic: It’s also useful to know whether that person has a particular interest in environmental issues, which is psychographic information. Behavioral: It’s even better if the brand can determine whether the individual has recently browsed or bought products relating to renewable energy, which requires behavioral data.

Segmenting audiences using all of these attributes may seem like a highly complex undertaking. But the precise segmentation solutions available today make it surprisingly simple to combine demographic, behavioral, and psychographic segmentation variables, as long as you have access to a robust foundation of data and identity.

Artificial intelligence (AI) is accelerating the process, with algorithms used to quickly analyze vast volumes of customer data and automatically identify patterns and audience segments. Our research, Where AI and Marketing Collide, reveals that 54% of organizations are aware of AI-powered customer segmentation, but only 17% are currently deploying it, meaning there is a huge opportunity just waiting for the brands that are ready to take it. And AI’s role doesn’t stop with defining audiences; it can also be used to tailor both the offer and the creative to that audience’s needs.

To find out more about how Acxiom can help with audience segmentation, take a look at Personicx, our smart segmentation solution that is sophisticated and statistically based, while also being intuitive, easy to apply, and quick to deliver results. It leverages the most accurate individual and household-level data to give you a laser-focused view of your market, paving the way for relevant, impactful marketing strategies.