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What Is Market Segmentation? How It Works, Careers, and More

Discover how market segmentation helps you reach new customers. Find out about marketing jobs and market segmentation salaries.

What is market segmentation?

Market segmentation is when a business splits potential customers into groups based on shared characteristics. These characteristics include location, age, income, credit rating, usage rates, or buying habits. Market segmentation can help inform and create a marketing plan that meets the needs of a target audience instead of creating a one-size-fits-all marketing strategy.

Given that marketing, advertising, publicity, and promotion have begun to focus more on personalized marketing and retargeting, market segmentation is key to marketing success.

Market segmentation vs customer segmentation

In your research into market segmentation, you may come across a similar term: customer segmentation. The main difference between these approaches to segmentation is the following:

Market segmentation divides the market of potential customers into segments.

Customer segmentation divides your existing customer base into segments.

Read more: What Is Customer Segmentation? + How to Reach Customer Segments

Retargeting and personalized marketing

Knowing your market needs and reaching out to the right people at the right time may provide potential customers with what they want. Personalized marketing typically leads to higher conversion rates, reduced acquisition costs, and less wasted revenue on marketing efforts that aren’t productive.

Marketers are continuously searching for new opportunities to personalize their message. A powerful way to do this is through retargeting , also called remarketing . This strategy is used to target ads specifically at internet users who've previously interacted with your site, mobile app, or online content and thus may have some level of interest in your products.

Retargeting works by placing a cookie on a user's browser, which allows marketers to serve ads based on the pages that the user has visited. For example, if someone visits a city vacation destination on your website, it makes sense for you to show them city-based hotel advertisements on other channels that they see. Retargeting also allows you to get the right message to customers at the right time.

4 reasons why market segmentation is important

There are several benefits of market segmentation, including:

1. Increasing the efficiency of marketing campaigns

When specific subsets of customers are targeted, your marketing content can become more relevant and effective with the audience you are targeting.

2. Understanding your target market better

Market segmentation gives you a more complete picture of who your customers are. With real, actionable insights, you can focus your efforts on product differentiation, adjusting your products, services, or content to customers' needs.

Read more: What Is a Target Market? And How to Define Yours

3. Spending your marketing budget more effectively

With market segmentation, you can spend money on promoting products to segments that are more likely to buy from you. For example, if your product is expensive and designed for business users, you may not want to invest your budget on social media channels that appeal to teenagers.

4. Becoming more competitive

Market segmentation can build brand awareness and authority in your niche . Market segmentation can also help you identify gaps in the market and fill certain segments' unmet needs.

5 types of market segmentation

You can segment your market in several ways. As a marketer, you’ll need to decide which segmentation strategy works best for your business:

1. Behavioral segmentation

Behavioral segmentation groups consumers based on their use of or response to a product. Behavioral segments are typically difficult to identify because behavior is not always consistent over time. 

Example: Banking customers can be divided into segments like online banking users and those who use physical branches. Online banking products may then be more successful when marketed to a receptive group of online banking users. 

2. Attitudinal segmentation

Attitudinal segmentation categorizes potential customers based on their attitudes, beliefs, opinions, and values. Unlike behavioral segmentation, which is based on observable actions that consumers take, attitudinal segmentation focuses on the psychological and emotional aspects of how consumers behave.

Example: An eco-friendly company can market to consumers who prioritize sustainable products and practices.

3. Demographic segmentation

Demographic segmentation is a very common form of segmentation. Your market can be divided based on characteristics such as gender, family size, age, income, occupation, education level, and nationality. Generational segments and cultural segments can also be included in a demographic basis for segmentation.

Example : Diapers will likely sell best to families with infants and young children.

4. Geographic segmentation

Geographic segmentation groups consumers based on where they live. This could mean country (national marketing), state (regional marketing), city (local marketing), or neighborhood (micro-marketing). Firms that employ geographic segmentation may market differently to potential customers in specific areas to maximize the effectiveness of their marketing efforts.

Example : New Orleans marketing might mention the Saints and the term Big Easy.

5. Psychographic segmentation

Psychographic market segmentation is a system that groups consumers by their interests, opinions, and lifestyle perspectives. This system rests on the idea that people's psychological traits influence consumer behavior.

Example : Outdoor gear companies may choose to target people who consider themselves active, adventurous, and outdoorsy.

The market segmentation process

The segmentation process is an initial step in marketing your business. Once your market is split into segments, you can use appropriate marketing strategies to target these segments effectively. The steps involved in this process are as follows:

1. Define your market and the opportunity.

The first step is to define the boundaries of the market, such as a specific geographic area, an age group, or income level. Develop a clear picture of the products or services you offer and the type of consumers who might want to buy them. If you’re highly specific, you can build better segments.

2. Segment your market.

Split up the market you've identified into groups that share common characteristics, including behaviors, attitudes, demographics, location, beliefs, and more.

3. Research your market to understand it.

You need to develop a good understanding of each segment. Consumers in each may have different needs, wants, desires, and buying behaviors. Your research can involve surveys, or other types of research, such as focus groups and interviews.

4. Create your products and marketing strategy.

Once you have defined and researched each segment of target customers, you can develop the products and marketing strategies to best reach each group. Your strategy should tell you how each product fits into the market, what price to charge , what promotions to run, which channels to sell through (e.g., online vs. in person), and so on.

5. Test your marketing strategy.

Before launching a new product or marketing campaign, test it out with a small group of people from within that segment. Improvements can then be made before going ahead with a full launch. Honest feedback from consumers is important for a product’s success.

6. Get feedback and review your success.

After launching a new product or marketing campaign, collect customer feedback and review how successful it has been. Evaluate success based on sales volume, profit margins, and other key metrics. Make any necessary changes, and use the process again with future products or services.

Market segmentation strategies and their benefits

Market segmentation strategies allow you to create tailored messages that will resonate with your target audience. Here are three main ways that marketing segmentation strategies can help:

Adaptable prices

You may offer different prices to different groups based on location, demand, and income level. A good example is flexible airline pricing, where prices rise and fall based on who will travel and how much they are willing to pay. By changing your price based on the type of customer you're dealing with, you'll maximize profitability.

Personalized content and messaging

This form of segmentation involves delivering customized content to a particular audience based on their interests. An e-commerce website showing recommendations based on browsing history is an example of content personalization. Customers are more likely to engage with content relevant to their needs and interests.

Read more: How to Develop a Content Strategy: Step-By-Step Guide

Precision targeting

A precise target market is a specific subset of a larger market you can target with your marketing efforts. The precise targeting strategy involves narrowing down the larger market to a small, specific group of people who are likely to buy for similar reasons.

The precise targeting approach aims to improve conversion rates by carefully targeting prospects with similar characteristics and needs. Instead of casting a wide net, identifying and targeting specific segments helps you reach customers who are more likely to make a purchase.

How different jobs use market segmentation

Many marketing professionals use market segmentation in their work. Some have to carry out analysis themselves while others use the analysis provided by other professionals.

*All salary data is sourced from Glassdoor as of September 2023.

Product manager

Average annual base salary (US): $147,018 [ 1 ]

Product managers are responsible for defining and establishing a product’s product strategy, roadmap, and features. They are responsible for getting feedback from customers, gathering market intelligence, and using this information to guide their product decisions.

Read more: What Does a Product Manager Do? And How to Become One

Market segment manager

Average annual base salary (US): $177,097 [ 2 ]

Segment marketing managers deal with a particular segment of the market. For example, a bank might have one segment marketing manager who deals with small businesses and another with large enterprises. A segment marketing manager should understand the needs of the customer segment they are targeting and define what messaging and products will appeal to them.

Brand manager

Average annual base salary (US): $95,146 [ 3 ]

Brand managers are responsible for defining a brand's voice and managing its presence in the marketplace. This involves overseeing the content creation that communicates consistently with the brand's positioning and objectives. By forming different buyer personas, brand managers can develop specialized messaging for customers as part of the brand voice.

Read more: What Does a Brand Manager Do? Guide

Digital marketing manager

Average annual base salary (US): $89,929 [ 4 ]

Digital marketing managers are responsible for marketing products or services using digital channels, such as search engines, email, social media, and websites. Their primary focus is to drive specific types of people to the company website. Segmentation is important when planning pay-per-clicks, search engine optimization , and social strategies.

Read more: Digital Marketing: What It Is and How to Get Started 

Content marketing specialist

Average annual base salary (US): $55,957 [ 5 ]

Content marketing specialists create content, such as blog posts, videos, or podcasts that engages customers and supports a brand's message. These specialists have to understand how to segment customers based on what type of content they like. They can produce content for each customer segment that will catch their attention and make them more likely to buy from the brand.

Marketing analyst

Average annual base salary (US): $69,966 [ 6 ]

Marketing analysts collect data from customers' responses to different types of marketing. This data can help companies determine which segments are profitable, which need more attention, and which are no longer valuable.

Read more: Marketing Analytics: Definition, Benefits + Career Guide

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Article sources

Glassdoor. “ Product Manager Salaries , https://www.glassdoor.com/Salaries/us-product-manager-salary-SRCH_IL.0,2_IN1_KO3,18.htm.” Accessed September 5, 2023.

Glassdoor. “ Segment Marketing Manager Salaries , https://www.glassdoor.com/Salaries/us-segment-marketing-manager-salary-SRCH_IL.0,2_IN1_KO3,28.htm?clickSource=searchBtn.” Accessed September 5, 2023.

Glassdoor. “ Brand Manager Salaries , https://www.glassdoor.com/Salaries/us-brand-manager-salary-SRCH_IL.0,2_IN1_KO3,16.htm?clickSource=searchBtn.” Accessed September 5, 2023.

Glassdoor. “ Digital marketing Manager Salaries , https://www.glassdoor.com/Salaries/us-digital-marketing-manager-salary-SRCH_IL.0,2_IN1_KO3,28.htm?clickSource=searchBtn.” Accessed September 5, 2023.

Glassdoor. “ Content marketing Specialist , https://www.glassdoor.com/Salaries/us-content-marketing-specialist-salary-SRCH_IL.0,2_IN1_KO3,31.htm?clickSource=searchBtn.” Accessed September 5, 2023.

Glassdoor. “ Marketing Analyst Salaries , https://www.glassdoor.com/Salaries/us-marketing-analyst-salary-SRCH_IL.0,2_IN1_KO3,20.htm?clickSource=searchBtn.” Accessed September 5, 2023.

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This content has been made available for informational purposes only. Learners are advised to conduct additional research to ensure that courses and other credentials pursued meet their personal, professional, and financial goals.

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Market Segmentation

What is market segmentation?

The benefits of market segmentation, the basics of segmentation in marketing, types of market segmentation, how to get started with segmentation, market segmentation strategy, market segmentation use case examples, ensuring effective segments, common segmentation errors, qualtrics solutions for market segmentation, see how qualtrics strategic brand works, market segmentation: definition, types, benefits, & best practices.

21 min read Market segmentation helps you send the right message, every time, by efficiently targeting specific groups of consumers. Here’s how it works.

By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies . Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income.

Read on to understand why segmentation is important for growth and the types of market segmentation to use to maximize the benefits for your business.

Free eBook: How to drive profits with customer segmentation

Companies who properly segment their market enjoy significant advantages. According to a study by Bain & Company , 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period.

Other benefits include:

• Stronger marketing messages : You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
• Targeted digital advertising : Market segmentation helps you understand and define your audience’s characteristics, so you can direct your online marketing efforts to specific ages, locations, buying habits, interests etc.
• Developing effective marketing strategies : Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
• Better response rates and lower acquisition costs : will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
• Attracting the right customers : targeted, clear, and direct messaging attracts the people you want to buy from you.
• Increasing brand loyalty : when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand .
• Differentiating your brand from the competition : More specific, personal messaging makes your brand stand out .
• Identifying niche markets : segmentation can uncover not only underserved markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
• Staying on message : As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
• Driving growth : You can encourage customers to buy from you again , or trade up from a lower-priced product or service.
• Enhanced profits : Different customers have different disposable incomes; prices can be set according to how much they are willing to spend . Knowing this can ensure you don’t oversell (or undersell) yourself.
• Product development : You’ll be able to design new products and services with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.

Companies like American Express , Mercedes Benz , and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers.

Understanding segmentation starts with learning about the various ways you can segment your market as well as different types of market segmentation. There are four primary categories of segmentation, illustrated below.

With segmentation and targeting, you want to understand how your market will respond in a given situation, like what causes people to purchase your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions .

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, household income, marital status, family size, race, gender, occupation, and nationality. The demographic approach is one of the simplest and most commonly used types of market segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. It’s also seen as a simple method of predicting future behavior, because target audiences with similar characteristics often behave in similar ways.

How to start demographic segmentation

Demographic segmentation is often the easiest because the information is the most readily available. You can send surveys directly to customers to determine their demographic data, or use readily available third party data such as government census data to gather further information.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be a unique type of market segmentation in its own right. As its name suggests, it creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.

How to start geographic segmentation

Geographic segmentation data again can be solicited from customers through surveys or available third party market research data, or can be sourced from operational data such as IP addresses for website visitors.

Firmographic segmentation

Firmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.

How to start firmographic segmentation

Firmographic segmentation data can be found in public listings for companies and information that the business makes available, as well as trade publications. Again, surveying existing and potential customers can help to build out this data.

Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach, because you can focus on what you know they are looking for, and are therefore more likely to buy.

