market segmentation research

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What is Market Segmentation Research?

Market segmentation research is research that is used to help a firm identify segments in a market, with the end goal of developing different strategies and tactics for the different segments (i.e., market segmentation). Market segmentation research is often referred to as segmentation research.

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The output of segmentation research.

The table below is an example of the end-point of a basic segmentation study. It describes four segments of toothpaste buyers. Typically, there will be a lot more information than shown here, both in terms of richer qualitative information and detailed tables of differences between segments.

Types of segmentation research

Broadly speaking, segmentation research can be classified into four broad types of methodology:

Quantitative survey-based research

Research carried out on secondary data, research carried out based on company databases, qualitative research.

Survey-based research involves the collection of data from a survey of people in the market of interest, and then using a segmentation algorithm, such as k-means cluster analysis or latent class analysis, to form segments. This is the main way that companies form market segments, because/since this method is the most flexible and produces the most detailed outputs, in that:

• Any form of data can be collected, such as demographics, behavior, attitudes, price sensitivity, preferences, etc.
• As a byproduct, it can produce all the key bits of information that are required for the implementation of the market segmentation (e.g., the size of the segments, the differences between segments in their attitudes, media viewing, etc.)

Secondary data is data that has already been collected and is usually in the public domain. Most commonly this is data collected by government statistical agencies, such as census data. Segmentations based on secondary data tend to focus on demographics.

Segmentation research studies based on company databases tend to focus on behavioral data, such as frequency and types of products purchased, customer value, and loyalty.

The three most common qualitative research methods are focus groups, in-depth interviews, and ethnography. The strength of qualitative research is its ability to provide complex textual descriptions of how people experience a given research issue. One advantage of qualitative methods in exploratory research is that the use of open-ended questions and probing gives participants the opportunity to respond in their own words. Researchers often use qualitative and quantitative material to complement each other. The final qualitative report containing descriptions and estimates of the sizes of the segments.

The term rich data describes the notion that qualitative data and their subsequent representation should reveal the complexities and the richness of what is being studied and the type of data that can be used for forming segments. However, they present the most challenges in terms of implementation, since/because the nature of the research means that much of the information required for effective implementation is missing (e.g., media usage, the size of the segments).

Acknowledgments

The table of outputs is adapted from Haley, R. I. (1968). "Benefit Segmentation: A Decision Oriented Research Tool." Journal of Marketing 30(July): 30-35.

Learn more about Market Segmentation

To learn more, download our  free guide to Market Segmentation !

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What Is Market Segmentation? Types, Benefits, Examples

Appinio Research · 28.09.2023 · 24min read

Are you ready to unlock the power of understanding your customers on a deeper level, tailor your strategies precisely, and gain a competitive edge in your industry? In this comprehensive guide, we delve into the world of market segmentation, breaking down its intricacies, best practices, challenges, and real-world examples.

Whether you're a seasoned marketer or new to the field, the insights and strategies within will empower you to create more effective marketing campaigns and connect with your target audience on a profound level.

Introduction to Market Segmentation

Market segmentation is the foundation of successful marketing. It allows you to break down your broad target audience into smaller, manageable segments. Each of these segments shares common traits, making it easier to tailor your marketing efforts to their specific needs.

What is Market Segmentation?

Market segmentation is the process of dividing a larger market into smaller groups based on shared characteristics, such as demographics, geographic location, psychographics , and behavior. It is vital because it enables you to:

• Better Understand Your Customers: Segmentation helps you gain insights into what drives your customers' buying decisions and behaviors.
• Improve Marketing ROI: Tailoring your marketing efforts to specific segments increases the chances of reaching the right people with the right message.
• Enhance Customer Satisfaction: When you deliver what your customers want, they are more likely to be satisfied and loyal.

Purpose of Market Segmentation

The primary purpose of market segmentation is to:

• Identify Target Markets : It helps you pinpoint your products or services' most promising customer groups.
• Customize Marketing Strategies: Segmentation enables you to craft marketing campaigns that resonate with each segment's unique preferences and needs.
• Optimize Resource Allocation: You can allocate your resources more efficiently by focusing on high-potential segments.

Benefits of Effective Market Segmentation

Effective market segmentation offers several advantages:

• Increased Sales: You can boost sales and revenue by tailoring your offerings to specific segments.
• Enhanced Brand Loyalty: Customers are more likely to remain loyal to your brand when they feel understood.
• Competitive Advantage: Segmentation helps you stand out in a crowded market by addressing unique customer needs.
• Improved Product Development : Insights from segmentation can guide product development to meet market demands better.

Form purpose

How to Conduct Market Segmentation?

Implementing market segmentation effectively involves a series of crucial steps that can significantly impact the success of your marketing efforts. Let's dive deeper into these key steps to help you understand how to navigate them successfully.

1. Data Collection and Analysis

Data is the foundation of effective market segmentation. It provides the insights needed to understand your audience better and make informed decisions.

• Data Sources: Gather data from various sources, including customer surveys, online analytics, CRM systems, and social media platforms.
• Data Quality: Ensure the accuracy and reliability of your data. Inaccurate data can lead to flawed segmentation.
• Data Segmentation Variables: Identify the specific variables you will use for segmentation. These could include demographics, psychographics, behavioral data, and geographic information.
• Data Analysis Tools: Utilize data analytics tools and software to uncover patterns and trends within your data. These tools can help you identify meaningful segments.

