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Definition
Psychographic segmentation, or behavioral segmentation, is a method of dividing markets on the bases of the psychology and lifestyle habits of customers. It is the marketers and the sellers of products and commodities who use this technique in order to decide their marketing strategy.
Marketing a product requires a deep understanding of the customers psychology, along with their needs, in order for the product to be accepted. Marketers carry out a number of activities in order to better understand the psyche and the habits of the customers, so that they can accurately predict the response to the product they are selling, and thus make accurate sales projections.

Understanding this concept of market segmentation is not that hard once you see the complete benefits of the concept. When a producer decides to market a product, he has to realize that there are a lot of differences between customers of different localities, ages and nationalities. Thus, he has to divide the market into various segments, and target each segment individually so as to maximize sales. These segments are divided on a variety of factors like age, sex, lifestyle, income level and psychology and hence it plays on the psychology of the potential customers and helps the seller determine how he must approach customers belonging to a particular segment.
Psychographic Variables
Psychographic variables are also known as IAO variables - Interests, Activities and Opinions. The seller needs to analyze these 3 factors primarily in order to understand the psyche of the customers. Then he can adopt a suitable marketing strategy, or he can alter an existing marketing strategy. The habits that consumers generally display with regard to a certain class of products will determine their reaction to the product that a seller is offering them.
The variables that come into play in this scenario are primarily psychological in nature. Here are some of the most common variables that fall under this category and are well utilized by marketers and business organizations in order to enhance their sales figures.

- Interests
- Activities
- Opinions
- Behavioral patterns
- Habits
- Lifestyle
- Perception of selling company
- Hobbies
Using these factors as a base, a marketer can determine how a particular group of customers will respond to the launch of a new product. This form of segmentation should not be confused with demographic segmentation, as demographic segmentation primarily takes into consideration the age and the gender of the targeted customer group.
Common Example
Consider a company that manufactures high-end luxury cars. This is a product that cannot be afforded by people from every income group. Only individuals falling in high income groups are realistic customers of this specific product. That is the primary basis of segmentation for the car manufacturer, that forms the basis of their marketing plan.

Within the high income bracket, the car manufacturer must now decide how he should go about the segmentation process. He will analyze the habits and lifestyles of his existing customers, and even those of the customers of his direct rivals. Soon he will see that some customers use these luxury cars as status symbols, some use them as utility vehicles, and some use them for long distance drives. Understanding the usage of a particular vehicle will provide the basis for the marketing of a product. Users who prefer long drives will be shown the highlighted fuel efficiency of the vehicle, people who use the car sparingly just for prestige purposes will be told about the excellent looks and prestige of the car model and the brand, and people who use them for other purposes will be informed about the interior space, the handling, the braking system etc.

The art of marketing is such that the marketer needs to highlight that part of the commodity that appeals most to a particular customer, and tell him the features of the product and how it will benefit him, as a part of the advertising process.
Known Advantages
~ Increased brand value of the company in the eyes of the customer.
~ Greater usefulness of the product for the customer.
~ Better inputs for the design of new products that the customer will like.
~ Lesser amount of money spent on marketing, as it is now more specific.
~ Easier to target a specific type of customer base.
~ Simpler to derive effective and efficient marketing strategy.
~ Greater degree of customer satisfaction and customer loyalty, resulting in higher amount of customer retention.
All of these advantages are well-known to any marketer who wishes to sell his product. The scale of production and the size of the company are irrelevant when this concept comes into play. Even the smallest scale marketer knows the benefits of this segmentation, and he will apply it to this marketing strategy, either knowingly or unknowingly in order to enhance his business.