How to start behavioral segmentation

Of all the types of market segmentation, behavioral segmentation is likely best started with the information you have on an existing customer base. Though it can be bolstered by third party market research data, the information you already have on customer purchase and usage behavior will be the best predictor of future behavior.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.

How to start psychographic segmentation

Pychographic segmentation relies on data provided by the consumers themselves. Though market research might provide insights on what particular segments are most likely to believe or prefer, psychographic segmentation is best completed with information direct from the source. You can use survey questions with a qualitative focus to help draw out insights in the customers’ own voice.

On-demand webinar: How to drive product design and profits with customer segmentation

There are five primary steps to all marketing segmentation strategies:

• Define your target market : Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace compared to your competitors?
• Segment your market : Decide which of the five criteria you want to use to segment your market: demographic, firmographic, psychographic, geographic, or behavioral. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one to figure out which combination works best for your needs.
• Understand your market : You do this by conducting preliminary research surveys, focus groups, polls , etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
• Create your customer segments : Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
• Test your marketing strategy : Once you have interpreted your responses, test your findings by creating targeted marketing, advertising campaigns and more for your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, relook at your segments or your research methods and make appropriate changes.

Why should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. The market segmentation process is similar, as there will be times you need to revisit your market segments, such as:

In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of businesses to rethink how they sell to customers. Businesses with physical stores looked at online ordering, while restaurant owners considered using food delivery services.

If your customers change, your market segmentation should as well, so you can understand clearly what your new customers need and want from you.

On a yearly basis: Market segments can change year over year as customers are affected by external factors that could alter their behavior and responses.

For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.

At periodic times during the year: If you’ve explored your market and created market segments at one time of the year, the same market segments may have different characteristics in a different season. Seasonal segmentation may be necessary for better targeting.

For example, winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel (back home for the holidays). Knowing this information can help you predict and prepare for this period.

When considering updating your market segmentation strategy, consider these three areas:

• Acknowledge what has changed: Find out what has happened between one time period and another, and what have been the driving forces for that change. By understanding the reasons why your market is different, you can make key decisions on whether you want to change your approach or stay the course.
• Don’t wait to start planning: Businesses are always adapting to long-te r m trends , so refreshing market segmentation research puts you in a proactive place to tackle these changes head-on. Once you have your market segments, a good idea is to consider the long-term complications or risks associated with each segment, and forward-plan some time to discuss problem-solving if those issues arise.
• Go from “what” to “why” : Why did those driving forces come about? Why are there risks with your target market? At Qualtrics, we partner with companies to understand the different aspects of target markets that drive or slow success. You’ll have the internal data to understand what’s happening; we help unleash insight into why with advanced modeling techniques. This helps you get smart market segmentation that is predictive and actionable, making it easier for future research and long-term segment reporting.

Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built out across several departments and activities:

Market and opportunity assessments

When your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups.

For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services.

Segmentation and targeting

If you have your entire market separated into different customer segments,  then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavioral preferences .

With this information, you can target your products and services toward these market segments, making marketing messages and collateral that will resonate with that particular segment’s criteria.

Customer needs research

When you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements.

Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up.

Product development

If the product or service you’ve developed doesn’t solve a stated problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about an/d how they live their lives, it’s easier to know what products will enrich or enhance their day-to-day activities.

Use market segmentation to understand your customers clearly , so that you can save time and money developing products and services that your customers will want to purchase.

Campaign optimization

Marketing and content teams will value having detailed information for each customer segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect better with specific audiences, making their campaign results more effective.

When their marketing campaigns are combined with strong calls to action targeted to the specific segment, they will be a powerful tool that drives your target market segments towards your sales channels.

After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:

• Measurable : Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments may be made up of people who are more likely to shop during a promotion or sale.
• Accessible : Understanding your customers and being able to reach them are two different things. Your segments’ characteristics and behaviors should help you identify the best way to meet them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio ads to hear about store promotions, while another segment is best reached on your mobile app. One of your segments might be a male retiree who is less likely to use a mobile app or read email, but responds well to printed ads.
• Substantial : The market segment must have the ability to purchase. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but realistically can’t afford them. Make sure an identified segment is not just interested in you, but can be expected to purchase from you. In this instance, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, leisurely retirees who can afford your goods, and successful entrepreneurs who want to show off their wealth.
• Actionable : The market segment must produce the differential response when exposed to the market offering. This means that each of your segments must be different and unique from each other. Let’s say that your segmentation reveals that people who love their pets and people who care about the environment have the same purchasing habits. Rather than having two separate segments, you should consider grouping both together in a single segment.

Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavioral segmentation does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations.

We’ve outlined the do’s , so here are some of the dont’s :

• Avoid making your segments too small or specialized : Small segments may not be quantifiable or accurate, and can be distracting rather than insightful
• Don’t just focus on the segment rather than the money : Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment
• Don’t be inflexible : Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.

Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to  get automated from the beginning . Forget spreadsheets – choose  market segmentation software  to measure and streamline your marketing strategy; as you grow, the technology will scale with you.

Innovative features such as XM Directory allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups.

If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service .

Related resources

Market fragmentation 9 min read, behavioral segmentation 20 min read, psychographic segmentation 11 min read, geographic segmentation 14 min read, demographic segmentation 14 min read.

Brand Perception

Brand Sentiment 18 min read

Brand intelligence 12 min read, request demo.

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Market segmentation — definition, types, and examples

If you’re a marketer or business owner, you know that segmentation is an effective way to expand your market and reach new customers.

But even if you understand market segmentation, sometimes you need a little inspiration to start doing it yourself. In this article, we’ll explore the key segment types with real-world examples to jump-start your company’s foray into market segments and help you improve your overall marketing efforts.

This post will cover:

What is market segmentation?

Types of market segmentation, demographic segmentation, examples of demographic segmentation, psychographic segmentation, examples of psychographic segmentation.

• Geographic segmentation
• Examples of geographic segmentation
• Behavioral segmentation
• Examples of behavioral segmentation
• Firmographic segmentation
• Examples of firmographic segmentation

Benefits of market segmentation

Frequently asked questions (faq).

Market segmentation is the practice of grouping customers together based on shared characteristics — including demographic information or common interests and needs. It’s a strategy for dividing a large, broader target audience into specific groups to create tailored and personalized marketing campaigns.

A market segment refers to the individuals who are grouped together based on their shared characteristics. The idea is that these people have similarities as consumers and respond similarly to marketing efforts. So companies need to communicate to them in a particular way, rather than just messaging their audience as a homogenous whole.

Businesses segment their market in different ways. Market segments should be based on extensive research of their potential customers’ demographics, lifestyles, needs, personalities, and more.

There are various types of segmentation that help businesses market to their target audience groups. We’ll go over the five main types of market segmentation and provide examples of each one.

Demographic segmentation is grouping customers based on data points like age, gender, marital status, occupation, and more. It’s essentially the “who” segment of your market. This is the most common type of segmentation because it’s easily identifiable. Demographic segmentation can help you understand the individuals that make up your audience and how to target your marketing efforts to them.

Demographic segmentation is typically sorted by characteristics like:

• Level of education
• Family size or status
• Professional occupation or role in a company

Demographic segmentation provides objective information on who is interested in your product or service. While it’s best to use other methods of segmentation as well, demographics provide an excellent starting point for marketers to group their audience.

Here are a couple examples of how demographic segmentation can be used:

Brooks Running Shoes and Dick’s Sporting Goods partnering on empowerment . Brooks and Dick’s are great real-life examples of using demographic segmentation to capture customer interest. The companies partnered to celebrate National Girls and Women in Sports Day with their “Empower Her” collection. It included a variety of women’s shoes and clothing, including products with phrases like “Dream Chaser” and “Respect Her Run.”

HelloFresh targeting female social media users . Lots of different people use meal delivery subscriptions, and marketing efforts often focus on making dinner prep easier for busy young professionals or families. But HelloFresh wanted to specifically target its primary market segment. Knowing its audience was 80% women and primarily between the ages of 30 and 50, HelloFresh created a female-oriented influencer campaign that produced buzz on foodie social media.

Demographic segmentation provides excellent initial information, but to understand the customer thought process, you need to use other segmentation methods too.

Psychographic segmentation is the “why” segment of your market. In this segmentation, you analyze how your audience thinks and create a strategy targeted toward customers’ attitudes and beliefs. These groups will likely have similar psychological characteristics, personal values, aspirations, and political opinions.

Companies generally divide psychographic segments based on:

• Personality
• Hobbies and interests
• Lifestyle choices
• Social or political views
• Values and beliefs

Psychographic segmentation is more difficult to segment because it’s more subjective. Social media analytics can be a helpful tool, but you should also plan to conduct interviews and surveys and hold focus groups to gather all the information you can about your audience.

Here’s an example of psychographic segmentation:

Marvel Studios marketing toward movie fanatics . Marvel creates engaging social media posts that generate excitement and anticipation for its upcoming films. The studio posts countdowns to the days leading up to the movie and includes clips likely to pique its audience’s interest. Marvel can market to people based on their interests in comic books, superheroes, film, and more.

This segmentation is what makes customers who they are. But who they are can be influenced by other factors, such as where they are.

Geographic market segmentation

Geographic market segmentation is the “where” segment of your market. In this type, customers are segmented based on their geographic location. These people will live in the same city or state — perhaps even in the same zip code — and are likely to have similar attitudes, needs, and cultural preferences based on their geography.

Companies generally separate geographic segments by:

• Climate region
• Population density
• Rural, urban, or suburban setting

Examples of geographic market segmentation

Geographic segmentation works best for companies that are trying to focus their efforts on a particular area. It could involve simple changes, such as adapting product offerings or the language used in marketing to fit the main language of a region or slang that would typically be used in one area.

Some examples of geographic market segmentation include:

McDonald’s adjusting items for individual countries . McDonald’s started out as an American restaurant company, but as it grew to become a global mega-brand and expanded its locations all around the world, it adjusted some of its menu items to match the cuisine of different countries. For example, rather than just the typical burger and fries, there’s the Veggie Maharaja Mac in India, the McSpaghetti in the Philippines, and poutine in Canada.

Climate impacting fashion. One general example of geographic segmentation could be based on weather. If your company sells clothing, your marketing may vary by region. In colder regions you may want to highlight coats and beanies, while in a warmer area tank tops and shorts will be more suitable.

Physical environment has a huge impact on why customers purchase the way they do. It’s also important to analyze how they interact and respond to your brand.

Behavioral market segmentation

Behavioral market segmentation is the “how” segment of your market. This approach examines customer behavior and how people engage with your brand. From this type of segmentation, you can better understand how they may respond to changes in prices, new promotions, and more.

Audiences can be grouped by:

• Spending habits
• Browsing habits
• Interactions with your brand
• Loyalty to your brand
• Product feedback

Examples of behavioral market segmentation

Behavioral segmentation, like the other types, helps you gain a deeper understanding of who your client base is. This category, however, goes beyond noting stereotypical characteristics of the customer and reveals their interactions and spending tendencies.

Some examples of behavioral segmentation are:

Guinness advertising non-alcoholic beer. Guinness is a global brand with a loyal following of beer drinkers, but industry research shows there are millions of people who choose not to consume alcohol. To market to this growing group during the popular Six Nations Rugby Cup, Guinness produced clever ads for its new product “Guinness Clear” with slogans like “Make it a night you’ll remember.”

Amazon honing in on buying habits. Amazon displays recent customer purchases to show shoppers other products they may be interested in. For example, if someone purchased a soccer ball, they may get advertisements on their social media platforms for shin guards, cleats, and other soccer equipment.

Behavioral market segmentation gives businesses a close look into how customers interact with brands and spend their money.

Firmographic market segmentation

Firmographic segmentation is the B2B version of demographic segmentation. It’s the study and classification of B2B customers using information from similar company characteristics. This segmentation type is popular for firms to find businesses that would benefit the most from their product.

Companies generally separate the firmographic segment based on:

• Turnover and profit numbers
• Industry type
• Business size
• Number of employees
• Ownership (public, private, or government)
• Organizational trends (for example, more companies going remote)
• Average sales cycle

Examples of firmographic market segmentation

Most of the market segments detailed in this article focus on B2C marketing, but firmographic segmentation is helpful for B2B companies to create engaging campaigns.

Upwork advertising in New York City. Upwork is a popular platform for companies to hire freelancers. Since New York is one of the largest population centers and business hubs in the world, Upwork created a marketing campaign with digital billboards and other ads prominently placed around the city to attract the attention of businesses that might need freelancers.

There are many reasons why segmentation can create more personalized experiences for each customer. By doing research and keeping up with industry trends, your business can expand its market and improve marketing ROI.

Market segmentation provides a number of benefits for businesses. Not only does it help your teams better understand your audience and create the right messaging to attract customers and grow your reach, but it produces a stronger brand image, more efficient use of resources, a higher rate of success, and a better customer experience.

With market segmentation, you can:

• Identify high-value customers and the similarities and differences between different groups of customers.
• Create more personalized communications and more targeted marketing efforts.
• Reach new markets by showcasing your unique product or service and adjusting your messaging.
• Build better brand awareness and stand out by understanding individual customer needs and creating personalized experiences.
• Cut down on wasted marketing dollars by creating more impactful and efficient campaigns.
• Improve your products by meeting specific market expectations based on what customers want.
• Make it easier to learn about your audience and create more cost-effective campaigns in the future.
• Gain better marketing ROI by using existing data to improve the customer experience.

What is meant by market segmentation?

Market segmentation is the practice of grouping customers together based on certain characteristics they may share.

What are the types of market segmentation?