2. Identify Target Customer Groups

Once you have collected and analyzed your data, the next step is to group your customers into distinct segments based on shared characteristics.

• Segmentation Methodology: Choose a segmentation methodology that aligns with your business goals. Common methodologies include clustering analysis, factor analysis, and decision trees .
• Segmentation Variables: Apply the segmentation variables you identified during data collection. For example, if you're in the fashion industry, you might segment based on factors like age, style preference, and shopping habits.
• Segmentation Criteria: Determine the criteria for each segment. These criteria could include age ranges, income brackets, and purchasing behavior.
• Segment Profiles: Develop detailed profiles for each segment. Include information such as demographics, psychographics, buying patterns, and preferences. These profiles will serve as the foundation for your marketing strategies.

3. Create Customer Personas

Customer personas are fictional representations of your ideal customers within each segment.

They help humanize your audience and guide your marketing efforts. To create effective personas:

• Persona Characteristics: For each segment, create personas that encapsulate the key traits and behaviors of the typical customers in that segment.
• Detailed Profiles: Dive deep into each persona's life. Consider their age, gender, job, hobbies, interests, pain points, and aspirations.
• Empathy Building: Put yourself in the shoes of your personas. Understand their needs, desires, and challenges.
• Use Cases : Personas should be actionable. They should guide your marketing messaging, product development, and customer engagement strategies.

4. Evaluate Market Segments

Not all segments are created equal. Some will have more potential and value than others.

Evaluating your segments helps you prioritize where to allocate your resources.

• Size and Growth: Determine the size of each segment and its growth potential. Larger, rapidly growing segments are generally more attractive.
• Profitability: Analyze the profitability of each segment. Consider factors such as margins, customer lifetime value, and acquisition costs.
• Accessibility: Assess how easily you can reach and engage with each segment through your marketing channels.
• Alignment with Business Goals: Ensure your selected segments align with your business objectives and capabilities.

5. Segment Activation and Strategy Development

With your segments defined and evaluated, it's time to create tailored marketing strategies for each one. This step is where your market segmentation efforts start translating into action.

• Messaging and Content: Craft marketing messages and content that resonate with each segment's unique needs and preferences. Tailor your language, visuals, and tone accordingly.
• Channel Selection: Choose the most effective marketing channels to reach each segment. For example, younger consumers might be more responsive to social media advertising, while older demographics might prefer email marketing.
• Product or Service Customization: If feasible, adapt your products or services to better meet the needs of specific segments. This customization can significantly enhance customer satisfaction.
• Pricing Strategies: Develop pricing strategies that align with each segment's willingness to pay. Some segments may be willing to pay a premium for specific features or benefits.

By following these critical steps in market segmentation, you'll be well-prepared to create effective marketing campaigns that resonate with your target audience. Remember that market segmentation is not a one-time task; it's an ongoing process that requires regular evaluation and adjustment as market conditions and customer preferences evolve.

Market Segmentation Best Practices

1. using data analytics.

Data analytics plays a pivotal role in enhancing your market segmentation efforts. By leveraging advanced analytical tools and methodologies, you can extract valuable insights from your data to create more effective and targeted marketing strategies.

Data analytics allows you to delve deeper into your customer data, identifying hidden patterns and trends that may not be apparent through traditional methods. It enables you to comprehensively understand your segments, going beyond surface-level demographics to uncover behavioral nuances and preferences.

Predictive modeling, a subset of data analytics, empowers you to forecast future customer behavior. This is invaluable for anticipating customer needs, optimizing resource allocation, and proactively responding to market changes. By analyzing historical data, you can make data-driven predictions about which segments are likely to grow or decline, enabling you to tailor your strategies accordingly.

A/B testing is another essential component of data-driven segmentation. By experimenting with different marketing strategies within each segment, you can determine what resonates best with each group. This iterative process allows you to refine your approach continuously and improve campaign effectiveness.

2. Conducting Surveys and Focus Groups

While data analytics provides quantitative insights, surveys and focus groups offer qualitative perspectives from your customers. These methods allow you to better understand customer motivations, pain points, and unmet needs.

Surveys are a valuable tool for collecting structured feedback from a large number of customers. By crafting targeted survey questions , you can gather insights specific to each segment's preferences and expectations. Surveys can uncover customer sentiments, shedding light on emotional connections and potential loyalty drivers.

Focus groups take a more qualitative approach, bringing together a small group of customers representing each segment to engage in discussions. These discussions delve into the "why" behind customer behaviors and preferences. Focus groups provide a forum for customers to express their opinions and feelings, offering rich insights that may not be apparent from data alone.

Both surveys and focus groups enable you to humanize your segments by putting faces and voices to the data. This qualitative information complements quantitative data, providing a more holistic view of your customers.

3. Monitoring and Adapting to Market Changes

Market segmentation is not a static process; it requires continuous monitoring and adaptation to remain effective. Markets are dynamic, and customer preferences evolve over time. To stay relevant and competitive, you must be agile and responsive to changes in the marketplace.

