market segmentation research

market Segmentation Research: a comprehensive guide

Kat Figatner

Senior Vice President, In-Person Qualitative Research

Chief Executive Officer

Robbin Jaklin

Former President

Your prospects and customers are not all the same—segmentation research helps guide your targeting and messaging strategies.

Market segmentation in consumer research is essential for effective marketing, as it recognizes that products and services cannot appeal to everyone universally. By identifying specific groups with varying attitudes, needs, and motivations, segmentation research enables companies to develop a targeted portfolio of brands and tailor marketing communications to distinct consumer segments.

Segmentation should be purpose-built and customized for each product category, involving an investigative and often multi-modal phased design and analysis process.

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Defining segmentation.

Customer segmentation refers to the process of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. It enables businesses to target these groups effectively and allocate marketing resources to the best possible effect.

Segmentations vary in complexity and analytical depth:

• Simple segmentations use straightforward criteria like generation or ethnicity, relying on cross-tabulated data.
• Intermediate segmentations apply basic advanced analytics, such as cluster analysis on Attitude & Usage study data.
• Complex segmentations are in-depth, often the main focus of the study, requiring iterative and/or multi-modal processes with extensive use of advanced analytics.

When do you need a segmentation study?

Typically segmentations are done to:

• Uncover new growth opportunities through tailored, industry-specific segmentation research.
• Understand the array of consumer experiences and needs.
• Develop engaging personas and creative presentations for segmentation results.
• Help refine and expand a brand’s target market share more effectively.
• Deliver actionable, “living” segmentations for effective organizational implementation.

Exploring types of segmentation

There are an endless number of ways you can segment. These are a few of the common methods C+R employs:

• Shopper Segmentation: Shopper  – groups people based on their needs, attitudes, and behaviors when shopping for a product or service. Our proprietary  Shopper Segmentation  can easily be incorporated into your research initiatives.
• Attitudinal Segmentation: (also known as Psychographic Segmentation) Groups people with similar attitudes, then profiles them using demographics, behaviors, brand perceptions, media habits, etc., for targeted strategies.
• Occasion-Based Segmentation: Focuses on product/service use in different situations, identifying diverse consumer needs and opportunities for growth.
• Behavioral Segmentation: includes key aspects of purchase behavior, usage rates, and benefits sought from a product or service. It is particularly useful in tailoring marketing messages and promotions to fit specific consumer habits, enhancing customer engagement and retention.
• Marrying Behavior with Attitudes: Combines transactional and attitudinal data to form unique segments.
• Geographic Segmentation: This type of segmentation divides the market based on geographic boundaries or characteristics. This can refer to regional or location-based, climate or cultural preferences impacted by geography.
• Needs-based: Categorizes consumers based on their specific needs and desires regarding products or services. It focuses on identifying what drives customer purchases, ranging from functional requirements to emotional or psychological desires.

Read a segmentation case study

Learn how we partnered with an alcoholic beverage client to develop a comprehensive occasion-based segmentation, including how we worked to bring segments to life.

Getting started: what’s the right segmentation to use?

As with other custom research, one size does not fit all, and the segmentation should be designed based on what you are looking to accomplish. For example, each of our client situations is unique, so our recommended solution is really based on getting to know their business intimately and understanding how they intend to use the segmentation.

This process entails the following four phases, addressed in further detail in our segmentation eBook .

The methodology of segmentation in marketing

Phase 1: sharing, planning and aligning.

Stakeholder Engagement and Kickoff Meeting

This initial phase is critical for the success of segmentation studies, involving considerable client investment and diverse stakeholder input. It starts with in-depth, individual interviews with key internal stakeholders to gather insights about the current market, future directions, and each stakeholder’s vision of success. These insights are crucial for shaping the research and garnering stakeholder buy-in. The findings from these interviews lay the groundwork for the kickoff meeting, a structured group discussion to further share knowledge, align objectives, and address any additional information relevant to the study, such as market trends, specific demographic insights, or the impact of external factors.