There are four main types of market segmentation — demographic, psychographic, geographic, and behavioral. But there are other types that your business can take advantage of as well, such as firmographic for B2B marketing.

What are the advantages of market segmentation?

Market segmentation helps you establish who your target market is and customize your message for individuals. It allows your business to expand across new markets and improve products to keep up with changing customer needs.

How do you identify market segments?

By becoming an expert on your business, doing extensive industry research, and categorizing people by identifiable characteristics, you can use the information to group potential customers that might be interested in your products or services.

What makes a good market segment?

A good market segment should be easily identifiable and different from other segments. The sample sizes of these segments should be large and able to be assessed for feedback.

Evaluate your marketing software for market segmentation capabilities

Your business can reach new markets by using market segmentation. When you’re ready to get started, evaluate your current marketing software to see how it handles segmentation. If there are gaps, look into a new solution.

Acting on insights requires an audience. Create and activate engaged audiences on any channel or device with Adobe Audience Manager .

Audience Manager turns insights into action so your teams can create memorable customer experiences and extend your reach further than before. As a data management solution, Audience Manager collects and merges information from practically any source — building intelligent audience segments that give you a complete view of your customers.

Watch the two-minute product tour to learn more.

https://business.adobe.com/blog/basics/market-segmentation

https://business.adobe.com/blog/basics/psychographic-segmentation

https://business.adobe.com/blog/basics/get-a-quick-refresher-on-market-segmentation

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Market segmentation: What it is, Types & Examples

Market segmentation is the key to any long-term marketing plan that works.

To maximize your marketing budget, you should determine why your customers buy from you by dividing your market into subgroups. Then, you’ll be better able to meet their unique needs.

LEARN ABOUT: Behavioral Research

Market segmentation techniques can help your business make more money because they can help you give customers more personalized experiences. Because of this, the best tools for personalization let you divide your audience into groups so you can:

• More email and text message leads
• Increase the number of sales on your website
• Improve average order values
• Increase the customer lifetime value

In this article, we will learn what market segmentation is and how it allows you to correctly direct your marketing efforts to the right audience to ensure the success of your business. 

Content Index

What is market segmentation?

Types of market segmentation, market segmentation objectives, strategies for market segmentation, steps to implement a market segmentation, characteristics of good segmentation, advantages of market segmentation, disadvantages of market segmentation, how questionpro can help in market segmentation.

Market segmentation is a process that consists of sectioning the target market into smaller groups that share similar characteristics, such as age, income, personality traits, behavior, interests, needs, or location. 

Knowing your market segmentation will help you target your product, sales, and marketing methods. It can help your product development processes by guiding how you build product offers for various groups, such as males versus women or high-income versus low-income. These segments can be used to optimize products, marketing, advertising, and sales efforts.

Segmentation allows brands to create strategies for different types of consumers, depending on how they perceive the overall value of certain products and services. In this way, they can introduce a more personalized message with the certainty that it will be received successfully.

Market segmentation is the process of breaking up a large market into smaller groups of customers with similar needs, traits, or ways of behaving. There are 4 types of market segmentation . Below, we describe each of them:

Geographic segmentation 

Geographic segmentation consists of creating different groups of customers based on geographic boundaries. 

A fast-food chain might change its menu items and specials based on what people in a certain area like. For example, they might have spicy food on the menu in places where spicy food is common.

The needs and interests of potential consumers vary according to their geographic location, climate, and region. So, geographic segmentation is valuable. Understanding geographic segmentation allows you to determine where to sell and advertise a brand and where to expand a business.

Demographic segmentation

Demographic segmentation divides the market through different variables. Demographic segmentation includes age, gender, nationality, education level, family size, occupation, income, etc.

A company that sells luxury cars might look for customers with a certain income, age, or job. For example, they might make ads for older, wealthy people who are likely to be interested in luxury cars. 

Demographic segmentation is one of the most widely used forms of market segmentation since it is based on knowing how customers use your products and services and how much they are willing to pay for them. Surely demographic segmentation is very important.

Psychographic segmentation

Psychographic segmentation consists of grouping the target audience based on their behavior, lifestyle, attitudes, and interests. 

A fitness brand might try to reach customers based on how they live and who they are. For example, they might go after people who like to be active and care about their health.

To understand the target audience, market research methods such as focus groups , surveys, interviews, and case studies can successfully compile psychographic segmentation conclusions.

Behavioral segmentation

Behavioral segmentation focuses on specific reactions, i.e. consumer behaviors , patterns, and how customers go through their decision-making and purchasing processes.

LEARN ABOUT: Behavioral Targeting

An online store can target customers based on what they buy. For example, they might give discounts to people who buy from them often or send personalized suggestions based on what people have bought in the past.

The public’s attitudes towards your brand, how they use it, and their awareness are examples of behavioral segmentation. Collecting behavioral segmentation data is similar to how you would find psychographic data. This allows marketers to develop a more targeted approach.

There are different objectives for segmentation of market. Here we tell you what each of them is:

• Product: Creating successful products is one of the main objectives of organizations and one of the reasons why they conduct a market segment. This allows you to add the right features to your product and will also help you reduce costs to meet the needs of your target audience.
• Price: Another market segmentation objective is establishing the right price for your products. Identifying which is the public that will be willing to pay for it. 
• Promotion: It helps you target each segment’s members and select them in different categories so that you can direct your strategies appropriately. 
• Place: The ultimate goal of segmentation is to decide how you offer a product to each group of consumers and make it pleasant to them.

A market segmentation strategy is a plan for dividing a market into different segments based on certain criteria, such as demographics, geography, psychographics, and behavior. Here are some steps that businesses can take to create a good strategy for it:

1. Research the market:

Before making a segmentation strategy, it’s important to research the different parts of the target market and their needs and preferences.

2. Identify segmentation criteria:

Based on the market segment, businesses can figure out which criteria for segmenting their target market are most important. This could include things like age, gender, income, and level of education, or it could include things like personality, lifestyle, and values.

3. Market segmentation:

Businesses can divide the market into different segments based on the criteria they have found. It’s important to ensure that each part is clear, measurable, and useful.

4. Develop targeted marketing strategies:

Businesses can make marketing plans for each segment when the market is divided into segments. This could mean making customized products and services, running targeted marketing campaigns, and adjusting pricing strategies to meet the needs and preferences of each segment.

5. Evaluate how well the segmentation strategy worked:

Businesses should keep an eye on the performance of all the customer segments and make changes as needed to ensure the segmentation strategy works. This could mean getting customer feedback, looking at sales data, and tracking how well marketing campaigns are working.

A market segmentation strategy can help businesses better understand their customers, create targeted marketing plans, increase customer satisfaction, improve product development, increase market share, increase profits, and gain a competitive advantage.

In order to implement a strategy, you must not only know what market segmentation is. It is very important to know how to apply this method. That is why we have for you a guide that will help you:

Step: 1 – Define your market: At this point of the product segmentation , you should focus on discovering how big the market is, where your brand fits, and if your products have the capacity to solve what it promises.

Step: 2 – Segment your market: This step consists of choosing which of the types best suits your brand.

Step: 3 – Understand your market: Ask your customers the right questions, depending on the type you choose. You must know your target customer in detail. You can use online surveys to get their answers.

Step: 4 – Build your customer segments: After collecting responses, you need to perform data analysis to create dynamic segments unique to your brand.

Step: 5 – Test your strategy: Ensure you have correctly interpreted your survey data by testing it with your target audiences. This will help you to revisit your market segmentation strategies and make the necessary changes.

Step: 6 – Implement the strategies: Once the marketing plans have been tested and improved, put them into action on a larger scale.

Step: 7 – Evaluate the performance: Evaluate how well each segment and marketing strategy is doing and make changes as needed.

Step: 8 – Continue to improve: It is an ongoing process, so keep improving the segmentation criteria and marketing strategies based on customer feedback and changing market conditions.

By doing these things, businesses can effectively implement a market segmentation strategy and increase their chances of success in the marketplace.

Choosing the right segmentation type should ensure that the segments are relevant, accessible, measurable, profitable, and easy to use.

Different types of segmentation don’t meet these requirements in the same way. Sociodemographic criteria make it easier to get measurable segments than psychographic criteria.

Multi-criteria segmentations usually lead to a quantitative and objective description of the segment. In contrast, criteria can lead to a qualitative description of the segment that is richer and more relevant but harder to measure.

Knowing what market segmentation is and the benefits it has for your organization will help you implement it correctly. Here are some of its advantages:

• Create stronger marketing messages: When you know who you are targeting, you can create strong, personalized messages that respond to the needs and wants of your target audience.
• Find the ideal marketing strategies: You may not know which is the right strategy to attract the ideal audience. It allows you to know the audience, create a plan that will work successfully, and determine better solutions and methods to reach them.
• Design-targeted advertising: Market segmentation allows you to target your advertising to the audience successfully and effectively, knowing their age, location, buying habits, interests, etc.
• Attract potential customers: By sending direct and clear marketing messages, you attract the right audience and are more likely to convert them into buyers.
• Differentiate your brand from the competition: By creating messages specific to your value proposition, you can stand out from the competition. Segmentation allows you to differentiate your brand by focusing on specific customer needs and characteristics.
• Identify your niche market: It helps you discover your niche market. Identify the niche with the broadest audience and whether it has needs that your brand can effectively address.
• Focus your efforts: This allows you to identify new marketing opportunities and avoid distractions that take you away from your target market.
• Create a customer connection: You can create effective strategies when you know what your customers want and need. This allows you to create strong bonds between your brand and the customer to create brand loyalty and customer satisfaction .

Market segmentation can help a business in many ways but can also have some negative effects.

• Increased costs: If you want to target specific segments, you may need a bigger marketing budget to make customized products, create targeted advertising campaigns, and do a market segment.
• Overlooking potential customers: If you focus too much on specific segments, you might miss out on potential customers who don’t fit into your identified segments.
• Complexity: It can be a difficult process that requires detailed analysis and research. This can be hard for smaller businesses with fewer resources to do.
• Measuring effectiveness: It may be hard to know how effective a segmented marketing strategy is because it may not always be clear which segment is responsible for the success or failure of a campaign.
• Risk of stereotyping: There is a risk of stereotyping certain groups based on their demographic or psychological characteristics, which could lead to negative perceptions and backlash.

LEARN ABOUT: Perceived Value

Businesses need to consider the pros and cons of market segmentation to decide if it’s the right strategy for their products or services.

Market segmentation is a highly effective strategy for organizations because it lets them know which customers care about them and understand their needs enough to send a message ensuring brand success. 

LEARN ABOUT: Average Order Value

Now that you know what it is, start your research today! Gather the information you need to learn more about your target audience using online surveys like QuestionPro Survey Software.

Contact us and we will help you collect the data you need.

QuestionPro is a platform for market research that offers a variety of tools to help businesses segment their markets. Here’s how QuestionPro can help:

• Doing a survey: QuestionPro has a powerful tool for doing surveys that businesses can use to make custom surveys to collect information from their target market. Businesses can use this tool to collect customer demographics, behaviors, preferences, and more information.
• Targeted sampling: QuestionPro offers various sample sources so businesses can ensure their surveys reach specific parts of their target market. This includes filters based on demographics, location targeting, and more.
• Advanced analytics: QuestionPro has advanced analytics tools that allow businesses to analyze their survey data in depth. This includes tools for dividing data by demographics, behaviors, and preferences and making charts and graphs to show the data.
• Automated reporting: QuestionPro has tools for automatic reporting that make it easy for businesses to create reports based on their survey data. This includes tools for making charts and graphs and for exporting data to Excel or other formats.
• Integration with other tools: QuestionPro works with a number of other tools and platforms, like Salesforce, Slack, and Zapier, which makes it easy to use survey data in other business processes.

QuestionPro is a powerful market research platform that can help businesses with market segmentation by giving them various tools for collecting, analyzing, and reporting on survey data.

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 Market segmentation divides customers into groups with similar traits. Marketers define their ICP through demographic, psychographic, geographic, and behavioral segmentation.

The four main types of market segmentation are: 1. Demographic 2. Psychographic 3. Geographic 4. Behavioral

Market segmentation lets organizations target specific consumer groups with their products, services, and marketing, improving efficiency and profitability.

Market segmentation helps companies target the most likely customers. Their marketing techniques are geared to these consumer segments’ demands, tastes, and behaviors.

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The No-Nonsense Guide to Market Segmentation (With Tips and Examples)

Marketing to the wrong segment can feel like barking up the wrong tree, or more specifically, barking up tens of thousands of wrong trees.

Nearly everybody in sales has, at one point or another, heard someone reasoning that simply adding more people to the funnel will improve their sales numbers while preserving their conversion rate. If you’re a sales rep making 30 calls a day, you might reasonably extrapolate that making 60 calls a day would double your closed deals. Unfortunately, it’s not that straightforward.

Building a sales process can be complicated. What one audience might find valuable might just be noise for another.

That’s where effective customer segmentation can bring in some serious value for your business. Different demographics respond differently to marketing campaigns, and finding the right target market for your products or services can help you tailor your marketing strategies to be the most impactful they can be.

This guide to marketing segmentation will help you find your target audience and choose the best market segmentation strategies.

Table of Contents

What is market segmentation, what are the benefits of market segmentation, the 10 most common types of market segmentation.

• Market segmentation strategies
• How to do your own market segmentation

Frequently asked questions about market segmentation

Market segmentation in a nutshell.