Continuous monitoring involves regularly analyzing data and assessing how your segments are performing. Key performance indicators (KPIs) specific to each segment should be tracked to evaluate the success of your strategies. Monitor metrics such as conversion rates, customer retention, and ROI to gauge the effectiveness of your segmentation efforts.

Market changes, including shifts in consumer behavior and emerging trends, should be closely watched. These changes can create opportunities or threats for your segments. By staying attuned to market dynamics, you can proactively adjust your segmentation strategies to capitalize on new opportunities or mitigate potential risks.

Competitive benchmarking is another vital aspect of monitoring. Keep an eye on how your competitors approach segmentation and adapt their strategies. Analyze their successes and failures within specific segments to identify areas for improvement or differentiation.

Incorporate feedback from your customers into your segmentation strategy. Customer feedback provides real-time insights into changing preferences and pain points. Make adjustments based on this feedback to enhance the relevance of your segments and refine your marketing approaches.

What Factors Influence Market Segmentation?

Market segmentation is influenced by a variety of factors, both external and internal to your organization. Understanding these factors is essential for crafting effective segmentation strategies.

External Factors

External factors are elements beyond your organization's control that can impact your market segmentation efforts. Here's a closer look at some vital external influencers:

• Market Dynamics: Keep an eye on the broader market dynamics, including industry trends, economic conditions, and regulatory changes. For example, a sudden shift in consumer preferences towards sustainability can create new segmentation opportunities for eco-friendly products.
• Competitive Landscape: Analyze your competitors' segmentation strategies. Understanding how they target and position themselves within market segments can help you identify gaps or areas for differentiation.
• Technological Advancements: Advances in technology can open up new possibilities for segmentation. For instance, the rise of artificial intelligence enables more precise data analysis, allowing for more sophisticated segmentation based on behavioral data and predictive modeling.
• Cultural and Social Shifts: Changes in societal values, lifestyles, and cultural norms can influence consumer preferences and behaviors. Segmentation should be responsive to these shifts to remain relevant.
• Globalization: If your business operates internationally, consider how cultural differences, language barriers, and regional preferences can affect your segmentation approach. Localized strategies may be necessary.

Internal Factors

Internal factors refer to aspects of your organization that impact your market segmentation decisions. Here are some internal factors to consider:

• Product Portfolio: Your product or service offerings play a significant role in segmentation. Different products may appeal to different segments, leading to varied segmentation strategies.
• Marketing Capabilities: Assess your team's marketing expertise, tools, and resources. Your segmentation strategy should align with your team's capabilities and available technology.
• Organizational Goals: Your company's objectives and growth strategies can influence your segmentation priorities. For example, a startup looking to establish a foothold in the market may prioritize targeting a niche segment.
• Resource Allocation: Consider the budget and resources allocated to your segmentation efforts. More complex segmentation strategies may require more significant investments in data analysis and marketing.
• Brand Identity: Your brand's identity and values should align with the segments you target. Ensure that your brand message and positioning resonate with the preferences and values of your chosen segments.

Market Research and Analysis

Effective market segmentation relies heavily on robust market research and analysis. Here's how to leverage these factors to refine your segmentation strategy:

• Continuous Monitoring: Markets are dynamic, and consumer preferences change over time. Regularly monitor market data to identify shifts in behavior, emerging trends, or new segments that may have evolved.
• Competitive Benchmarking: Analyze how your competitors approach segmentation. This can provide insights into which segments are most lucrative and which are underserved.
• Feedback Loop: Establish a feedback mechanism with your customers. Collecting feedback can help you fine-tune your segments and marketing strategies. Customer surveys, reviews, and direct engagement are valuable sources of feedback.
• Data Enrichment: Continuously enrich your customer data with new information. This can involve incorporating data from social media, customer interactions, and third-party sources to build more comprehensive customer profiles.
• Segment Performance Metrics: Define key performance metrics for each segment, such as conversion rates, customer lifetime value, and customer satisfaction. Regularly assess how each segment is performing against these metrics.
• Segment Optimization: Be prepared to optimize and adapt your segments based on your research findings. Segmentation is not static; it should evolve as your understanding of your market deepens.

Unlock the power of data-driven market segmentation with Appinio 's advanced data collection solutions. Seamlessly gather market insights, consumer preferences, and behavioral data to inform your segmentation strategy. Appinio empowers you to stay ahead of market dynamics, monitor competitors, and continuously refine your segments.

Book a demo today to see how Appinio can elevate your market research and segmentation efforts, helping you make data-driven decisions that drive success!

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Market Targeting and Positioning

Once you've defined your segments, the next critical steps are targeting specific market segments and positioning your brand effectively within those segments.

1. Select Target Market Segments

Selecting target segments involves prioritizing which customer groups to focus your marketing efforts on.

• Segment Prioritization: Consider the potential of each segment. Factors such as size, growth rate, profitability, and alignment with your business goals should influence your choices.
• Resource Allocation: Allocate your marketing budget and resources according to the priority of your selected segments. High-priority segments may receive more substantial investments.
• Competitive Analysis: Assess how your competitors target these segments. Are there gaps or underserved needs within these segments that you can exploit?
• Customer Needs: Ensure that the segments you target align with the unique needs and preferences of your offerings. Targeting segments that genuinely benefit from your products or services increases your chances of success.