Phase 2: Building Empathetic Insights Through Qualitative Research

Understanding Consumers and Their Point of View on the Category

• Explore target consumers’ values, lifestyles, and how they perceive the category, including the fit of different products/brands.

Identify Motivations, Jobs, and Perceptions

• Analyze needs and behaviors in various contexts.
• Identify roles fulfilled by specific products/brands in the category.
• Investigate the decision-making process and brand perceptions to reveal factors influencing client’s brand and competitors.

Develop Hypotheses and Update Language

• Use qualitative insights to create language reflecting consumer perceptions and motivations.
• Involve Cohort Experts for multicultural consumer insights.
• Form an initial framework for validation in the quantitative phase.

Process and Techniques

• Overview of methodologies utilized in market segmentation.

Phase 3: Evaluating Need States and Survey Execution

This is the most involved stage. It includes everything from designing the sample, developing the questionnaire, and creating segmentation models. After gathering qualitative insights and formulating hypotheses , the questionnaire is developed , typically over 20 minutes, with the sample size adapted to the diversity of the target audience.

Pilot studies are employed to refine the survey, focusing on differentiating attributes through factor analysis. Once the data is collected, the segmentation process involves data preparation , such as removing poor quality responses and doing advanced analytics controlling for scale-use bias, and selecting appropriate segmentation analytics like ensemble clustering, latent class, or K-means based on data types. The final steps include segmentation validation techniques , ensuring stable and accurate segment classification.

Phase 4: Evaluating Need States and Survey Execution

The final stage of the segmentation study is to make the information digestible for your stakeholders.

An iterative approach with work sessions helps integrate the learning into the organization. It’s important to present data in a visually appealing and engaging way to maintain interest. Techniques to bring segments to life are also employed for clearer understanding.

The process culminates in a final presentation involving a cross-functional client team, where strategies and tactics for key segments are developed and activated.

custom segmentation research case studies and examples

• Applied Case Study: Reference to the Kid Retail Strategy Case Study for practical application.
• Effective Segmentation of Moms Case Study .
• Targeting Donors Case Study
• For a more off the shelf solution, explore C+R’s SmartMarket Segmentation blog .

Tools and analytics for segmentation

Data Preparation involves removing poor quality data: respondents who answer with low-variability or inconsistent answers. We also control for scale-use bias: Because respondents use scales differently, it’s essential to take steps to control for that bias so that data is standardized across cases. Solutions involve either normalizing scale data or using scale measurements that avoid scale bias, such as Max-Diff utilities.

Segmentation analytics are chosen based on the type(s) of data used in the segmentation: categorical, binary, scaled, ranked, choice-based utilities, metric (such as counts or spend), or a mix of measures. Some examples include:

• Ensemble clustering : which uses several different algorithms to run hundreds of solutions, then aggregate the results into the most reproducible segments.
• Latent class : appropriate for clustering with variables of many different data types.
• K-means : a basic clustering method used on variables with equal variance.
• Hierarchical : applied to market structure studies to build taxonomies of products.
• Segmentation Validation is a step to ensure that the analytic solutions provide stable and accurate classification into segments.
• Information criteria : Akaike and Bayesian Information Criterion allows for direct model comparison to maximize likelihood while minimizing the overlapping that might occur with many segments.
• Split-half validation : Predict half of the cases out of sample using solution on the other half.
• Reproducibility : Test the ability of the solution to classify future cases into the existing model.

The segmentation solution is final: time to tell the story and develop personas

Once the segmentation solution is finalized, each segment will be profiled, sized, and prioritized for meeting the brand’s objectives for growth. Personas are created so that segments are presented in a quick and easily digestible way for the stakeholders to understand everything about the segments. Following are some examples:

Bringing the segments to life

We always encourage our clients to add one of the following methods for bringing the segments to life. Many times, we will involve C+R’s Storyologists to connect our clients to the segments to build understanding and empathy.