Market segmentation is the process of qualifying companies (or people) into groups that respond similarly to specific marketing strategies. This is the first critical step in creating a marketing and sales process tailored to differentiate your business in the market and resonate across multiple demographics.

Market segmentation divides customers into segments based on shared characteristics, behaviors, or other attributes so you can create marketing strategies that appeal to entire groups. Your marketing segmentation strategy will be mainly influenced by what your product is and which types of companies are already buying it.

The history of market segmentation

The expression “market segmentation” was first coined by Wendell R. Smith in his 1956 publication Product Differentiation and Market Segmentation as Alternative Marketing Strategies . Smith wrote that modern marketing appeals to selective rather than primary buying motives.

In other words, consumers are actively contrasting products against one another rather than simply purchasing a product to satisfy an immediate need. This realization was the inception of the modern market segmentation we practice today.

Before 1956, there wasn’t a huge market variety, and general stores tended to carry only one or two brands’ versions of the same product. As time went on, more and more emerging brands began offering similar products and thus needed to differentiate themselves with branding and by targeting different markets.

It wasn’t enough to just manufacture ketchup, you had to identify your brand as America’s ketchup , or kids’ ketchup , or fancy ketchup .

Market segmentation provides several benefits to small teams and enterprises alike, including:

• Bang for your buck: With tailor-made, demographic-specific messages and advertising, companies can more effectively communicate with their audiences, begin boosting their conversion rates, and actually spend less on broad advertising.
• Better conversion rate: The more information you have about your various audiences, the more specificity you can add to your outreach, which will help your prospects convert more easily.
• Customer retention: By marketing towards customers who have already gone through their own buyer’s journey, segmentation makes it easier to keep them engaged and pitch them with occasional upgrades. And with the segment data you’ve captured, you know how to talk to them.
• Expanding your efforts: Segmentation can be a great way to pursue new markets that have something in common with your current markets.  

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Market segmentation helps savvy marketers categorize their target customers based on shared characteristics to keep their efforts focused and effective. Below are the 10 most common types of market segmentation: 

1. Demographic segmentation

Demographic market segmentation is the most commonly used form of market segmentation and entails categorizing your market based on age, gender, income, profession, race, religion, education, location, family situation, etc.

Demographic segmentation examples:

• Switch to the cartoon channel and check out those commercials. Do Nerf guns and neon-colored slime appeal to someone your age? Yeah us too, bad example .
• Commercials for vacation homes may target people across ages, genders, locations, and other demographics, but they all appeal to customers with disposable income who are interested in travel.

2. Psychographic segmentation

More specific characteristics are categorized under the umbrella of psychographic segmentation. Less tangible than demographic segmentation, this classification method includes details like lifestyle, personality, beliefs, values, and social class.

This evaluation is important because two individuals can possess identical demographic information but make purchasing decisions completely differently, and thus require different marketing.

Psychographic segmentation examples:

• Health and wellness advertisements might not go a long way with someone who prefers to spend their money on video games and energy drinks, even if they work in the same industry and live in the same apartment building.
• Advertisements for large social gatherings (events, clubs, bars) might not appeal to introverts who would much rather snuggle up with a book than be surrounded by other people.

3. Behavioral segmentation

At its core, behavioral segmentation is the act of categorizing prospects based on their actions, usually within your marketing funnel. For instance, prospects who visited a landing page for an upcoming event might benefit from receiving a personalized invitation.

Segmenting your market based on behaviors is typically done by marketers within their marketing automation software , but any company with a mailing list has already performed behavioral segmentation simply by tracking prospects who have signed up to receive emails.

Behavioral segmentation examples:

• Sending emails to website visitors who have left items in their cart. “But wait…come back!”
• A retargeting campaign that only displays ads to people who have previously purchased an item.

4. Geographic segmentation

Geographic market segmentation takes into account prospects’ locations to help determine marketing strategies. Although SaaS sales are relatively unaffected, a salesperson of gigantic coats knows to avoid pitching to Arizona residents.

Geographic segmentation variables and examples:

• Climate: Swimwear brands shouldn’t be targeting Alaska residents in January.
• Cultural preferences (based on location): For obvious reasons, the McDonald’s in Germany sells beer.
• Population type: A bicycle company may segment its audience differently depending on the population type—rural (mountain bikes; thicker tires; more durable), urban (road bikes; thin tires; lightweight), etc.
• Density: A giant strip mall may require a high density of foot traffic to thrive.

5. Price segmentation

Price segmentation alters the price of similar products and services sold to different consumer groups. If you ever forced your kids to pretend to be under a certain age to qualify for the “kids eat free” special, then you understand the power and utility of price segmentation.

However, price segmentation can get much more granular. It can be used to identify customers who may be willing to pay more for a particular product or service that they perceive to be more valuable.

Done correctly, price segmentation can capture the maximum amount of revenue for each transaction.

Price segmentation examples:

• Broad: Senior discount, veteran discount, coupons, etc.
• Granular: Computer processors are priced differently when sold to a company as a part (like inside an iMac) than when sold to a consumer as a standalone product.
• Even more granular: A marketing consultancy may base its prices entirely on the value it can generate for each of its client’s unique situations.

6. Firmographic segmentation

Instead of categorizing consumers based on age, location, income, etc, firmographic segmentation categorizes companies based on industry, annual revenue, job function, company size, location, status, performance, etc.

For B2B marketers, utilizing firmographic segmentation is non-negotiable to a high-performing marketing strategy.

Just as the demographic segmentation variables can help you form a buyer persona at the consumer level, firmographic segmentation can help you develop a buyer persona at the company level.

Firmographic segmentation examples:

• Running different ads for different industries—real estate, finance, legal firms, etc.
• A B2B sales team only targeting companies with revenues over $100m.

7. Generational segmentation

Generational segmentation is almost comparable to the “age” variable in demographic segmentation. However, generational market segmentation goes beyond age by considering the difference in preferences, habits, lifestyles, and attitudes of a particular generation.

It’s self-evident that the generations are vastly different. Someone born in the 1960s will likely have experienced a different culture than someone born in the 2000s.

Generational segmentation examples

• Utilizing more memes on Facebook to target a larger percentage of Millennials.
• Altering your content publishing schedule to mornings to target a larger percentage of Baby Boomers.

8. Life stage segmentation

Life stage segmentation is the process of dividing your market based on the life stage of your target audience. Someone who is married with 5 kids may respond well to an emotional advertisement about convertibles during their midlife crisis.

Life stage segmentation examples

• Ads about life insurance may not appeal to sophomores in college, but they may appeal to someone who just started a family.
• Someone who just entered the workforce for the first time may be more interested in a new apartment than someone who is retired.

9. Seasonal segmentation

Seasonal segmentation targets people based on their purchasing habits during certain periods of the year. It can include actual seasons (spring, summer, fall, winter), events (Coachella, Super Bowl), and holidays (Christmas, Mother’s Day).

Seasonal segmentation examples

• A local you-pick berry farm may want to target their ads based on the fruit in season.
• A flower shop that specializes in same-day delivery may want to ramp up its ad spend around Mother’s Day targeting forgetful children.

10. Technographic segmentation

Much like firmographic market segmentation, technographic segmentation only applies to B2B audiences. It’s used to target companies based on the types of technology they’re using. Whether it’s a customer relationship management (CRM) platform, a website CMS, or a niche-specific software tool, utilizing technographic segmentation can help enhance sales and marketing efforts.

Technographic segmentation examples

• A company that develops WordPress plugins would have no business targeting companies that use a different CMS, like Wix.
• It would make sense for a SaaS company to target businesses using an app it just integrated with.

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Market segmentation strategies (and their pros and cons)

Every market segmentation strategy is different but most of them follow one of two fundamental outlines:

1. Concentration strategy

Concentration strategy is when a company determines that its efforts are best focused solely on a single market segment. This strategy is particularly great for small, growing businesses that have demonstrated a viable use case within a specific market. Focusing on one segment will allow the company to invest more time, energy, and resources into one specific market, which minimizes advertising spend and potentially mitigates wasting efforts across multiple segments.

Concentration strategy is like putting all your cards on the table—if it doesn’t work out, it can end badly. If the market segment hasn’t been properly vetted and turns out to be a bust, all of your marketing efforts could be wasted. Be sure to do some careful planning and execute thorough market testing before committing your business to a single market segment.

• Pros: High conversion percentages, repeatable marketing practices, less marketing spend
• Cons: “All-or-nothing,” growth potential is limited to segment size

2. Multi-segment strategy

Multi-segment marketing, or differentiated marketing, is when a company’s marketing strategies are designed to advertise one product to more than one market segment.

Although apparently “safer” than concentration strategy, multi-segment marketing is a much larger tax on a company’s marketing spend, as it requires completely different campaigns for each market segment.

However, if a particular segment is extremely receptive and converts well, it’s easy to tailor your strategy to market more directly to that segment.

• Pros: Safer, appeals to more consumers, diverse marketing, high growth potential
• Cons: Lower conversion percentages, greater marketing spend

How to do your own market segmentation in phases

Ready to complete market segmentation for your company? Here are three phases to follow during the process that will help you ensure you’re analyzing your markets effectively:

Phase 1: Gather the data

First things first, it’s time to gather data so that you can use it to form your market segments. There are many ways to go about it—some people like to buy pre-made lead lists and others prefer to do their own research . 

Two helpful methods of researching prospects are webforms and surveys. You can place high-quality data behind webforms that requires site visitors to submit their name, email address, and other information to access the content. Surveys can get specific information from potential buyers in exchange for tangible rewards, like a gift card or special offer.

If you’re doing your own research, you can frame your searches along the following categories:

• Researching by company size: Size can mean a number of things, but is most often measured by the number of employees, number of customers, or overall sales revenue a company claims. Some companies have greater transparency on their websites, which makes reaching out to the correct person much easier.
• Researching by industry: It’s unlikely that your product is applicable across all industries, which is why industry segmentation exists. Industry segmentation will help you ensure that you’re not wasting your time by targeting a company with no need for your product.
• Researching by location: If you’re offering a location-specific product or service, like landscaping services within the local community, your geographic market segmentation is probably pretty airtight: You probably use handy tools like lead maps , and engage in local marketing wherever possible. For other industries, like IT staffing, your reach might be international. Whatever your product, location is a crucial thing to know about a company, because it will help you decide which sales tactics to use and when to send your emails if you’re communicating across time zones, at the least.
• Researching by needs: This method of segmentation entails qualifying companies based on whether they need your products or services. While this definition is straightforward, the process behind making this determination may not be, depending on what you’re offering. If you sell landscaping services, you can use Google Maps to look up a company’s HQ. If their office is in a tower in New York City, they probably don’t need any landscaping.

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Phase 2: Sort the data into segments

There are many ways to go about sorting data. Most involve expensive analysts, marketers, and lots and lots of time. Although the DIY route is faster, it is no substitute for a comprehensive market segmentation strategy.

Assuming time and money are an obstacle, you can approximate your own market segmentation by compiling your data into one single source and running filters on it to manually group your prospects and companies together by segments.

Remember, ask yourself the following:

• Is this segment measurable?
• Is this segment large enough to earn a profit?
• Is this segment stable, and not going to vanish after a short time?
• Is this segment reachable with my marketing strategies?
• Is this segment homogenous, and will they respond similarly to my marketing strategies?

Phase 3: Plug in your marketing channels

Now that your segments have been firmly established, it’s time to connect the dots and breathe life into your marketing. This means establishing a plan for each of your marketing tools and channels and coming up with real ways to reach your segments with them.

You’ll be attributing different marketing and sales tactics to each stage of your pipeline and determining what sticks. The good news is that your market segments are clearly defined and you’ll be able to speak to them clearly.

The real challenge is continuously improving your efforts with trial and error to get the best possible conversion rates.

There’s a good, old-fashioned way to map this out quickly and easily:

• Draw your pipeline stages horizontally across a sheet of paper.
• Above each pipeline stage, jot your marketing channels, like Linkedin, emails, or webinars, with blank space in between them.
• Below each marketing channel, write exactly how you will use this tool at this pipeline stage, like “email prospects a link to a recorded webinar.”

Repeat this exercise for each market segment to help establish a concise and repeatable process for marketing to your various audiences. You can fully flesh out your segmented marketing strategy by configuring your sales software and email automation around the outline you’ve created, and then make tweaks as needed.

To this end, some CRMs have reporting and performance tracking as well as custom reporting to help you figure out what’s working and what needs to change.

Still have questions about market segmentation? Check out the FAQs below for answers to some common questions:

What are some common challenges faced when implementing market segmentation? 

Here are a few of the challenges you may encounter when implementing your market segmentation strategy:

• Creating segments that are too broad: Your product or service may appeal to several different market segments, but trying to appeal to too many can lead to ineffective marketing and high ad spending.
• Creating segments that are too narrow: The opposite problem can also arise. Small segments might be difficult to quantify and distract from other segments with greater buying power.
• Not being flexible: Just because a particular segment is currently buying from you doesn’t mean they always will. Be willing to reevaluate your market segments over time to maximize your marketing spending and revenue.

What are the key factors to consider when selecting a target market segment? 

Five key factors to consider when selecting market segments for your marketing strategies are:

• Whether the segment is measurable
• Whether the segment is large enough to generate a profit for your business
• If the segment is stable and won’t vanish after a short time
• If the segment is reachable by your marketing strategies
• Whether the segment is homogenous and will respond similarly to your marketing strategies

How can you effectively redefine your target market?