2. Develop Marketing Strategies for Each Segment

With your target segments identified, it's time to craft tailored marketing strategies for each one.

• Messaging and Content: Customize your marketing messages and content to resonate with each segment's specific needs and preferences. Tailor your language, visuals, and tone accordingly.
• Channel Selection: Choose the most effective marketing channels to reach each segment. Consider factors such as their online behavior, preferred social media platforms, and communication preferences.
• Product or Service Customization: If feasible, adapt your products or services to meet the needs of specific segments. Customization can significantly enhance customer satisfaction and loyalty.
• Pricing Strategies : Develop pricing strategies that align with each segment's willingness to pay. Some segments may be willing to pay a premium for specific features or benefits, while others may prioritize cost-effectiveness.
• Promotions and Incentives: Create promotions and incentives that appeal to each segment's motivations. For example, loyalty programs may work well for segments seeking long-term value, while limited-time offers may entice more price-sensitive segments.

3. Position Your Brand in the Market

Effective brand positioning is crucial for establishing a strong presence within your target segments. Consider the following strategies:

• Unique Value Proposition (UVP): Clearly define what sets your brand apart in the minds of your target segments. Your UVP should resonate with their specific needs and preferences.
• Consistency: Ensure that your brand's messaging and positioning remain consistent across all touchpoints, from your website and social media to advertising and customer support.
• Competitive Analysis : Continuously monitor how your competitors position themselves within the same segments. Identify opportunities to differentiate your brand.
• Customer Feedback: Listen to customer feedback and incorporate it into your brand positioning strategy. Address pain points and improve on aspects that matter most to your segments.
• Adaptability: Be prepared to adapt your brand positioning as market conditions and customer preferences evolve. Staying relevant is critical to long-term success.

By thoroughly considering these factors and taking deliberate actions in selecting target segments and positioning your brand, you can increase the effectiveness of your market segmentation efforts and achieve better results in reaching and satisfying your customers.

Remember that market segmentation is a dynamic process requiring ongoing evaluation and adjustment to stay aligned with changing market dynamics and consumer behaviors.

Market Segmentation Examples

Learning from real-world applications of market segmentation can provide valuable insights into how businesses successfully target and engage with their diverse customer bases. Let's explore some in-depth examples to understand the nuances of segmentation strategies.

1. Coca-Cola

Coca-Cola, a global beverage giant, excels in market segmentation by tailoring its marketing messages to different age groups. One of its successful strategies involves campaigns targeting teenagers, young adults, and older consumers separately.

• Teenagers: Coca-Cola often appeals to teenagers with vibrant, youth-oriented advertisements, associating its products with fun and socializing. These ads often feature music, sports, and social events, aligning with the preferences of this demographic.
• Young Adults: For young adults, Coca-Cola emphasizes themes like happiness, freedom, and self-expression. They focus on experiences and moments of joy, showcasing how their products can enhance social gatherings and celebrations.
• Older Consumers: In contrast, campaigns aimed at older consumers focus on heritage, nostalgia, and the comforting aspects of the brand. These ads often evoke sentiments of tradition and long-standing quality.

By segmenting its market based on age groups, Coca-Cola effectively tailors its messaging to connect with customers across various life stages.

Amazon, the global e-commerce giant, excels in behavioral segmentation . It uses data analytics and sophisticated algorithms to recommend products based on a customer's past purchases and browsing history.

• Behavioral Data Analysis: Amazon tracks user behavior extensively, including the products customers view, add to their carts, and purchase. This data is analyzed to understand individual preferences and buying patterns.
• Personalized Recommendations: Based on behavioral analysis, Amazon provides customized product recommendations to each user. These recommendations appear prominently on the homepage and in email communications.
• Targeted Email Campaigns: Amazon also uses behavioral data to send targeted email campaigns. For example, if customers frequently shop for electronics, they may receive emails featuring new tech products and deals.

Amazon's behavioral segmentation strategy demonstrates how leveraging customer data can enhance the shopping experience, boost sales, and create customer loyalty.

Apple, the tech giant known for its innovative products, excels in psychographic segmentation . Its segmentation strategy focuses on creating a loyal customer base that values innovation, design, and a seamless user experience.

• Psychographic Traits: Apple's customers are typically characterized by traits such as creativity, a love for cutting-edge technology, and a preference for simplicity and elegance in design.
• Product Lineup: Apple offers a range of products that cater to specific psychographic segments. The iPhone appeals to those seeking a premium smartphone experience, while the iPad targets creatives and professionals.
• Brand Loyalty: Apple's emphasis on user experience, ecosystem integration, and design aesthetics fosters brand loyalty among its target segments. Customers are often willing to pay a premium for Apple products.

Apple's success story underscores the importance of aligning your brand with the values and preferences of your target segments, creating a solid emotional connection with customers.

4. Procter & Gamble (P&G)

P&G, a consumer goods conglomerate, excels in market segmentation by understanding the diverse needs of its customer base and launching products tailored to each segment.