Video Clips that represent people from different segments—can be collected via online discussions, webcam interviews, or video platforms such as VoxPopMe.

Video Sizzle Reels — can be created using video clips to capture key insights in a compelling way—either more artistically stylized or more ethnographic documentary style.

Look Books — a tangible “book” to give to your stakeholders to use as a segment reference “bible.”

Animated Videos — these highlight the journeys/ consumer stories in a memorable way for staying power in your organization.

Social Media Profiles — segments are presented similar to a social media profile.

Introducing Real Consumers to Represent Segments — there are several ways to connect your stakeholders with “real consumers” for a deeper understanding of the segments:

Panel discussion — consumers sit on a panel and stakeholders ask questions.

Speed Dating — this is where stakeholders and people from key segments meet one on one and do a quick question and answer session; stakeholders rotate from person to person, each representing a different segment.

Walk in Segment’s Shoes — this is where we take clients into the life of each segment such as in-homes where people prepare meals and the clients join the family for dinner or go on dine-alongs, etc.

Remember, segmentation methods continue to evolve, along with innovative and powerful ways of conducting and analyzing segmentation data. Segmentation research offers a wealth of insights, and addresses many strategies to grow your business, including:

• To drive sales by decreasing acquisition and retention costs, along with improving conversion
• To support opportunity identification and prioritization
• To provide marketing and sales with a clear and concise playbook by segment
• To identify the segments’ needs and preferences, which can be communicated in advertising and positioning messaging
• To support and build consideration of and loyalty to your brand
• To reduce or eliminate barriers to the brand
• To create opportunities against high-value customers and likely-to-convert segments

Hopefully, this primer educated and inspired you on the “how to’s” and benefits of segmentation research.

Next time you are thinking about conducting segmentation research, reach out and let’s chat about the best way to design the research to ensure you get the most actionable results out of your segmentation investment.

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• Marketing Essentials

Market Segmentation: Definition, Example, Types, Benefits

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

What Is Market Segmentation?

Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors in order to better understand and market to them.

Key Takeaways

• Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
• Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
• Market segmentation can also increase a company's demographic reach and may help the company discover products or services they hadn't previously considered.

Investopedia / Matthew Collins

Understanding Market Segmentation

Companies can generally use three criteria to identify different market segments:

• Homogeneity , or common needs within a segment
• Distinction , or being unique from other groups
• Reaction , or a similar response to the market

For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market  and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Market segmentation allows a company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment. Therefore, below are five common types of market segmentation.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.

Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.

Firmographic Segmentation

Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .

Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed fee, more simple product.

Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.

Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.

Behavioral Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.

Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This may be more difficult to achieve, as these traits (1) may change easily and (2) may not have readily available objective data. However, this approach may yield strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points.

Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.

Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits (i.e. how innovative or risk-favorable a customer is).

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine your market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.

Phase I: Setting Expectations/Objectives

• What is the purpose or goal of performing market segmentation?
• What does the company hope to find out by performing marketing segmentation?
• Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• Which of the five types of market segments do we want to segment by?

Phase 3: Evaluate Potential Segments

• What risks are there that our data is not representative of the true market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment over another?
• What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?

Phase 4: Develop Segment Strategy

• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

• Who are key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they can be overcome?
• How should the launch of the marketing campaign be communicated internally?

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include;

• 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.
• Stronger brand image. Marketing segment forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, a company's branding and messaging is more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
• Greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that you land the right client that fits your product line and demographic.
• Stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they way 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. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
• Better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort towards specific ages, locations, or habits via social media.

Market segmentation exists outside of business. There has been extensive research using market segmentation strategies to promote overcoming COVID-19 vaccination hesitancy and other health initiatives.

Limitations of Market Segmentation

The benefits above can't be achieved with some potential downsides. Here are some disadvantages to consider when considering implementing market segmentation strategies.

• 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.
• Increased product line complexity. Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This 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.
• 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.
• 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.

Examples of Market Segmentation

Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.

Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.

A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.

Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.

Why Is Market Segmentation Important?

Market segmentation realizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.

What Are the Types of Market Segmentation?

Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how the particular group stands apart from others, and reaction, or how certain groups respond to the market.

What Are Some Market Segmentation Strategies?

Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.

What Is an Example of Market Segmentation?

Upon analysis of its target audience and desired brand image, Crypto.com entered into an agreement with Matt Damon to promote their platform and cryptocurrency investing. With backdrops of space exploration and historical feats of innovation, Crypto.com's market segmentation targeted younger, bolder, more risk-accepting individuals.

The Bottom Line

Market segmentation is a process companies use to break their potential customers into different sections. This allows the company to allocate the appropriate resource to each individual segment which allows for more accurate targeting across a variety of marketing campaigns.

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• What is market segmentation?

Last updated

18 March 2023

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Learn all about market segmentation, what it is, how to do it, and the benefits of a properly implemented market segmentation.

It involves sectioning the total addressable market into discrete, smaller groups. This marketing technique is used to group or ‘segment’ buyers with common characteristics to tailor their needs. 

Each group shares common characteristics that enable the firm or business to create targeted experiences or products for them. A group may have customers with the same income, personality traits, age, religion, or interests. 

• Why is market segmentation important?

Market segmentation allows for the customization of brand messages or products for different customers. Using customization, customers will feel more valued and appreciated since the brand caters directly to their needs and wants. It is also essential in determining different consumer groups’ purchasing habits. For a brand, it helps identify social, cultural, or economic factors influencing different customer groups’  purchasing behaviors. 

Furthermore, market segmentation allows businesses to identify the most promising customer groups to focus their marketing efforts on. With a well-segmented market, brands have better alignment with their goals and have a sharper focus on their different customer groups, thus delivering better business results. 

• Five types of market segmentation

The types of market segmentation used today include:

1. Demographic segmentation

This is the most common type of market segmentation. It refers to sectioning the market using different variables such as nationality, education, gender, age, income, or personality. You can use demographic surveys to reveal these characteristics of the target market. 

2. Firmographic segmentation

This type of segmentation is common in business-to-business marketing. It relies on the characteristics of business customer groups, such as the number of customers, size of the firm, profits, ownership, location, or annual revenue, to identify groups of businesses most likely to benefit from another business's services or products. 

3. Geographic segmentation

This involves sectioning the target market based on geographical location. For example, geographical segmentation allows businesses to section customers depending on where they live or work. Under this type of segmentation, geographical boundaries such as states, countries, regions, and towns/cities determine how to tailor the product or service to customers in that location. 

4. Behavioral segmentation

This refers to sectioning the market depending on customer behavior. Behavioral segmentation allows businesses to segment the target audience by their decision-making patterns and behaviors. It involves knowing both the customer's attitudes and perspectives towards your brand and how this plays out in their actions and behavior. 

5. Psychographic segmentation

This groups the target audience based on their lifestyle, beliefs, values, interests, and attitudes. Psychographic segmentation provides a framework for understanding the psychological factors behind customers' purchasing decisions. This type of segmentation allows a brand to understand the motivations behind why customers make certain choices, i.e., the attitudes and beliefs driving behavior. 

• Benefits of market segmentation

A segmentation driven marketing strategy offer several business benefits. The following describes some of the key ones:

1. Improves campaign performance

Market segmentation allows companies to know their target audience and tailor the perfect message that appeals most to them. When a business identifies and understands its key audience, it can appropriately communicate brand values and benefits of the products or services they are offering to its customers. 

2. Informs product development

It also encourages the development of new products that will cater to the customers' needs. Once a brand focuses on its target audience, it can learn what they need and identify product gaps in the market. Through market segmentation, companies can develop new products with the right features that specific audiences will likely buy. 

3. Reveals areas to expand

With segmentation, a brand can uncover new information on its target audiences. Segmentation can reveal untapped areas with potential customers into which your brand can expand. 