If you’ve determined that your target market no longer fits, you can always identify new markets . Here are a few tips for doing so: 

• Identify trends and patterns: Do companies that make a certain amount of annual revenue seem to be shying away from your offerings? If you want to reach those customers, identify any patterns in which products or services they choose instead and strategize for how to provide the value they’re looking for.
• Listen to customer feedback: Your current (or former) customers are valuable sources of feedback. Consider what they’re saying about your product or service and whether you’re meeting their needs. You may be able to identify new opportunities.
• Diversify your marketing channels: Using multiple channels to reach your target market can be a highly effective way to increase exposure for your brand. Consider diving into new channels like content marketing, email marketing, SEO, and online advertising to drive engagement with your target audience.

Additional resources:

• Sales tactics encyclopedia: 19 strategies for prospecting, qualifying, and closing
• The complete guide to researching sales prospects: 13 tools to help you understand your buyers
• The ultimate guide to cold calling
• 16 B2B cold email templates that sales experts swear by
• How to build a sales process: The complete guide
• Buying a lead list: The pros, the cons, and the things that might land you in jail

Now you’ve got your demographics clearly segmented, your strategy figured out, and your sales processes mapped tightly to your market segments.

Because of this, you should have a clear understanding of how to talk to your prospects, and how to differentiate your outreach efforts based on the market segment.

The challenges that lie ahead are rooted in constantly adjusting your marketing—testing your messages, your tactics, and measuring your audiences’ responses.

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What Is Market Segmentation? Importance for Your Business

April 12, 2023

by Hannah Tow

In this post

Types of market segmentation, why is market segmentation important, how to do market segmentation .

• Common market segmentation mistakes

How to implement your own market segmentation strategy

You’ve spent time and money creating the perfect marketing strategy, and you want your message to resonate well with your potential customers, right?

Communication is an art, and it’s incredibly easy for a message to become lost, confused, or avoided altogether as the size of your audience increases. The larger your audience grows, the broader their preferences, needs, and opinions become which can put your marketing message at risk of being irrelevant to the majority of people you’re attempting to reach. 

This is exactly why segmenting your target market is crucial. Making use of marketing automation software can help better manage a large audience and create a segmented, personalized, and targeted marketing experience. This practice allows you to focus your marketing efforts on individual customer segments so that you can better cater to their specific wants and needs.

This method gives your brand an advantage over your competitors because you can prove to potential customers that you understand them and know what they need best.

What is market segmentation?

Market segmentation is a business practice that brands use to divide their target market into smaller, more manageable groups of people based on common ground they share to optimize their marketing, advertising, and sales efforts. Simply put, customers of each market segment have similar characteristics that businesses can leverage to advance their efforts.

Market segmentation aims to introduce a tailored message that will be received successfully. This is advantageous for companies with a product or service in the marketplace that boasts multiple benefits or uses for different types of customers. 

Accept the fact that you can’t be everything to everybody, and as a marketer, you can’t solve everyone’s problem or appeal to every single person. This is exactly why market segmentation is such an effective growth strategy to implement.

Tip: Before starting with market segmentation, you must have a solid marketing mix . This is your foundation for everything that comes next in this article.

As you can imagine, you can take many different approaches when segmenting your target market.

This article will walk you through the four main types and real-life market segmentation examples to help you get started. Learning from those who have done it right will help your brand garner that success you’re looking for.

Geographic segmentation

Geographic segmentation targets customers based on a predefined geographic border. Differences in interests, values, and preferences vary dramatically throughout cities, states, and countries, so it’s important for marketers to recognize these differences and advertise accordingly.

Think about products such as parkas and bathing suits.

Parkas will be sold most of the year in the colder northern half of the country, whereas southern areas may only be able to find parkas in specialty stores during the wintertime. On the other hand, bathing suits are sold year-round in the warmer states but are typically only sold during the spring and summer in the cooler states.

Another example of geographic segmentation is the iconic fast-food chain McDonald’s. If you’ve never traveled to another country and stepped foot in a McDonald’s, you’re in for a surprise!

Would you believe that in the Philippines, McDonald’s sells McSpaghetti? And in Hong Kong, they sell ramen flavored french fries?

These are all ways McDonald’s has segmented its customers based on geographic location to better cater to food preferences and different cuisines around the world. 

“ When it comes to paid search campaigns, geographic targeting is the most important segment to get right. ” Ryan Moothart   PPC Architect, Portent

Demographic segmentation

Demographic segmentation divides a market through variables such as age, gender, education level, family size, occupation, ethnicity, income, and more. This form of segmentation is widely used due to specific products catering to obvious individual needs relating to at least one demographic element.

Perhaps the most obvious variable of them all, age is a crucial element for marketers to understand thanks to the fast-paced nature of preference changes within the various stages of life.

Even media consumption differs greatly between each generation, so it’s important to recognize your target age range and which channels they use to consume information to ensure your tailored message reaches them appropriately. 

An example of demographic segmentation is when clothing companies cater to multiple age groups. For instance, Lululemon sells athletic clothing to adult men and women of all ages, but they also cater to girls between the ages of 6 and 15.

By analyzing its current customer base, Lululemon saw an opportunity to serve a new market and expand its business.

Many clothing companies cater to a variety of age groups to reach as many customers as possible. Think H&M, Old Navy, and Zara. All of these companies cater to men, women, and children of all ages, and they have distinct labels, advertising, and styles for each segment. 

Psychographic segmentation

Unlike geographic segmentation and demographic segmentation, psychographic segmentation focuses on the intrinsic traits your target customer possesses.

Psychographic traits can range from values, personalities, interests, attitudes, conscious and subconscious motivators, lifestyles, opinions, and more. 

To understand your target audience on this level, methods such as focus groups, surveys, interviews, audience testing , and case studies can all prove to be successful in compiling this type of conclusion.

Think about the lifestyle of someone who lives in a small beach town and surfs for a living versus someone who lives in a big city working in corporate America. These two people have incredibly different wants and needs on a daily basis, and marketers must recognize those differences to be successful.

For example, Starbucks does a fantastic job segmenting its customers based on psychographic traits. We all know that not everyone loves coffee or prefers to drink it, but that doesn’t stop Starbucks from appealing to just about everyone.

Starbucks sells chocolate milk, cake pops, granola bars, cheese sticks, and more for the little kids that accompany mom or dad on their morning coffee run. Of course, those items aren’t strictly for the kids, but those items sure are tempting when you have a fussy one.

What about for those sophisticated coffee drinkers who care about quality and bean sources? Starbucks appeals to them by selling a variety of exotic beans sourced from regions all over the world. And what about those who don’t really drink coffee, but all of their friends do, and they enjoy an afternoon hang out at Starbucks? Think frappuccinos, lemonades, teas, and juices. 

It’s one thing to sell products that can appeal to everyone, but it’s a whole new ball game when those products make every single person feel individually catered to. This is what Starbucks does through its messaging to create a sense of belonging.

They cater to each segment’s wants and needs through targeted marketing campaigns to ensure their coffee brand is inclusive to all, even if you aren’t a coffee drinker.  

“ The biggest danger is assuming that your market is perfectly sliced and diced just because you're making sales. ” John Donnachie Director, ClydeBank Media

Behavioral segmentation

Behavioral segmentation has similar measurements to psychographic segmentation, but instead, it focuses on specific reactions and the ways customers go through their decision making and buying processes. 

Attitudes towards your brand, the way they use and interact with it, and their knowledge base are all examples of behavioral segmentation. Collecting this type of data is similar to the way you would find psychographic data. 

Brand loyalty is an excellent example of behavioral segmentation. While reading this article, I bet that you can think of one brand that you consistently purchase and trust enough to buy its newly launched product without even reading the reviews.

This type of brand loyalty produces a consistent buying pattern which is categorized as a behavioral trait. Marketers work hard to get customers to love and stay loyal to their brand for a consistent purchase cycle.

To target customers that have great brand loyalty, many companies will offer rewards programs to enhance this behavior with the hope of capturing new loyal customers as well.

For example, the makeup and beauty company, Sephora, has an excellent rewards program for its loyal customers. The more you spend at their store, the more points you rack up, which can be redeemed for generous samples. In addition to that, they offer free services, special access to sales, and more! 

By targeting and rewarding those who already had an affinity to their brand, Sephora was able to build an impressive community that their target market wants to be a part of. 

Now that you understand the four major types of market segmentation, you’re probably wondering what the major benefits are of implementing them.

The importance of this strategy goes far beyond placing your target market into cohesive segments. 

Customer retention

For starters, those cohesive customer segments will lead to great customer retention . Capturing customers at the beginning of a perfectly tailored customer journey will provide an excellent brand experience and increase the likelihood that they will stay loyal to your brand.

Based on a recent study , 3 out of 4 customers are ready to make a significant move – switching brands – following a single negative experience. This is not just a minor bump in the road; it's a pivotal moment. What's even more alarming is that 52% of dissatisfied customers won't keep their dissatisfaction to themselves. They will also make sure their friends and family hear about it, actively discouraging them from purchasing the brand that let them down.  Market segmentation safeguards your brand. By slicing your target market into smaller and more manageable groups, you're not just optimizing your efforts but also building a stronghold against negative experiences. It helps you outpace negative experiences with positive interactions and prevent potential brand defection before it even begins. 

If every message and product shared with them resonates in some way, they will have a difficult time saying no to you. 

Grow your business 

Market segmentation can help you discover new ways to reach your current customers but also help you find new markets of potential customers you haven’t previously reached. Analyzing your customers in-depth will help you uncover unknown needs or problems that they face that your brand can solve.

This discovery can lead to new product lines, rebrands, or new brands, all to catapult the growth of your business by appealing to your current customers better, as well as new consumers that were previously uninterested. 

Lower spend rate 

If you know how to speak to your customers correctly, you’re more efficient with your efforts, which means you spend less money. It’s as simple as that.

Gone are the days of your team spinning its wheels, trying to come up with something that will stick. You'll get it right by segmenting your customers correctly every single time. 

To implement a marketing strategy, it's important to understand how to perform market segmentation. Here is a step-by-step guide to help you divide your target audience and cater to their needs in a personalized manner. 

• Define your target market: Understand your audience by asking yourself the right questions. Is it a small or large market? Is there a need for the product or service offered? Who are the competitors? Learning more about your target market will help you gain clarity on the next steps. 
• Segment your market:  We've seen the different types of market segmentation present. The next step is figuring out which segment or a combination of segments you would target. 
• Understand each market segment:  Conducting primary research through discussions, polls, and surveys will help understand the needs of each group and develop each customer persona . This will help you cater to their needs in the best possible way. 
• Create customer segments:  Analyze the findings from the previous step to create your final customer segments. 
• Test your marketing strategy:  Once the analysis is complete, test the marketing strategy through various campaigns or A/B tests to further understand the effectiveness. Relook at the strategy if required. 

Common market segmentation mistakes 

Now that you understand the basics of market segmentation and have seen it in practice, it’s time to focus on the common mistakes marketers can make when segmenting their target market for the first time.

Creating too small of segments

This can be rather easy to do if you’re trying to ensure that you have every last detail included. If a segment is created too small, you’ll lose the buying power of that group as well as create a segment with non-quantifiable metrics.

At the end of the day, every single person is vastly different. You cannot appeal to every aspect of every person.

Not updating your strategy as your customer base changes

People change, and they can change fast. It’s in your brand’s best interest to refresh its strategy and resurvey its customers from time to time.

Choose a cycle that makes sense for your business and stick to it. This can be a quarterly refresh, yearly, or every couple of years; if you’re seeing big changes within your customers, perform a refresh then, too. 

Targeting the segment instead of the money

You may have segmented a large customer base that aligns with your strategy, but if that segment doesn’t have the buying power or a legitimate need for your product, then you won’t have a positive ROI.

Market segmentation can be a laborious and complicated task, and mistakes in the beginning stages may seem inevitable. Being aware of these common downfalls will better prepare you and your team so you don’t make them in the future.

It’s time to put what you’ve learned to use. Here are five steps that lay the process out simply, plus the two strategies that are most commonly used to guide them. Once you’ve got these basics down and you have a solid foundation for your strategy, branch out, and make it uniquely your own. 

Before getting started, consider using marketing automation software to streamline and measure your efforts effectively. As your strategy becomes more complex and your campaigns grow larger, you’ll be happy with the amount of time and resources you were able to save from having everything automated from the very beginning. 

Concentrated strategy 

As the name suggests, a  concentrated marketing strategy is when a company chooses only one market to focus all of their time, money, and efforts on. This strategy is usually chosen by smaller businesses or those that are just taking off and starting to make a name for themselves in the marketplace.

Success is typically seen when targeting a smaller group of people since the strategy has to appeal to the entire segment. Appealing to an entire segment becomes challenging when the segment is too large.

You should be aware that your growth opportunity is limited when using this strategy. Once you’ve capitalized on your market and are seeing great success, consider tapping into other similar markets to continue to drive growth. 

Differentiated strategy

On the other hand, a differentiated marketing strategy is when a company focuses on two or more markets. Companies that utilize this strategy market their products to many different segments, they just change their messaging to appeal to all of the differences.

Although a differentiated marketing strategy requires a lot more effort, time, and money than a concentrated marketing strategy would, it typically yields more success since there are many more avenues to profit. 

1. Define your market

Where does your brand fit within the current market landscape? Is there a need for the solution you promise to provide? How large is the market? These are all important questions to consider when starting this step.

2. Segment your market

This is where it gets fun. Decide which of the four segmentation methods you’re going to use, but don’t feel confined by one segmentation method.