• Product Diversification: P&G owns a vast portfolio of brands, each serving specific consumer segments. For instance, they offer laundry detergents for families with young children (Tide) and premium skincare products for health-conscious consumers (Olay).
• Localized Marketing: P&G tailors marketing campaigns to resonate with regional and cultural differences. Advertisements and product formulations may vary based on local preferences and needs.
• Continuous Innovation: P&G invests heavily in research and development to identify emerging consumer trends. They use this data to innovate and introduce new products or enhance existing ones to meet evolving segment demands.

P&G's success underscores the importance of profoundly understanding each segment's unique needs and preferences and tailoring both products and marketing strategies accordingly. These real-world examples illustrate the diverse approaches businesses take in market segmentation. By carefully analyzing customer data, understanding psychographic traits , and adapting strategies to align with customer needs, these companies have achieved success in delivering products and messages that resonate with their target segments.

As you apply these insights to your own business, remember to continuously reassess and refine your segmentation strategies based on changing customer behaviors and market conditions to stay competitive and relevant in your industry.

Market Segmentation Challenges

Common mistakes to avoid.

Market segmentation can be complex, and several common mistakes can hinder its effectiveness. Avoiding these pitfalls is critical to achieving successful segmentation outcomes.

One common mistake is over-segmentation, where businesses create too many segments, leading to resource inefficiency and confusion. While granularity is essential, it's equally vital to strike a balance and avoid creating segments that are too narrow to yield meaningful insights or support viable marketing strategies.

Ignoring Feedback is another misstep. Failing to incorporate customer feedback can result in missed opportunities for improvement. Customer feedback is a valuable source of information that can guide your segmentation strategy and help you address customer pain points effectively.

Static segmentation is a very common mistake as well. Segments should evolve as market conditions and consumer preferences change. Failing to adapt your segments over time can lead to stagnation and missed opportunities. Regularly reassess and update your segments to stay aligned with the evolving landscape.

Overcoming Challenges in Implementation

Overcoming challenges in market segmentation requires a proactive and strategic approach. Here are strategies to tackle common obstacles:

• Segmentation Reevaluation: Regularly assess and adjust your segments based on changing market conditions. This ongoing process ensures that your segmentation remains relevant and effective.
• Data Quality Management: Invest in data quality management to ensure the accuracy and reliability of your data. Clean, reliable data is essential for meaningful segmentation.
• Team Collaboration: Encourage collaboration between different departments within your organization, such as marketing, sales, and product development. Alignment across teams ensures that everyone is working toward common segmentation goals.
• Stakeholder Education: Ensure that all stakeholders within your organization understand the importance of market segmentation and how it impacts their roles. This shared understanding fosters alignment and commitment to segmentation strategies.
• Pilot Programs: If you're implementing segmentation for the first time, consider starting with pilot programs. Testing your segmentation strategies on a smaller scale allows you to identify challenges and refine your approach before a full-scale rollout.
• External Expertise: In cases where segmentation complexities are high, consider seeking external expertise or consulting services. Experienced professionals can provide valuable insights and best practices.

By addressing these challenges head-on and proactively implementing these strategies, you can enhance the effectiveness of your market segmentation efforts and achieve better results in reaching and satisfying your customers. Remember that market segmentation is a dynamic process that requires continuous improvement and adaptation to remain successful in a rapidly evolving business landscape.

In conclusion, market segmentation is your key to reaching and engaging your customers effectively. By understanding their unique needs, behaviors, and preferences, you can tailor your marketing strategies for maximum impact. Remember, it's not just about what you sell but how well you know your audience. Stay agile, adapt to changes, and never stop refining your segmentation efforts to stay ahead in the ever-evolving market.

As you apply the insights and best practices from this guide, keep in mind that successful market segmentation is an ongoing journey. Embrace the dynamic nature of your audience and the market itself. With dedication and a customer-centric approach, you can build lasting relationships and achieve remarkable success in your business endeavors.

How to Conduct Market Segmentation in Minutes?

In a world where timely decisions can make or break a business, Appinio emerges as a game-changer in market segmentation. As a real-time market research platform, it empowers companies to harness the power of consumer insights effortlessly.

• Lightning-Fast Insights: Say goodbye to long, tedious research processes. With Appinio, you'll transform questions into actionable insights in mere minutes.
• User-Friendly Experience: No need for a research PhD. Appinio's intuitive platform is designed for anyone to navigate, making market research accessible to all.
• Global Reach, Targeted Precision: Define your ideal audience from over 1200 characteristics and survey them in 90+ countries. Appinio ensures you reach the right people, wherever they are.

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What Is Market Segmentation? Tips, Types, and Benefits Explained

Market segmentation facilitates better personalization. It makes it easier for brands to connect with people in a meaningful way that impacts results and forges stronger bonds between consumers and companies alike.

Once you know how it’s done and what tools to use, you can immediately start to leverage it in your business.

What is market segmentation?

Market segmentation is a process of division. It takes people within a market and separates them into groups based on shared characteristics, interests, or behaviors. With it, companies can create stronger marketing campaigns to drive higher conversions and revenue.

The shared characteristics of the segments could be based on demographic data, such as location, age, occupation, and gender. It can also be based on needs, product usage, priorities, purchase history, company attributes, interests, funnel stage, and more.

Fun Fact: While market segmentation tools have advanced significantly, the concept of market segmentation is over 100 years old. Back in the 1920s, it was used by manufacturers who started to produce different vehicle models–each designed to meet the needs of various psychographic and demographic market segments, such as income, interests, lifestyle, and location.