4. Improves business focus

Business focus is among the most important benefits of market segmentation. When a company concentrates on target customers, its focus improves. A brand can focus on targeted segments with the right products or services. In addition, a business has clear objectives which automatically enhance the firm's business focus. 

5. Informs other business decisions

With valuable insights gathered from identifying the target audience, a business can unearth helpful information that can help them make better-informed business decisions. Market segmentation allows companies to consider other decisions like pricing and distribution strategies. A company will consider the customer's price sensitivity and how to boost sales while satisfying their target audiences. 

6. Build customer loyalty

Market segmentation is also an excellent way to retain customers. When you tailor products or services to meet customers' needs, customers overall can be maintained and improved. Customer retention rate increases and they become more loyal to the brand. 

7. Reach new markets

With the use of geographic segmentation, reaching new markets is possible. Through market segmentation, businesses can identify hidden and underserved markets. Once identified, businesses can develop products and strategies to serve customers in these markets. 

8. Reduce customer acquisition costs

Also, by tailoring market campaigns, businesses can make a more cost-effective use of marketing resources and save on costs required for customer onboarding. Market segmentation is cost-effective since it allows a business to focus on specific resources that attract their target audience while spending less time on non-core audiences. 

9. Build better products

When a company narrows down to a specific target market, it can focus on customers' pain points concerning certain products. With the newly acquired information, companies can develop better products that meet their customer's needs and address their challenges.

• How to determine your market segment

Although there is no single way to determine your market segment, the following steps can be helpful.

Step 1: Set clear objectives

The first step in determining your market segment is to set clear objectives. This includes clarifying the goals and expectations of performing a market segmentation. 

Step 2: Collect data through market research

Market research goes beyond understanding your customers to have a macro level view of the marketplace as a whole. You can do this through online focus groups, in-person interviews, research surveys, or polls. Also, use analytic tools like Alexa and Quantcast to give you an overview of your customers. The US Census Bureau site is also helpful in gathering demographic information such as income, education, gender, and age. 

Step 3: Create buyer personas

Buyer personals are semi-fictional representations of the target audiences. To help you create buyer personas, use the following approaches:

Use research from third parties combined with your own insights

Gather feedback from your sales team

Send out customer surveys

Once you have collected the information, organize groups based on the various buyer personas. 

Step 4: Build marketing strategies

Based on the collected responses, identify the market segments that are most relevant to your brand. Many firms use a combination of segmentation strategies to build a marketing strategy. However, choose one that fits naturally with the identified target market. Some of the marketing strategies to use include:

Expansion opportunities

Niche markets

Step 5: Test a marketing strategy that works

Once the segments are in place, test the findings and review the customer segments while making appropriate changes where needed. Then, create segmented marketing campaigns which communicate directly to the customer persona. For instance, consider communicating around unique values or beliefs that resonate best with them. 

• What are some market segmentation strategies?

The four market segmentation strategies used by firms to segment their target population are:

Undifferentiated strategy

This involves using a mass marketing approach to sell products to customers. Under this strategy, the entire market is targeted instead of a small segment. An example is generic consumables such as salt or sugar. You can advertise products using this approach, as many consumers have the same needs for the products. 

Companies that use the strategy include Coca-Cola and Colgate, who have overwhelming market share and mass market appeal. They sell products that do not require customer segmentation, as they target all consumers within a population. 

Concentrated strategy

This is where a business chooses only one market segment to focus its resources on. The market segmentation strategy is common among smaller businesses starting out in the marketplace. The advantage is that it allows companies to analyze the needs of only one segment and design product and communication strategies to match. 

  Differentiated strategy

This is where the business focuses on two or more market segments. Under this strategy, the firm develops a distinct marketing mix for each segment. The advantage of a differentiated marketing strategy is an increase in total sales, as it targets a larger proportion of the addressable market versus a concentrated strategy. However, its drawback is the higher costs of developing multiple marketing and product development programs. 