It’s common for brands to implement more than one segmentation technique and take a combination approach, so play around with each and find the perfect mix for your brand.

3. Understand your market

Ask your target market questions related to your chosen segmentation categories. You should get to know your target market through and through at this step. You can use surveys , focus groups, polls, and more to obtain your answers. Make sure you’re asking questions that will provide quantifiable answers.

4. Build your customer segments

Interpret the responses you receive to create dynamic customer segments that are unique to your brand. You can use a customer support tool too. Make sure that you’re focusing on the buying power of the segments and not creating any that are too small. Look over the common mistakes one last time to ensure you’re not making any! 

5. Test your strategy

Ensure that you have interpreted your responses accurately by testing it on your target market. Implement conversion tracking early. It’s one of the best ways to determine the effectiveness of your strategy.

If you’re not relating to your customers with the segments you’ve created, you’ll need to review your survey methods and analysis. Be sure your chosen strategy has unique characteristics from others in the marketplace to stand out. 

By determining the proper strategy for your needs and following the basic steps outlined above, you can ensure your market segmentation strategy will be effective and successful. 

Take your marketing strategy to the next level

Market segmentation is a highly effective strategy for every marketing team. It proves to your customers that you understand them by providing a tailored message that resonates with specific facets of their lives. Knowing how to get a message across successfully will help your brand grow exponentially.

Remember, your success won’t last long if you’re not constantly testing your strategy. To be competitive, you must always be on top of your game.

Market segmentation comes down to knowing your customer base and providing a personalized experience for them. For a seamless customer journey across your segments, learn how to implement an omnichannel marketing strategy next. 

You've hit the bullseye!

Targeting the right audience can be quite tricky. Using the right marketing automation software can help ease the process.

Hannah is a former content marketing associate at G2. She graduated from the University of Missouri with a degree in Journalism. In her free time, Hannah enjoys running with her dog, Teddy, traveling to new and exciting places, and capturing the beautiful places she travels to with her DSLR camera. (she/her/hers)

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Target Market Segmentation

Target market segmentation helps you market better to potential customers. Let's take a look at what this means and how you can grow your small business.

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arget market segmentation helps you market better to potential customers. It's crucial to boost sales and increase the chances of long-term success.   Let's take a closer look at what this term means and how you can use it to focus your marketing efforts.

What is Target Market Segmentation, and Why Does It Matter?

Target marketing segmentation is where you divide your potential customers into segments. You'll then focus on a few segments (or groups of people) that align most with your product or services. Doing so helps you tap into their needs and desires to attract new sales and increase longevity.   You can also drill it down further by creating a marketing strategy for more specific groups of people  -  such as using different promotions and how you deliver your products or services. That way, it helps your marketing campaigns be more cost-effective, allowing you to spend time only on one focus at a time.   Let's say you have a wedding and event photography business . Instead of spending thousands of dollars on print ads in random publications, you'll first see who your target customers are. Based on this information, you'll then focus your marketing campaigns by placing ads in publications where your target audience is most likely to see them. That way, it'll increase the chances you'll get a return on your investment.  

How Do I Segment My Target Market?

The good news is that you can approach segmenting the market in many ways based on your company's market research. Four common ways are behavioral, demographic, geographic, and psychographic segmentation.  Here's a bit more detail on the types of market segmentation:  

Behavioral Segmentation

This segment looks at how consumers interact with brands and products. For instance, you can look at which platforms your ideal customer most frequents, their social media usage, and their customer journey online.  

Demographic Segmentation

Businesses tend to feel this is the most important criteria to identify their target market. These include age, gender, education level, income level, social class, nationality, family size, marital status, and religion. Knowing these demographics about your ideal customer can help you with how you want to create marketing campaigns (Gen Xers may not understand the slang Gen Z tends to use, for instance).  

Geographic Segmentation

Yes, this segment has to do with details on a consumer's location or where they live. Aside from nationality, you can consider their state, county, town, or city.

Psychographic Segmentation

Businesses can look at elements such as parts of a consumer's personality traits  -  like whether they lean towards being an extrovert or introvert. You can even consider a consumer's belief systems and lifestyles and consumer behavior.  

How to Effectively Create Target Market Segmentation

Creating a target market analysis will help you understand the types of consumers you need to market to and will even help you break into niche markets. Don't worry; creating one isn't a difficult task, though you'll want to make sure you take the time to get it right to ensure effective marketing messages.   Here are four steps you can take.  

1. Gather Accurate and Current Data

Gathering details from outside sources can be incredibly valuable to help you gain better insights into your market segment, potential customers, and even your industry as a whole. Plus, if you're just starting out, you may not have enough internal data to get a good enough view of what customer groups you need to target based on customer needs.   The challenge when gathering data is that there is plenty out there. Make sure what you're using is both current and accurate.  

2. Divide up Market Based on Chosen Characteristics

Now's the time to wade through data and eliminate what isn't relevant to your target market. You'll want to create customer segmentations. Consumers who are most likely attracted to your brand, product, or service will share the same types of characteristics. Identifying these will ensure you're efficient when creating your messaging in your marketing campaigns.  Here are some questions to help you get the ball rolling:

• What do my target customers have in common?
• How does my target customer research products and services?
• How does my target define themselves?

Once you have some shared characteristics, you can then use them to create customer profiles or personas. It will also help give you even better insight into what really matters to them, plus any trends and insights to help you develop more ideas to increase sales.  

3. Gather Intel on Your Competitors

Understanding the competition in the market is critical. This will tell you exactly what your product or service is up against and what tactics you need to take on to compete.  Ask questions like:  How many businesses have a comparable offering to you?  What's their pricing structure?  What reach do they have?  Who do they appeal to most?  You may find that one group of people is very well served by competitors while another group has yet to be tapped into.  Answering these questions will help you identify the most profitable group to target in your marketing plans, as well as identify what types of marketing communications may or may not have worked prior.

4. Use Market Segmentation As Part of Your Business Plan

Now that you've identified your target segment, it's time to use this knowledge as part of your overall business plan. Yes, you want to use the data to create better marketing plans, but this data can also help you tap into other insights. Think about how you can develop new products and services, order the right amount of stock, and even anticipate demand at certain months of the year.   That is the essence of knowing your market. For instance, if you know you want to test certain products, look at how you can further segment your target market to see whether you should include this new item as part of your regular offerings. Or, if you know that sales are slow at a particular time of the year, you can look at the data to create campaigns to encourage quick sales.  

Using Target Market Segmentation in Your Marketing Strategy

All in all, the goal of target market segmentation is to inform your company's overall business and marketing strategy. It'll help you easily create goals and develop ideas that are more audience-centric.   Doing so means you know what they want and when they want it. This will increase brand loyalty in your customer base. Imagine how your business will benefit from this wealth of knowledge!

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Segmentation, Targeting, & Positioning (STP Marketing): The Marketer's Guide

Published: December 06, 2023

As a content strategist, I like to ask my clients a lot of questions, starting with, "Who’s your target audience?"

But do you know what answer I always dread hearing? "Everyone"

While it’s nice to believe that everyone would be interested in purchasing your product or service, this definition (or lack thereof) creates way more work for you and also does a disservice to your actual target market. This is where segmentation, targeting, and positioning come into play.

We developed this guide to help you understand how and why you should invest time into STP for better, more effective marketing. Let’s dive in.

What is segmentation, targeting, and positioning (STP Marketing)?

Segmentation, targeting, and positioning (often referred to as segmentation-targeting-positioning or STP marketing) is a consumer-centric approach to marketing communications. The STP model helps deliver more relevant, personalized messages to target audiences.

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At its core, STP marketing helps you to better target your marketing messages and better serve your customer base.

Here's an example: I once created a marketing strategy for a fitness apparel brand. Rather than appeal to all fitness enthusiasts across the board, the brand wanted to target a specific segment within their target market: female yoga fans in their 30s and 40s. 

Ultimately, our marketing campaign was much more efficient and cost-effective since we knew our audience, where to reach them, and what messages would resonate.

Conducting an STP Marketing Analysis

STP allows you to take a large, anonymous audience and define how your different products (or different components of the same product) relate to specific consumer segments within that larger audience — thus understanding how to position your product(s) and messaging to grab the attention of each segment.

Let’s unpack each part of the segmentation-targeting-positioning model.

1. Segmentation

Segmentation refers to the process of dividing your audience into smaller groups based on certain characteristics. This process allows you to group your individual audience members into similar groups so you can better communicate your products, features, and benefits that may be most relevant to them.

You can segment your audience based on one or more of these criteria:

• Demographics , which typically answer the question of who your buyer is (e.g. age, gender, education, location, and profession)
• Psychographics , which answer the question of why your buyer buys (e.g. priorities, personality traits, and beliefs and values)
• Lifestyle traits , such as hobbies, entertainment preferences, and non-work activities
• Behavior , such as brand loyalty, channel preferences, and other shopping habits

Segmentation may sound a little familiar to another process we often discuss here on the HubSpot blog — creating buyer personas .

While the two are very similar,  buyer personas help you create a handful of customer profiles that represent your broader audience. Segmentation allows you to split your audience into countless groups, each of which you can uniquely target.

For example, let’s say Paws & Tails is a Chicago pet-sitting company that offers pet-sitting, dog walking, and boarding services. Given the vast number of pet owners in the city, they need to segment their audience into smaller groups to better understand how to position their services.

Based on their research and current customer base, they split their audience into three main segments:

• Segment A is made up of high-income pet owners who work often and need daytime dog walking and pet pop-in visits.
• Segment B is made up of middle-class individuals and families who travel and need overnight boarding or pet-sitting services.
• Segment C is made up of older pet owners and retirees who need help caring for their pets.

2. Targeting

With your audience segments in hand, it’s time to move on to the targeting phase. First, however, you must decide which segments are worth targeting with your marketing. To decipher this, I like to ask myself the following questions about each segment:

• Is this segment composed of enough potential customers to justify targeting? Would it yield enough profits if the segment were to convert?
• Is it measurably different from the other segments?
• Is it accessible by all members of Marketing and Sales?
• Is your company equipped and able to serve the segment? Are there any physical, legal, social, or technological barriers that could prevent that?

Choosing what segments to target is a strategic decision. Thankfully, certain strategic planning models — the PESTLE analysis is a personal favorite — can help you better understand the viability of each segment.

It takes a lot of work to successfully target a segment of your audience. But from my experience, whether you’ve identified two segments or ten, don’t feel the need to target more than one segment at once. In fact, I've found that targeting one at a time can help you better position your marketing for each specific segment.

Following our example from before, Paws & Tails conducts research to better understand its Chicago audience. Paws & Tails finds that Segment A makes up 60% of its market size, Segment B makes up 30%, and Segment C makes up 10%. Moreover, Segment A has a higher average income and is willing to pay more for pet-sitting and walking services. Because of this, they choose to focus on Segment A.

3. Positioning

At this point, you should understand the demographics, psychographics, motivations, and pain points of the segments you’ve chosen to target, which can provide a place to start when it comes to positioning your product or service.

First, take a step back and examine your product or service through the perspective of your chosen segment. If you were in their shoes, why would you choose your product over a competitor’s? What features or benefits are most relevant to you, based on the motivations and pain points you’ve identified?

This information is important to defining your brand positioning and understanding how it stacks up next to your competitors. One way to understand where you, well, stand is by building a positioning map , which is “the visual plotting of specific brands against axes, where each axis represents an attribute that is known to drive brand selection.”

The segment you choose to target should dictate what two attributes you plot on your positioning map. For example, let’s say Paws & Tails decides Segment A selects pet-sitting brands based on two attributes: service area and reliability.

By understanding 1) what the target segment deems most important for brand selection and 2) where its competitors succeed (and fall short), Paws & Tails is able to identify an open market opportunity and position its marketing to best fit the needs and goals of its audience.

Using Segmentation, Targeting, and Positioning in Marketing

The STP model is a priceless addition to any marketing strategy, regardless of your industry, product, or audience. It prioritizes efficient and effective marketing and ensures you’re delivering only the most relevant, targeted messaging across the board.

It also plays an important role in developing other strategies, such as your buyer personas, customer lifecycle stages, and core brand proposition.

By leading with a consumer-centric approach like STP, you can be sure that every inch of your marketing is relevant to your audience — thus, increasing the likelihood that they convert, purchase, and become lifelong customers.

Examples of Great Market Segmentation and Positioning

Brands are segmenting, targeting, and positioning their audiences and marketing constantly, oftentimes without us (consumers) even noticing. Ever seen a brand or product and thought “Huh, that’s perfect for me” or “Wow, right place at the right time”? Yeah … you’ve been subject to the STP model.

Let’s review a few examples of great marketing segmentation and positioning.

1. Panera Bread

Panera has successfully cornered the “health-conscious” and “ climate-conscious ” segment of the fast casual dining industry. Is Panera’s food so different from other fast casual options? Not entirely.

But by branding themselves with the perspective that “we believe that good food, food you can feel good about, can bring out the best in all of us”, Panera remains top-of-mind as a place to get high-quality food, fast.

2. AllBirds

How did AllBirds position itself to set itself apart from the competition? By elevating its eco-consciousness and placing that front and center in its marketing. According to the AllBirds website, the brand “crafts with planet-friendly natural materials, like merino wool and eucalyptus trees, because they're our best chance for a sustainable future.”

At first glance, AllBirds shoes don’t look too terribly different from other running or walking shoes. However, its audience segment that cares about sustainability and earth-conscious products knows the difference.