Different types of market segmentation

There are four core types of market segmentation : demographic, firmographic, psychographic, and behavioral. The best segmentation type will depend on your business and its audience. Below, you’ll find a quick explainer for each.

1. Demographic segmentation

What it is: Demographic segmentation breaks a market or audience down into smaller groups based on characteristics that can be easily identified by various data points. This could include income, occupation, location, gender, marital status, age, education, nationality, religion, etc.

How it’s used: Organizations use demographic segmentation on the assumption that those with shared characteristics will have similar needs and respond to similar messages. By dividing up a market into smaller segments, companies can develop targeted marketing campaigns and use tactics like advertising personalization to target a group based on its demographic qualities.

Market segmentation example: Geographic segmentation is a popular type of demographic segmentation. Here, you divide a group up based on geographical location. Depending on the type of business and its reach, you may wish to target people in specific cities, states, or countries. Geographical location impacts language and timezone and has additional implications on purchasing habits, pricing, and cultural considerations.

In this example, I’m using Similarweb Digital Research Intelligence to review geographical segmentation for Sprout Social. I see the top 15 countries for my highest-traffic markets globally. I can view respective growth, average visit duration , how many pages per visit , and bounce rate . Of course, this is just the starting point for market segmentation. But in terms of showing me my most valued markets and their respective standings at a glance, it’s a quick and easy way to capture this data.

2. Behavioral segmentation

What it is: Behavioral segmentation splits people into groups based on their interactions. These can be online spending habits, product usage, check-out status, customer service, co-branded goods, discounted products, free trial take-up, benefits sought, lifestyle, patterns in decision-making, etc.

How it’s used: Organizations use behavioral segmentation to develop targeted marketing campaigns that focus on the specific habits that groups of users have displayed. By honing in on people’s preferences and actions, organizations can offer personalized ads, relevant offers, and tailored messaging that appeal to the target audience.

Market segmentation example: Benefit segmentation is a widely-used type of behavioral segmentation. Here, a target audience can be split into categories of perceived benefits. Let’s take a skincare brand as an example. Some of the different benefits could be:

• Acne-prone skin
• Blemishes or pigmentation
• Sensitive skin

Here, we group consumers into categories by ‘benefit’ based on their individual skin type. This type of market segmentation gives a business the ability to target specific groups with related products, content, offers, and more.

Read More: Your Guide to Behavioral Segmentation With Examples and Practical Tips

3. Firmographic segmentation

What it is: Firmographic segmentation is a type of market segmentation that examines organizations. It includes data points, such as company size, number of employees, locations, size of customer base, industry, revenue, etc.

How it’s used: This type of market segmentation is widely used for B2B marketing purposes as it analyzes organizations instead of individuals. It takes groups of businesses and sorts them based on shared or similar attributes, which helps create more effective targeted campaigns.

Market segmentation example: In the B2B technology space, a company providing IT support would do firmographic segmentation to separate enterprise accounts from the SMB market. This way, it can approach larger organizations with a tailored package for complex support and smaller businesses with a more cost-effective, fixed-fee service for a more basic level of support.

4. Psychographic segmentation

What it is: Psychographic segmentation is perceived to be one of the most challenging types of market segmentation. It splits a market up according to personality traits, consumer interests, values, lifestyle, opinions, etc.

How it’s used: This type of market segmentation is used by marketers who need to select specific groups based on their interests, likes, and opinions. Social media has enabled organizations to leverage psychographic segmentation more effectively, as people signal their interests openly on these platforms.

Market segmentation example: A great example of psychographic segmentation in action comes in the form of a simple market research survey . If you’ve ever received a survey from a brand you shop with that asks about your hobbies or interests – this is how most types of psychographic segmentation start out.

Here’s an example of a market segmentation survey in action. Most people are accustomed to seeing these types of forms and will be asked to complete them by companies they already do business with or through platforms like Yougov .

Benefits of market segmentation

At its very core, segmenting a market will help you generate more demand for your business. It can shape your strategy and play out in more personalized messaging that increases the appeal of a product or service to a target audience . This naturally leads to better engagement rate and higher conversions while adding to the bottom line – something any business will benefit from.

Let’s take a look at some of the top benefits market segmentation offers.

Discover new opportunities for growth

Market segmentation research helps organizations decipher new ways to grow. Use it to find and convert new customers, uncover new marketing channels to use, find and flesh out new markets to enter, and entice customers to buy from you again.

Lower cost of acquisition

Market segmentation can also reduce customer acquisition costs. With it, you can slice and dice a market into bitesize chunks, then pick and choose priorities according to your budget or preference. Knowing where and how to reach customers reduces the time and money needed to acquire them.

Let’s say you’re a multinational firm spending money consistently on PPC and TV advertising. Your strategy takes a mass market approach, and results are steadily increasing. After doing market segmentation, you find that your ideal customer profile spends more time on social channels, specifically LinkedIn and Twitter, and their newspaper of choice is the New York Times. You would then be able to use this data to reach more people in your target market far more effectively and at a much lower cost to your business. 

