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Market Segmentation | Types, Benefits, and Best Practices

Market segmentation enables marketers to create groups of customers that share one or more key demographics. Identifying key market segments and gaining a deeper understanding of what common ties unite those customers gives marketers great power in their field.

Adam R.
March 22, 2023

What is Market Segmentation?

Market segmentation can be described as the practice of splitting up a target market into smaller, distinct, and visible groups. What market segmentation enables marketers to do is create groups of customers that share one or more key demographics. This could be their: needs, hobbies, vocation, income level, gender, or any other behavioral or psychographic metric

Identifying key market segments and gaining a deeper understanding of what common ties unite those customers gives marketers great power in their field. This information can boost sales, improve product development, and increase the overall effectiveness of marketing campaigns. Knowing what strategy works best for your needs as a business will allow you to develop better product offerings that attract your most sought after customers.

Benefits of Market Segmentation

Market segmentation is a powerful way to the unwieldy task of developing an advertising strategy. The benefits provided to companies who employ effective market segmentation strategies include:

  • A greater ability to adapt to changing market forces: Having a clear understanding of your customers’ behaviors means that you are able to better detect changes in them. This allows you to keep ahead of shifts in consumer trends, and keep ahead of the competition. 
  • Clearer audience communication: Segmentation enables you to devise messaging that naturally suits the tastes of your diverse audiences - because you are more aware of what they enjoy. Customers can tell when a brand is trying too hard, and will respond adversely to marketing that is clearly out of touch.
  • Better customer engagement: Learning about how your customers behave requires you to interact with them. Research activities like polling, surveying and email campaigns drive customer engagement; making them respond more positively to your brand. 
  • Fosters brand loyalty: Customers who feel heard and recognized by a brand (in the form of being delivered a superior product) are more likely to favor that brand over its competitors. 
  • Differentiates your brand: Carving out niche audiences and serving them with a unique, personal product or service helps your business stand out in your desired market. 
  • Drives sales: Effective marketing messaging means brands can more readily invite customers back to shop - or even to up-sell additional services.
  • Strengthens design outcomes:  Testing your products with an audience before they go to market and integrating customer feedback into your work dramatically improves the quality of your designs.
Benefits of Market Segmentation

What do grocery stores, app developers, and the entertainment industry all have in common? They utilize market segmentation strategies to great effect; building their audiences, improving their customer experiences, and growing their business over time to better accommodate the ever-changing wants and needs of their audiences.

Types of Market Segmentation

There are four main categories into which we can break down market segmentation. These distinct groups differ in the ways they highlight different parts of the buying process. 

Demographic Segmentation

Demographic segmentation is a process involving grouping customers together on the basis of shared physical traits, beliefs, or values.

Demographic segments can be broken down along the lines of shared qualities like:

  • Ethnicity
  • Gender
  • Age
  • Political Affiliation
  • Sexual Orientation
  • Religion
  • Level of Education

These demographic segments are some of the most visible and crucial of the segment types. Customers have a strong attachment to these facets of their being, and therefore respond strongly to products that match elements of their personal identity. Marketers use these traits to strengthen the effectiveness of their advertising - drawing customers into developing a greater sense of attachment to the brand.

Psychographic Segmentation

Segmenting customers along their shared economic class or lifestyle gives marketers leverage over their target markets. Health & fitness, environmental consciousness, political activism; these lifestyle interests can be focused on to create powerful and evocative messages. Content that focuses on these meaningful and personal segments is far more engaging to customers than the undifferentiated kind.

Psychographic Segmentation

Geographic Segmentation

As the name would suggest, this form of market splitting takes customers and groups them based on their shared location. Traditionally, most businesses were only capable of operating out of their immediate area, through brick and mortar stores. These days, any business has the capability of reaching customers across the planet - offering products to vast and diverse markets. 

Developing unique strategies for marketing to geographically differentiated clients is a crucial activity when managing a global business. Customers in the mid-western United States will have different purchasing behaviors and values than customers in the east coast; and those customers will have greatly different tastes from those of a Chinese or Russian audience. Culture, regional history, language, and the income level of a community must be taken into account when trying to effectively reach a global audience. 

Behavioral Segmentation

This form of segmentation seeks to identify and differentiate customer groups on the basis of shared behaviors. Identifying key purchasing behaviors shared by customers enables marketers to identify how audiences interact with products, marketing, and the brand at large. 

Other types of Market Segmentation

Firmographic segmentation is a type of demographic segmentation used by businesses specializing in B2B sales. This activity identifies businesses as clients, and looks to evaluate these potential clients by their size, market, and potential for sales opportunity.

How to get started with Segmentation

Following these steps will put you on the path towards effectively segmenting your customer base.

  1. Identify your market

The first step to creating meaningful customer segments is to clearly identify the market you’re operating in. This requires you to take an objective look at your business, and to ask yourself questions like:

  • Is there really a need for my products/services?
  • How big is my potential audience reach?
  • What is my current market share?
  • Who is the decision maker we want to target?
  1. Determine your segmentation strategy

Choosing from one of the five available market segmentation strategies will give you a jumping off point to craft your marketing plan. A combination of different strategies can also be employed to develop a unique marketing mix; many companies do this in order to diversify their brand and advertise more effectively.

  1. Research your audiences

Drafting an effective market strategy requires in-depth knowledge about your customer base. The best way to develop your own strategy is to gather quality data on your markets. Research polls, surveys, focus groups, promotions - these activities can garner both qualitative and quantitative data for your audiences. 

  1. Develop your customer segments

After reviewing the data you’ve gathered in step 3, you’re ready to start creating your own customer segments. Identify the share traits you find most attractive for your business, and segment the customers that are the most relevant to your market. 

  1. Test your designs 

Once your responses have been analyzed and your customers segmented, you’re ready to begin marketing. Test your advertising strategy on concentrated groups of customers - using continual monitoring and conversion tracking to measure the impact of your work. Continual testing is crucial for maintaining a coherent and adaptable market strategy that still works years down the line.

Common Segmentation Errors

The process of segmenting audiences is not infallible. Creating ineffective, inflexible, or incorrect market segments can hinder your business efforts.

  • Ineffective or irrelevant segmentation

The most common error involves creating segments that miss the mark completely and fail to capture a true representation of your customer’s habits. Be sure to study your markets thoroughly before committing to a strategy. 

  • Markets are too small or niche

Keeping your target markets defined and manageable is important for developing an effective strategy; however, beware making segments that are too niche or unsubstantial. Businesses that find themselves in this trap often expend effort and resources on extremely niche audiences that offer little financial return. 

  • Creating inflexible market segments

As a business grows and develops, so too does their audience - and thereby, their market segment definitions. Companies that are not rigid in their segmentation strategy, and allow themselves to change or adopt new segments over time, often perform far better on the market than their competitors.

inflexibility in market segments

Market Segmentation Best Practices

Marketing segmentation is a powerful tool for helping brands develop unique strategies; strategies they can use to reach a broader scope of diverse audience members. Segmenting enables better engagement, increases the effectiveness of advertisements, and ultimately leads to the creation of a better product.

Products that are audience tested and built to their specifications will always sell better than those that aren’t. Think about what your business could be doing to more effectively market itself, and commit to making a change.

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