No longer can businesses simply segment their audiences by “men” and “women” — the individuals within each broad gender group vary too much, and razor brand Billie took note of this.

In an effort to extinguish the “pink tax,” Billie markets cost-friendly razors and associated products. Moreover, they work to normalize body hair and other forgotten or shamed parts of women’s bodies.

Through this positioning, Billie is able to set their products apart from competitors and create a strong, positive community around their brand.

The world of online dating is a busy, strange place. From Tinder to FarmersOnly.com, there seems to be a place for everyone to meet, well, anyone. Hinge came on the scene only a handful of years ago, yet it has skyrocketed to the top of the list of the most popular and reliable dating app.

Time and time again, I’ve heard that Hinge is a favorite because it works — meaning it helps people meet people and make real relationships. You wouldn’t think a dating app would position themselves to eventually be unnecessary, but that’s exactly what Hinge has done. In fact, its mission statement is to “[build] an app that’s designed to be deleted.”

By putting the needs and desires of its audience front and center, Hinge has created a more trustworthy, in-demand online dating experience and set itself apart from its competitors.

The Case for Using STP Marketing

The segmentation-targeting-positioning model is designed to help you better target your marketing messages and better serve your customer base. It’s a win-win for you and your customers!

This article was originally published October 29, 2020 and has been updated for comprehensiveness.

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What Is a Market Segment?

How market segments work, examples of market segments and market segmentation, how are market segments used, how do you identify market segments, what is an example of a market segment.

• Marketing Essentials

How Market Segments Work: Identification and Example

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Pete Rathburn is a copy editor and fact-checker with expertise in economics and personal finance and over twenty years of experience in the classroom.

The term market segment refers to people who are grouped together for marketing purposes. Market segments are part of a larger market, often lumping individuals together based on one or more similar characteristics. Corporations and their marketing teams use various criteria to develop a target market for their products and services. Marketing professionals approach each segment differently, but only after they fully understand the needs, lifestyles, demographics , and personality of the target consumer.

Key Takeaways

• A market segment is a group of people who share one or more similar characteristics.
• Corporations and marketing teams use various criteria to develop target markets for their products and services.
• The criteria for a market segment include homogeneity among the segment's main needs, uniqueness, and a common reaction to marketing tactics.
• The reaction from market segments to marketing plans or strategies is typically very predictable.
• Common market segment traits include interests, lifestyle, age, and gender.

Investopedia / Ellen Lindner

A market segment is a category of customers who have similar likes and dislikes in an otherwise homogeneous market . These customers can be individuals, families, businesses, organizations, or a blend of multiple types.

Market segments are known to respond somewhat predictably to a marketing strategy , plan, or promotion. This is why marketers use segmentation when deciding on a target market . As its name suggests, market segmentation is the process of separating a market into sub-groups, in which its members share common characteristics.

To meet the most basic criteria of a market segment, three characteristics must be present:

• there must be homogeneity among the common needs of the segment
• there needs to be a distinction that makes the segment unique from other groups
• the presence of a common reaction or a similar and somewhat predictable response to marketing is required

Common characteristics of a market segment include interests, lifestyle, age, gender, etc. Common examples of market segmentation include geographic, demographic, psychographic, and behavioral.

Companies that understand market segments can prove themselves to be effective marketers while earning a greater return on their investments.

The banking industry provides a very good example of how a company markets to specific market segments. All commercial banks service a wide range of people, many of whom have relatable life situations and monetary goals. If a bank wants to market to baby boomers , it conducts research and may find that retirement planning is the most important aspect of their financial needs. The bank can then market tax-deferred accounts to this consumer segment.

If the same bank wants to effectively market products and services to millennials, Roth IRAs and 401(k)s may not be the best option. Instead, the bank may conduct in-depth market research and discover most millennials are planning to have a family. The bank uses that data to market college-friendly savings and investment accounts to this consumer segment.

Sometimes a company already has a product but may not yet have its target consumer segment. In this scenario, it is up to the business to define its market and cater its offering to its target group. Restaurants are a good example. If a restaurant is near a college, it can market its food in such a way as to entice college students to enjoy happy hour rather than trying to attract high-value business customers.

Commonly used in marketing strategies, market segments help companies optimize their products and services to suit the needs of a given segment. Market segments are often used to identify a target market.

Broadly speaking, identifying a market segment requires the following three criteria. To start, the main needs of a sub-group must be homogenous. Second, the segment must share distinct characteristics. Finally, the segment produces a similar response to marketing techniques. Prospective buyers are grouped into various segments, often based on how much value they place on a product or service.

Consider a company that markets health and beauty products to both men and women. These products, such as razors or skin care, are typically more expensive for women than they are for men. The product packaging also differs—products targeted to women having pinks and floral accents that align with gender stereotypes. On the other hand, the company's male-targeted products are characterized by more rugged blacks and greys. 

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Target Market Examples

Elon Glucklich

7 min. read

Updated March 20, 2024

Imagine your dream is to own a diner.

You have restaurant experience and a great location in mind – you just need the bank to approve your loan to get started.

But the bank has questions. A big one it wants answered is: who is your target market?

It might be tempting just to say, “hungry diners.” But you’ll need to dig deeper to truly define your target market . 

In this article, we’ll use this diner scenario to walk through the market research process and illustrate what the final result could look like.

Questions about your target market

Before you even set foot in the bank, you should already have asked – and taken steps to answer – several key questions about your target market.

Let’s call our example business the Bplans Diner. Where is that perfect location you’ve found for the diner? Is it in a densely populated urban area, suburban neighborhood, or rural?

What are your hours of operation? Some diners cater to a breakfast crowd, while others might offer 24-hour dining to be a favorite among night owls. When you expect your peak hours could help determine whether you should expect to sell more omelets or hamburgers.

What’s the area’s median income, and what types of businesses or institutions are nearby? This information will help you determine pricing and marketing strategies for your diner. For instance, if your diner is located in a business district, you may want to offer lunch specials. But if it’s near a college or university, you might want to offer student discounts.

This is what a thorough target market analysis looks like, providing key insights and data to pinpoint the specific groups of customers most likely to patronize your diner. Gathering all of this information may sound intimidating, but it’s really just a matter of doing research. If you need help and guidance, check out our complete guide to conducting market research for your business . 

Let’s look at an example of a target market analysis for this diner. Then, we’ll break it down and discuss each element in detail.

Example of a target market analysis

As you can see, the target market analysis follows the basic market segmentation process of splitting out potential customers into their demographic, geographic, psychographic and behavioral traits.

Next, let’s take a look at each in more detail. Afterward, we’ll look at how you can harness your target market analysis into actual business strategies.

• Demographic

You may have noticed that the demographic analysis in our example is very broad – 18 to 65 years old, including students, workers, and some seniors.

Finding your target market isn’t always about identifying a narrow demographic to cater to. In the case of a restaurant, it makes sense to focus on the geographic location and who currently frequents the area (more on that in the next section).

A different approach may be needed for a technology product that’s sold online. In that case, narrowing the demographic focus to specific age ranges or needs would be much more important than where the business is located.

In the case of the diner, we reached our decision by conducting a demographic analysis, examining the age ranges, occupations, and other concrete data points about potential customers near the proposed location (Reminder: we didn’t do this for the Bplans Diner, we’re just providing an example). 

There are several ways to go about collecting this information for your business. The most straightforward is to get out in the neighborhood, take a look around and talk to people. Are you mostly seeing students, or families? Are there a lot of office workers in the area? 

You can also look up data from the U.S. Census Bureau , which includes population, age, income and other useful information, often down to the neighborhood level.

After conducting this research, one valuable step is to create a detailed customer persona that represents the typical customer you expect for your business (we provide an example of a customer persona for the diner further down in this article).

While the demographic analysis considers the type of people who might frequent your business, the geographic analysis considers the characteristics of the neighborhood itself. 

Our target market analysis for Bplans Diner noted that we plan to operate in an urban area near a university with heavy foot traffic and expect a fair amount of late-night diners.

A key reason for examining the geographic makeup of your businesses is to size up your competition. If there’s already a popular diner in the area you plan to target, getting customers could be a major challenge. But if there’s a lack of dining options or no one is serving diner-style food, you’re more likely to be successful. Determining the size of your market will help you create reasonable revenue projections. 

We also mentioned the plan for Bplans Diner to cater to a late-night crowd. Examining the geographic makeup of the neighborhood will help you determine if there are the kinds of businesses – bars, music venues, or businesses such as hospitals where people are working all hours – to justify targeting this group.

• Psychographic

You know the demographics and geographic characteristics of your market. Now it’s time to consider the attitudes and values of your potential customers.

The psychographic analysis helps to understand the lifestyle of potential customers and how that might affect their preferences as consumers. If many of your potential customers are health-conscious, for instance, you’ll want to ensure your diner provides options like salads or gluten-free menu items. But if most customers are families looking for a place to bring their children, it may be important to keep classic items like hamburgers and french fries on the menu.

The best way to understand your potential customers’ attitudes is to get out and talk to them. Customer interviews are among the most powerful methods of validating a business idea , since you’ll get honest, real-time feedback from the kinds of people your business would depend on.

Finally, the behavioral analysis expands on customer psychographics by examining what customers do, given their values. This is another place where it’s worth considering the broad demographics of the diner’s target market – 18 to 65 years old, split among students, workers, and seniors.

They may all want the diner’s food, but their behaviors will vary widely. College students might be looking for a late-night study spot, or a place to meet up with friends for dinner before a concert or sporting event. But workers and seniors might be more interested in breakfast or lunch specials. 

Each of these behaviors gives a business owner valuable information to target individual segments of their target audience. For instance, you might want to play popular music in the evenings to get young diners ready for a night out on the town. But you’ll want a quieter ambiance at the time of day when seniors are most likely to come in. The environment can be adjusted based on when certain customers frequent the business.

Addressing behavioral aspects like buying motivations and concerns of your potential customers will also help you effectively market your diner. For example, you could create marketing campaigns based on student discounts, late-night specials, or a family-friendly atmosphere, depending on your customers’ behaviors.

Connecting a target market analysis to business strategy

So far, we’ve touched on each of the components of a target market analysis for a diner: customer demographics, geographics, psychographics, and behaviors. (It’s also important to conduct an industry analysis to understand competitive and macroeconomic forces affecting your planning.)

With the target market analysis complete, you’re better equipped to demonstrate a thorough understanding of your customers to a lender.

Here are a few insights a business owner could use for the Bplans Diner, developed through the above analysis.

• Bplans Diner Competitive Analysis

Market Trends: Growing demand for late-night food options, increasing preference for healthy dining options.

Competitor Strengths and Weaknesses:

Competitor A: Strong brand but limited menu options.

Competitor B: Wide variety of options but lacking in ambiance.

• Bplans Diner Marketing Strategy

Product Differentiation: Offering a diverse menu that caters to various preferences, including healthy options.

Positioning: Establishing Bplans Diner as a reliable, quality, 24-hour dining option in the region.

Promotion: Utilizing social media to announce special night-time deals and promotions.

Get started with your business plan template

A target market analysis is a key part of any business plan. But it’s just one piece. At Bplans, we take some of the pain out of business planning. We’ve developed a free business planning template to help reduce entrepreneurs’ time to create a full, lender-ready business plan. Bplans has also collected over 550 free sample business plans across numerous industries. Find a plan in your industry to get inspiration for your plan.

See why 1.2 million entrepreneurs have written their business plans with LivePlan

Elon is a marketing specialist at Palo Alto Software, working with consultants, accountants, business instructors and others who use LivePlan at scale. He has a bachelor's degree in journalism and an MBA from the University of Oregon.

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How to Do Market Segmentation in Business Plan

By: Author Tony Martins Ajaero

Home » Business Plans

Market segmentation in a business plan is a section where the target market of the business is separated into smaller groups of people, or segments, to identify areas of possible market growth. This section of the business plan helps marketers identify the primary characteristics that define the target market of the business and also ensures that they can direct marketing efforts to their unique needs, interests, and personalities.

Good market segmentation research helps to provide your business with a vivid direction and an idea of which market will be best to target. Note that the market your research shows to target will more or less represent a massive share of potential profitability to the company.

If your market segmentation research is not aligning with the above requirements, then you are doing it wrong. Always remember that bad market segmentation research is a waste of your time, money, and energy.

Types of Market Segmentation in Business Plan

Indeed, there are various approaches you can leverage when segmenting your target market in your business plan. To ensure that you can clearly define your target market, outlined below are four of the most common types of market segmentation.

Demographic Segmentation

This is one of the most common forms of segmentation because it notes that specific products cater to well-noted individual needs relating to at least one demographic element. This segmentation tends to classify consumers based on specific attributes, such as age or income level.

It also provides a view of consumers as real people in the real world by leveraging common data collection methods. Typically, this segmentation is very suitable for business-to-customer (B2C) marketing efforts. Some of the most notable attributes to consider during demographic segmentation include:

• Gender identity
• Sexual orientation
• Income level
• Household size
• Education level
• Geographical location

Psychographic Segmentation

Unlike geographic and demographic segmentation, psychographic segmentation focuses on the deep and built-in traits your target customer possesses. To properly understand your target audience on this level, methods such as focus groups, surveys, interviews, audience testing, and case studies can all prove to be formidable.

According to experts, this segmentation is well suited for B2C and business-to-business (B2B) marketing efforts. Notable psychological characteristics and traits to take into consideration during demographic segmentation include:

• Personal values
• Religious beliefs
• Aspirations
• Political leanings

Geographic Segmentation

This Segmentation tends to target and separate customers based on a predefined geographic border. Have it in mind that differences in interests, values, and preferences differ exponentially throughout cities, states, and countries.

