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.

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

1. What is market segmentation?

2. Types of market segmentation
3. Market segmentation objectives
4. Strategies for market segmentation
5. Steps to implement a market segmentation
6. Characteristics of good segmentation
7. Advantages of market segmentation
8. Disadvantages of market segmentation
9. Conclusion
10. How QuestionPro can help in market segmentation

What is 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.
Types of market segmentation
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.

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.

Market segmentation objectives

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.

Strategies for market segmentation

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.

Steps to implement a market segmentation

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.

Characteristics of good segmentation

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.

Advantages of market segmentation

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.

Disadvantages of market segmentation

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.

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

Conclusion
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.
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.

Written by: Aaron Carpenter

What is market segmentation?

Market segmentation is the practice of dividing your target market into approachable groups.
Market segmentation creates subsets of a market based on demographics, needs, priorities,
common interests, and other psychographic or behavioral criteria used to better understand the
target audience.

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

The benefits of market 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:

1. 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.
2. 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.
3. 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.
4. 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.
5. Attracting the right customers: targeted, clear, and direct messaging attracts the people you
want to buy from you.
6. Increasing brand loyalty: when customers feel understood, uniquely well served, and trusting,
they are more likely to stick with your brand.
7. Differentiating your brand from the competition: More specific, personal messaging makes your
brand stand out.
8. 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.
9. 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.
10. Driving growth: You can encourage customers to buy from you again, or trade up from a lower-
priced product or service.
11. 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.
 12. 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.

The basics of segmentation in

marketing
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.

Behavioral
Demographic (B2C) Firmographic (B2B) Psychographic (B2B/B2C) (B2B/B2C)

Definition Classification based on Classification based on Classification based on

individual attributes company or behaviors like product
organization attributes usage, technology laggards,
etc.

Examples Geography Gender Industry Location Lifestyle Personality Traits

Education Level Income Number of Employees Values Opinions
Level Revenue

Decision You are a smaller You are a smaller You want to target You want to target
Criteria business or you are business or you are customers based on values customers based on
running your first running your first or lifestyle< purchase behaviors
project project<

Difficulty Simpler Simpler More advanced More advanced

Types of market segmentation

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

How to get started with segmentation

There are five primary steps to all marketing segmentation strategies:

1. 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?
2. 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.
3. 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.
4. Create your customer segments: Analyze the responses from your research to highlight which
customer segments are most relevant to your brand.
5. 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.
Market segmentation strategy
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:

1. 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.
2. Don’t wait to start planning: Businesses are always adapting to long-term 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.
3. 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.

Free eBook: How to drive profits with customer segmentation

Market segmentation use case examples

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.

Ensuring effective segments

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.

Common segmentation errors

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.