Create tailored offerings

Personalized offers are no longer nice to have; modern-day consumers expect and respond to targeted ads based on their purchase history, needs, habits, and other important factors. Market segmentation gives you data to fuel these activities and create bespoke offers that hit the mark with your prospects.

Foster loyalty

You can build stronger relationships with clients by communicating in a way that resonates and has an impact. With closer connections to customers, they feel understood, valued, and important to your business, making them less likely to leave or take up rival offers on a whim.

A survey by Salesforce.com revealed 70% of consumers believe a company’s ability to understand their individual needs impacts their loyalty.

Helpful for new product development

You can and should design products and features around your customers’ needs. Market segmentation studies give you an x-ray vision into the pain points, wants, and needs of a target market . Needs-based segmentation is ripe for finding whitespaces in a market and serves as a great platform for innovation when launching new products .

Achieve better post-launch product evaluations

Market segmentation can also come into play once a product or service is launched. Organizations can use it to understand potential shortfalls of a product vs. consumer needs and expectations.

Improve customer experience

Market segmentation outcomes shouldn’t be limited to marketing and management. When you take time to collect data and share it throughout an organization, you can leverage it to deliver a better experience.

In a study conducted by Evergage, over 88% of marketers said their biggest goal with personalization is to improve customer experience . 

Here’s a quick example.

A telecom provider or streaming service could segment its existing customers based on their product usage data. Should a customer call in to speak with your team, they know exactly what products or add-ons to offer based on this information. It leads to a better experience, and customers feel valued and understood. These stats would also be pivotal for service teams looking after clients who wish to cancel, as they can immediately step in with an enticing offer that’s relevant and of genuine value.

Attract the right customers

Market segmentation enables you to deliver more personalized, powerful marketing campaigns. With this, you can target prospects who are an ideal match for your products or services. Combine this with well-defined target personas for each segment of your market, and you’ll reap the rewards.

Supercharge your marketing strategy

Segmentation adds substance to your marketing strategy, giving you vital intel about who to target, where to find them, and how to speak with them effectively. Having access to digital intelligence platforms with granular data is essential for any successful digital marketing strategy . 

Fine-tune your messaging

Most brands have well-developed audience personas, each with their own preferences and pain points to address – doing market segmentation gives you ultra-granular data. Allowing you to create impactful messaging for specific groups based on their unique and multivariate characteristics.

Let’s say you’re an e-tailer focused on selling laptops and computing equipment to a broad market. The messaging you use to students or younger members of your audience who are looking for bargain basement offers won’t necessarily appeal to the portion of your target market who want high-spec equipment. So, it’s important to use market segmentation to determine what messages are best for each persona you target. 

Increase response rates and conversions

Tailored messaging that reaches people at the right time and says the right things can help you boost response rate and, thus, conversions. Whether through retargeting, social, or email outreach, you will get higher conversions and better responses to your marketing efforts.

Develop customer personas

The more market segmentation you can do, the more accurate your audience personas will be. Using a blend of segmentation types, and often will help you develop ideal customer profiles that are true to life and relevant to today’s market.

Support decision-making in other business areas

By analyzing the preferences of different segments, you can accommodate the audience better in other areas, such as pricing, distribution, content, and design.

Considerations before starting market segmentation

There are four core phases to address before you start any market segmentation activities. It’s important not to skip over these – doing so will ensure you’ve considered and developed a thorough plan that will save you time and enrich your results.

Identify clear goals for your market segmentation. Consider its purpose and what you want to find out from the activity. Are there any existing segments used by your business or prior research to review?

Do a competitive analysis to establish any existing segments that your rivals target. You can use an audience analysis tool to do basic demographic segmentation for your current customer base or analyze your competitors. This includes considering what type of data you want to collect and the best ways to obtain it.

Tools like Similarweb Research Intelligence can help, but there are other sources you might consider, such as buying data from a third-party data source, using data capture forms, quizzes on your site, or even social media audience analytics tools.

Here, you will evaluate your list of potential segments. Do your segments align with your ideal customer profile? You’ll need to consider the short and long-term consequences of focusing on these segments, both collectively and individually.

For instance, if you decide to go all-in on messaging for a younger audience, consider the impact this could have on your audience who fall outside of this target demographic . Another key consideration is the data. How and where you source information for your segments will impact how representative it is of the true market segments.

Once you’ve analyzed your potential audience and segments can you then develop a strategy for your own market segmentation. Here, you want to establish what defines a successful segment strategy, considering metrics, and KPIs, then defining what success will look like. Think about how and if you can test assumptions made about segments on a smaller scale before implementing broader marketing activities.

Once all of these phases have been considered, you will need to consider how to communicate the new strategy to the business. It’s important that all divisions that may come into contact with customers, such as sales, support, and customer service teams know about the marketing campaigns and understand why and how the target audience is being segmented.

How to optimize your market segmentation strategy

Keep these three tips in mind when creating your market segmentation strategy:

• Make sure your segmentation variables are measurable. To create an effective strategy, you must measure and analyze segment performance and compare the results.
• Choose criteria that are related to the buyer’s journey and could affect the purchasing decision . Let’s say you are offering swimwear. Segmenting by gender would result in more effective marketing. But if you offer a streaming service, gender may not be relevant. Instead, you’d need to consider behavioral-based segments, such as device distribution or session duration.
• Monitor and optimize segment performance. Adapt content in segments or test different marketing channels. Individual prospects may move from one segment to another based on changing behaviors or preferences as they move through the funnel.