Therefore it is pertinent to recognize these differences when developing your business plan to ensure you can advertise accordingly. Regional demographics can ensure you sell products and services, depending on where your customers live.

• International Marketing

Behavioral Segmentation

Behavioral segmentation strives to separate consumers based on their behaviors especially when it has to do with your products or services, such as when they decide to purchase them and how they use them. Note that by focusing on consumer behavior, behavioral segmentation gives you an insight into how consumers interact with businesses, and this gives you the knowledge you require to improve the effectiveness of your efforts.

Typically, this segmentation is also very suitable for B2C as B2B marketing efforts. Some notable areas of consideration for behavioral segmentation include:

• Usage frequency
• Brand loyalty
• Benefits needed

Steps to Do Market Segmentation in Business Plan

There are basic steps necessary to carry out market segmentation in your business plan. Here are the steps to guide you through;

Define Your Market

This is one of the most important things to take into consideration. For instance, where does your brand fit within the current market landscape? Is there a demand for the product or solution you intend to offer? How big is the market? Note that these are some vital questions to consider when starting this step.

Segment Your Market

This is where the work really begins. This is where you have to consider the exact segmentation method to use. Make sure you don’t confine yourself to one segmentation method. Today, brands are learning to implement more than one segmentation technique. Owing to that, consider taking a combination approach. Play around with each and find the ideal mix for your brand.

Know Your Market

You must ask your potential target market questions that have to do with the segmentation categories you prefer. You can leverage surveys, focus groups, polls, and more to get your answers. Make sure you are asking questions that will warrant very valid answers.

Write Your Customer Segments

You must leverage the responses you received to create a dynamic market segmentation section in your business plan. Also, make sure that you are focusing on the buying power of the segments and not creating any that are too small. Go through the segment one last time to make sure that you are not making any mistakes.

Test Your Strategy

To ensure that you have interpreted the responses very well, you have to test them on your target market. Consider implementing conversion tracking early. It remains one of the best ways to weigh and understand the effectiveness of your strategy. If you are barely relating to your customers with the segments you have established, then you’ll need to have another look at your survey methods and analysis.

Market segmentation is a very important section of a business plan. Note that it shows your stakeholders that you understand your customers by making available a tailored message that aligns with specific facets of their lives.

Aside from being a vital aspect of your plan, it also ensures you know how to get your message across successfully and this will help your brand grow exponentially. By developing the right strategy for your needs and following the steps noted above, you can be sure that your market segmentation strategy will be effective and successful.

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How to Write Up and Develop a Market Segmentation Plan

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A written market segmentation plan that has measurable targets attached to specific customer groups can help a business maximize profits. The more a business' owners understands the market, the better their chances of forming a strategy that reaches the most productive customer groups without wasting resources.

Divide and Conquer

Customer segmentation involves grouping customers together based on criteria relevant to your business. You can divide them up by any measure you choose, such as demographically or geographically, and clients can fit into more than one category. The goal is to separate out those segments that your business can serve most profitably, ideally in a way that makes them less prone to switching vendors based on a price decrease or marketing pitch from a competitor.

Market Analysis

The first part of a segmentation plan is market analysis. The plan should describe the industry and its major customer groups -- particularly the ones that your business is targeting. Identify the needs of both current and potential customers. Also note the size of the market and what percentage of it you can reasonably get. A big-picture trend analysis is also helpful. You want to finish this process knowing both why people buy what you are selling now and why that may change in the future.

Information Is Key

The more information you get about your market, the better a segmentation plan is going to be. In addition to commercially available sources, you may find it useful to gather your own data, perhaps by asking existing customers to fill out surveys or by gathering information from trade shows or conferences. It’s worth asking customers how they use your products or services to find out if they are using things in unintended ways that may provide additional means of generating sales, or if they are unaware of what you consider to be a key differentiator that gives you a comparative advantage over the competition.

Kick Customers Out

Don’t forget to also consider whether you’re currently serving customers that perhaps you shouldn’t be. If you’re spending a lot of money marketing your products to a group that isn’t responding and the return on investment is disappointing, it’s time to either come up with a more effective strategy for dealing with that group or abandon that segment to concentrate on more lucrative portions of the customer base.

Write it Up

Once you’ve decided which segments to target, it’s time to write up the findings. Be as specific as possible about your targeted segments, with a detailed action plan and measurable goals. If you continue to monitor the situation once the plan is in effect, you should know quickly whether everything is on the right track or changes need to be made and resources reallocated.

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How to Write a Market Analysis for a Business Plan

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A lot of preparation goes into starting a business before you can open your doors to the public or launch your online store. One of your first steps should be to write a business plan . A business plan will serve as your roadmap when building your business.

Within your business plan, there’s an important section you should pay careful attention to: your market analysis. Your market analysis helps you understand your target market and how you can thrive within it.

Simply put, your market analysis shows that you’ve done your research. It also contributes to your marketing strategy by defining your target customer and researching their buying habits. Overall, a market analysis will yield invaluable data if you have limited knowledge about your market, the market has fierce competition, and if you require a business loan. In this guide, we'll explore how to conduct your own market analysis.

How to conduct a market analysis: A step-by-step guide

In your market analysis, you can expect to cover the following:

Industry outlook

Target market

Market value

Competition

Barriers to entry

Let’s dive into an in-depth look into each section:

Step 1: Define your objective

Before you begin your market analysis, it’s important to define your objective for writing a market analysis. Are you writing it for internal purposes or for external purposes?

If you were doing a market analysis for internal purposes, you might be brainstorming new products to launch or adjusting your marketing tactics. An example of an external purpose might be that you need a market analysis to get approved for a business loan .

The comprehensiveness of your market analysis will depend on your objective. If you’re preparing for a new product launch, you might focus more heavily on researching the competition. A market analysis for a loan approval would require heavy data and research into market size and growth, share potential, and pricing.

Step 2: Provide an industry outlook

An industry outlook is a general direction of where your industry is heading. Lenders want to know whether you’re targeting a growing industry or declining industry. For example, if you’re looking to sell VCRs in 2020, it’s unlikely that your business will succeed.

Starting your market analysis with an industry outlook offers a preliminary view of the market and what to expect in your market analysis. When writing this section, you'll want to include:

Market size

Are you chasing big markets or are you targeting very niche markets? If you’re targeting a niche market, are there enough customers to support your business and buy your product?

Product life cycle

If you develop a product, what will its life cycle look like? Lenders want an overview of how your product will come into fruition after it’s developed and launched. In this section, you can discuss your product’s:

Research and development

Projected growth

How do you see your company performing over time? Calculating your year-over-year growth will help you and lenders see how your business has grown thus far. Calculating your projected growth shows how your business will fare in future projected market conditions.

Step 3: Determine your target market

This section of your market analysis is dedicated to your potential customer. Who is your ideal target customer? How can you cater your product to serve them specifically?

Don’t make the mistake of wanting to sell your product to everybody. Your target customer should be specific. For example, if you’re selling mittens, you wouldn’t want to market to warmer climates like Hawaii. You should target customers who live in colder regions. The more nuanced your target market is, the more information you’ll have to inform your business and marketing strategy.

With that in mind, your target market section should include the following points:

Demographics

This is where you leave nothing to mystery about your ideal customer. You want to know every aspect of your customer so you can best serve them. Dedicate time to researching the following demographics:

Income level

Create a customer persona

Creating a customer persona can help you better understand your customer. It can be easier to market to a person than data on paper. You can give this persona a name, background, and job. Mold this persona into your target customer.

What are your customer’s pain points? How do these pain points influence how they buy products? What matters most to them? Why do they choose one brand over another?

Research and supporting material

Information without data are just claims. To add credibility to your market analysis, you need to include data. Some methods for collecting data include:

Target group surveys

Focus groups

Reading reviews

Feedback surveys

You can also consult resources online. For example, the U.S. Census Bureau can help you find demographics in calculating your market share. The U.S. Department of Commerce and the U.S. Small Business Administration also offer general data that can help you research your target industry.

Step 4: Calculate market value

You can use either top-down analysis or bottom-up analysis to calculate an estimate of your market value.

A top-down analysis tends to be the easier option of the two. It requires for you to calculate the entire market and then estimate how much of a share you expect your business to get. For example, let’s assume your target market consists of 100,000 people. If you’re optimistic and manage to get 1% of that market, you can expect to make 1,000 sales.

A bottom-up analysis is more data-driven and requires more research. You calculate the individual factors of your business and then estimate how high you can scale them to arrive at a projected market share. Some factors to consider when doing a bottom-up analysis include:

Where products are sold

Who your competition is

The price per unit

How many consumers you expect to reach

The average amount a customer would buy over time

While a bottom-up analysis requires more data than a top-down analysis, you can usually arrive at a more accurate calculation.

Step 5: Get to know your competition

Before you start a business, you need to research the level of competition within your market. Are there certain companies getting the lion’s share of the market? How can you position yourself to stand out from the competition?

There are two types of competitors that you should be aware of: direct competitors and indirect competitors.

Direct competitors are other businesses who sell the same product as you. If you and the company across town both sell apples, you are direct competitors.

An indirect competitor sells a different but similar product to yours. If that company across town sells oranges instead, they are an indirect competitor. Apples and oranges are different but they still target a similar market: people who eat fruits.

Also, here are some questions you want to answer when writing this section of your market analysis:

What are your competitor’s strengths?

What are your competitor’s weaknesses?

How can you cover your competitor’s weaknesses in your own business?

How can you solve the same problems better or differently than your competitors?

How can you leverage technology to better serve your customers?

How big of a threat are your competitors if you open your business?

Step 6: Identify your barriers

Writing a market analysis can help you identify some glaring barriers to starting your business. Researching these barriers will help you avoid any costly legal or business mistakes down the line. Some entry barriers to address in your marketing analysis include:

Technology: How rapid is technology advancing and can it render your product obsolete within the next five years?

Branding: You need to establish your brand identity to stand out in a saturated market.

Cost of entry: Startup costs, like renting a space and hiring employees, are expensive. Also, specialty equipment often comes with hefty price tags. (Consider researching equipment financing to help finance these purchases.)

Location: You need to secure a prime location if you’re opening a physical store.

Competition: A market with fierce competition can be a steep uphill battle (like attempting to go toe-to-toe with Apple or Amazon).

Step 7: Know the regulations

When starting a business, it’s your responsibility to research governmental and state business regulations within your market. Some regulations to keep in mind include (but aren’t limited to):

Employment and labor laws

Advertising

Environmental regulations

If you’re a newer entrepreneur and this is your first business, this part can be daunting so you might want to consult with a business attorney. A legal professional will help you identify the legal requirements specific to your business. You can also check online legal help sites like LegalZoom or Rocket Lawyer.

Tips when writing your market analysis

We wouldn’t be surprised if you feel overwhelmed by the sheer volume of information needed in a market analysis. Keep in mind, though, this research is key to launching a successful business. You don’t want to cut corners, but here are a few tips to help you out when writing your market analysis:

Use visual aids

Nobody likes 30 pages of nothing but text. Using visual aids can break up those text blocks, making your market analysis more visually appealing. When discussing statistics and metrics, charts and graphs will help you better communicate your data.

Include a summary

If you’ve ever read an article from an academic journal, you’ll notice that writers include an abstract that offers the reader a preview.

Use this same tactic when writing your market analysis. It will prime the reader of your market highlights before they dive into the hard data.

Get to the point

It’s better to keep your market analysis concise than to stuff it with fluff and repetition. You’ll want to present your data, analyze it, and then tie it back into how your business can thrive within your target market.

Revisit your market analysis regularly

Markets are always changing and it's important that your business changes with your target market. Revisiting your market analysis ensures that your business operations align with changing market conditions. The best businesses are the ones that can adapt.

Why should you write a market analysis?

Your market analysis helps you look at factors within your market to determine if it’s a good fit for your business model. A market analysis will help you:

1. Learn how to analyze the market need

Markets are always shifting and it’s a good idea to identify current and projected market conditions. These trends will help you understand the size of your market and whether there are paying customers waiting for you. Doing a market analysis helps you confirm that your target market is a lucrative market.

2. Learn about your customers

The best way to serve your customer is to understand them. A market analysis will examine your customer’s buying habits, pain points, and desires. This information will aid you in developing a business that addresses those points.

3. Get approved for a business loan

Starting a business, especially if it’s your first one, requires startup funding. A good first step is to apply for a business loan with your bank or other financial institution.

A thorough market analysis shows that you’re professional, prepared, and worth the investment from lenders. This preparation inspires confidence within the lender that you can build a business and repay the loan.

4. Beat the competition

Your research will offer valuable insight and certain advantages that the competition might not have. For example, thoroughly understanding your customer’s pain points and desires will help you develop a superior product or service than your competitors. If your business is already up and running, an updated market analysis can upgrade your marketing strategy or help you launch a new product.

Final thoughts

There is a saying that the first step to cutting down a tree is to sharpen an axe. In other words, preparation is the key to success. In business, preparation increases the chances that your business will succeed, even in a competitive market.

The market analysis section of your business plan separates the entrepreneurs who have done their homework from those who haven’t. Now that you’ve learned how to write a market analysis, it’s time for you to sharpen your axe and grow a successful business. And keep in mind, if you need help crafting your business plan, you can always turn to business plan software or a free template to help you stay organized.

This article originally appeared on JustBusiness, a subsidiary of NerdWallet.

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