Hyper-segmentation

This is a strategy that allows for customization for each particular individual. It focuses on creating unique and targeted experiences tailored for each customer. Hyper-segmentation strategy utilizes data analytics, artificial intelligence, and automation to personalize products and services. For instance, Amazon may provide suggestions based on previous purchases unique to an individual customer based on specific individual customer data. 

• Examples of market segmentation

You can see market segmentation in everyday advertising campaigns. Some examples include:

A clothing store may segment its target consumers based on the location of where these customers live. The brand may advertise its products to accommodate customers based on these locations. Also, based on the location, the firm may sell seasonal products like winter or summer clothing based on its geographic segmentation. For instance, in a region that is cold most of the year, the business may want to promote the sale of warm and cozy outfits.

Streaming services like Netflix segment the target market based on the age of their target audience—for instance, child versus adult content. They may also section their market based on the tech-savviness of their users. Spotify, for example, may target younger adults, especially Gen Z and millennials, rather than older adults. 

A sports brand like Nike sections its target market based on customers' interests. For instance, it will tailor products for athletes, gym lovers, sportswomen, and sportsmen. The sportswear manufacturer may modify their products and communications to cater to the needs that appeal to each distinct group. 

• Limitations of market segmentation

Although market segmentation offers many benefits, the technique also has limitations that include the following:

It needs extensive research and therefore can be expensive

Brands often spend significant resources gathering data and researching their broad customer bases. In addition, companies may need to create customized marketing strategies for the different segments of customers (if they aim to cater to multiple segments). Brands may also have to spend an increased amount on production costs to satisfy the different segments, again, if they choose to target multiple ones. 

Has a higher reliance on up-to-date data

Market segments evolve; thus, keeping up to date with them can be expensive and time consuming. Segmentation requires businesses to be mindful of the changing trends to tailor services and products that cater to their customers' needs. 

It is expensive and time consuming to cater to small numbers of individuals

Producing products for every individual is not feasible for most brands. Tailoring specific products for many different market segments is more expensive than mass production, and mass marketing to all potential customers. Also, being very specific with your targeting risks alienating potential customers who may fall outside your segments. 

It increases the risk of inappropriate targeting

Market segmentation increases the risk of inappropriately marketing products to the wrong audience. In addition, since you base market segmentation on the idea that similar demographics have the same values and share similar traits, there is a risk the company may lump together the needs and preferences of people within that segment and not capture important individual nuances.

• Three common segmentation errors

Here are the common mistakes that businesses make when sectioning their target markets:

1. Segments becoming obsolete

By not updating your market segments frequently, you risk losing customer relevance and loyalty. Customer trends change fast. Thus, it is crucial that you perform quarterly or yearly surveys to ensure you capture the target audience's changing needs. 

2. Creating segments that are too small

When you choose and focus on a market segment that is too small, there will be less potential for revenue and turnover, which in turn affects the profitability of the business.

3. Not focusing on the return on investment

Market segments do not always guarantee profits. For instance, a larger customer segment may not have the purchasing power for your product or services compared to a smaller but more affluent segment, which may lead to lower overall profitability or negative returns.

Learn more about market research platforms

What are the five essentials of effective market segmentation.

An effective market segment should be measurable, actionable, accessible, substantial, and identifiable.

Which companies use market segmentation?

Many companies use market segmentation to target various categories of their customer base—for example, Proctor and Gamble, Netflix, Apple, and Unilever.

Does Amazon rely on market segmentation?

Amazon has segmented its market to include potential new customers as well as frequent shoppers. In addition, it uses behavioral segmentation to understand its target audience. 

What is Nike's market segmentation?

Nike incorporates four types of market segmentation (geographic, demographic, behavioral, and psychographic) to create personalized products for its customer base.

What is McDonald's segmentation?

McDonald's marketing segmentation focuses primarily on demographic segmentation. Their products mainly target families, children, and students interested in fast and convenient foods.

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