Market segmentation with Similarweb

Similarweb Digital Research Intelligence gives you instant access to data that will help you do demographic, behavioral, and psychographic segmentation across a market or for specific competitors you wish to track.

To bring this example to life, I am choosing the travel sector. Specifically, the accommodation and hotels market. This is from the perspective of an industry leader, hotels.com .

Demographic segmentation example

Step 1 : First, I am looking at demographic segmentation to establish key facts about my current audience. I want to understand which countries I perform highest in to inform my geographic segmentation.

Here, I see my top 20 locations and the respective growth and decline in each . My top 5 markets account for almost 70% of my total traffic. This allows me to geographically segment my business and split each country into its own segment to analyze. For the purpose of this example, I will focus only on my top market, which is the US.

Step 2: Next, I want to see how my own traffic share in each geographic segment compares with the key players in my industry. By comparing traffic share by country with my four closest rivals, I get a picture of who performs best in each market. This intel helps me select which competitors to target for the next phase of my market segmentation.

In the US, booking.com and expedia.com achieve significantly better results, with booking.com commanding a 31% share and expedia.com achieving almost 50% market share.

Step 3: Now, I will use further demographic segmentation to see how our audiences compare. I start my market segmentation by analyzing the audience demographics of hotels.com, booking.com , and expedia.com , side-by-side for my chosen market.

Here, Expedia is doing a better job at attracting a younger demographic and is performing better with a male audience. However, on the surface, things look fairly well balanced. This requires me to go deeper into a website segment analysis to see exactly where Expedia is getting its gains.

This very straightforward exercise gives me key facts about the demographics of my audience vs others in my space. If you repeat this activity across all major markets and consider industry leaders and emerging players alike, you can use this information to build relevant segments to target with market campaigns that are location, age or gender specific.

Helpful reading: Read our guide to get a 7-step guide to doing market segmentation

Similarweb customer success story using market segmentation

Wonderbly is a global firm offering personalized books online to over 6 million customers. It used a blend of demographic and psychographic segmentation to uncover a new audience profile and product line to add to its range. After implementation, it saw a 69% growth in revenue due to the changes it made.

It had three key challenges to solve.

• Low visibility into key competitor’s activity
• Limited view of audience browsing behavior
• Lack of data to enter new markets

Here’s how it went to battle and came out a winner.

• By doing demographic segmentation, it analyzed its own audience vs those of its rivals.

Using Similarweb audience demographics, it uncovered rivals were better at attracting a younger demographic. With this knowledge, it developed a new audience profile that honed in on a younger persona and later adapted campaign strategy and creatives to suit.

2. Next, it used market segmentation to analyze the respective seasonal performance of each competitor by category.

By splitting up each period, and reviewing data provided by Similarweb’s Seasonal Trends Keywords, it was able to see rivals’ traffic gains for the Weddings and Anniversaries category. This intel enabled it to identify an untapped market and see its potential in tandem.

3. Finally, using a type of behavioral segmentation, it reviewed the interests and online shopping habits of an audience it was yet to capture. Similarweb’s audience data helped identify several key partners in the US, UK, and CA, to collaborate on content-focused partnerships.

Here, you see Similarweb’s audience overlap. This uncovered insights about the existing and untapped audience. It included which sites they cross-browsed and how loyal their customers are compared to their rivals.

Wrapping up – what is market segmentation

Similarweb’s suite of market intelligence features helps you perform many types of market segmentation; without the need to invest in third or second-party data or wait around for extensive studies and analysis to take place. With continuous access to fresh data, you can enjoy dynamic segmentation capabilities that allow you to flex and rapidly adapt personas, strategies, and campaigns.

Try Similarweb for free and find out for yourself how our research tools can support your market segmentation.

Similarweb Digital Research Intelligence gives you a ready-made platform to access insights and data that can revolutionize how your business makes decisions. It’s trusted and used by some of the world’s biggest brands: click through below to get a 7-day trial, for free.

Start Your Market Segmentation with Similarweb Today

Why similarweb.

Similarweb’s suite of digital intelligence solutions offers unbiased, accurate, honest insights you can trust for analyzing any industry, market, or company.

• Methodologies used for data collection are robust, transparent, and trustworthy.
• It updates dynamically–giving you the freshest data about an industry or market.
• Filter and refine results according to your needs.
• Clear presentation of data via an easy-to-use, intuitive platform.
• Data is available via an API – so you can plug into platforms like Tableau or PowerBI to streamline your analyses.

How do you collect data for market segmentation?

You can use market intelligence tools like Similarweb. Alternatively, you can survey existing customers via email, lead generation forms, quizzes, and even try out social media audience insights if you’re active on those channels. You can also purchase data from third-party or second-party sources.

Market segmentation is the practice of dividing your target market into approachable groups.

What are the 4 types of market segmentation?

Demographic, psychographic, behavioral, and geographic segmentation are considered the four main types of market segmentation.

What are the benefits of Market Segmentation?

The benefits of market segmentation include increased efficiency in marketing activities, more effective targeting of customer segments, and the ability to customize product offerings to meet customer needs.

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