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Developing a Marketing Plan for Your Business
Every business needs a business plan that maps out the process of identifying the target market, attracting interest, gaining customers and retaining them for future sales. A solid marketing plan is an integral part of the overall business plan, as it maps out objectives and the plan for achieving them.
What Does a Marketing Plan Contain?
An effective marketing plan is detailed with concise steps that will accomplish a defined goal. The plan should identify and discuss the target market with information about direct competition in the industry. It should include information about marketing activity used in the past with the effectiveness of these activities. Then, the marketing plan consists of a set of realistic goals with defined objectives along with deadlines for meeting these objectives. The plan must also include budgetary guidelines for the marketing activities as well as a plan for measuring the effectiveness of the activities. It’s important to make the marketing plan easy to maintain and update as a company evolves, too.
Marketing Planning Process
The process of making a marketing plan involves market research to assess trends, profile target customers, identify potential competition, outline products or services, find vendors, calculate costs and brainstorm all positive and negative impacts that could affect the business. The business should create a mission statement that defines the company, its vision and its priorities. Next, the plan needs to focus on specific strategies and methods that will generate sales, including product descriptions, calls to action, promotion and advertising methods and budget, product or service pricing, and a plan to monitor how effective the marketing strategies are performing for the company.
Questions to Ask Yourself
To succeed in any industry, a business needs to set itself apart to attract customers and compete successfully with similar businesses. Questions to ponder include:
- Is this business model unique, and how is it unique? What need does the business meet?
- Who makes up the target market that will buy the service or product?
- What other companies currently exist that will compete for the target market? How can you prevail over this competition?
- What message will you communicate to potential buyers? How will potential buyers find out about your service or product?
- How will you deliver your service or product to your buyers?
Using a Marketing Plan Template
Some small business owners prefer to use a marketing plan template. Free marketing plan templates are available for download from the Internet. You can also use a marketing plan worksheet to help you brainstorm your ideas, goals and objectives. Once you have an outline of your marketing objectives, you can create an effective plan.
How Do I Write a Marketing Plan?
Make sure your marketing plan includes these points:
- Start with a description of the business, including mission statement and overall intent. Include goals, the organization of the business, the products or services provided with branding, and the target market.
- Outline results of market research, including identification of target market, customer demographics and profiles, market influences, economy, competition, customer satisfaction and identification of strengths and weaknesses the business may face.
- Set pricing based on business and manufacturing costs, break-even point, profit analysis, competitive pricing and the amount buyers are willing to pay.
- Include profiles of your target market, including demographics, their habits, qualities valued by customers, potential customers not being currently reached, ways to reach these customers and any changes customers might want.
- Analyze the competition based on talking to their customers, visiting their business and checking out their website. Find out about their products, branding, advertising and marketing. Pinpoint how your product or service differs.
- State goals that create a defined marketing direction. Plan objectives that outline specific actions that will achieve goals. Be as specific and realistic as possible, and describe how you will measure attainment of objectives and goals.
- Make a plan to put objectives in action to attain goals. For example, if your goal is to increase product reorders by 25 percent in the next year, make an objective to contact clients by phone or email within one month of sales, offering a return-order discount.
- Define your company’s distribution method such as direct sales, wholesale, print mail, telemarketing, advertising, networking, Internet marketing or a direct sales force.
- Create a marketing budget, such as a specific percentage of revenue or a particular portion of your annual budget. Every product or service needs a budget. Determine how many products or services you will need to sell to make a profit.
- Analyze the success of marketing efforts to determine what’s working and what’s not working. How many sales occurred? Are buyers happy? How many sales calls were necessary to make sales?
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A written market segmentation plan that has measurable targets attached to specific customer groups can help a business maximize profits. The more a business' owners understands the market, the better their chances of forming a strategy that reaches the most productive customer groups without wasting resources.
Divide and Conquer
Customer segmentation involves grouping customers together based on criteria relevant to your business. You can divide them up by any measure you choose, such as demographically or geographically, and clients can fit into more than one category. The goal is to separate out those segments that your business can serve most profitably, ideally in a way that makes them less prone to switching vendors based on a price decrease or marketing pitch from a competitor.
Market Analysis
The first part of a segmentation plan is market analysis. The plan should describe the industry and its major customer groups -- particularly the ones that your business is targeting. Identify the needs of both current and potential customers. Also note the size of the market and what percentage of it you can reasonably get. A big-picture trend analysis is also helpful. You want to finish this process knowing both why people buy what you are selling now and why that may change in the future.
Information Is Key
The more information you get about your market, the better a segmentation plan is going to be. In addition to commercially available sources, you may find it useful to gather your own data, perhaps by asking existing customers to fill out surveys or by gathering information from trade shows or conferences. It’s worth asking customers how they use your products or services to find out if they are using things in unintended ways that may provide additional means of generating sales, or if they are unaware of what you consider to be a key differentiator that gives you a comparative advantage over the competition.
Kick Customers Out
Don’t forget to also consider whether you’re currently serving customers that perhaps you shouldn’t be. If you’re spending a lot of money marketing your products to a group that isn’t responding and the return on investment is disappointing, it’s time to either come up with a more effective strategy for dealing with that group or abandon that segment to concentrate on more lucrative portions of the customer base.
Write it Up
Once you’ve decided which segments to target, it’s time to write up the findings. Be as specific as possible about your targeted segments, with a detailed action plan and measurable goals. If you continue to monitor the situation once the plan is in effect, you should know quickly whether everything is on the right track or changes need to be made and resources reallocated.
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Market Segmentation
- Steps in Market Segmentation
Segmentation refers to the process of creating small segments within a broad market to select the right target market for various brands . Market segmentation helps the marketers to devise and implement relevant strategies to promote their products amongst the target market.
A market segment consists of individuals who have similar choices, interests and preferences. They generally think on the same lines and are inclined towards similar products. Once the organizations decide on their target market, they can easily formulate strategies and plans to make their brands popular amongst the consumers.
Identify the target market
The first and foremost step is to identify the target market. The marketers must be very clear about who all should be included in a common segment. Make sure the individuals have something in common. A male and a female can’t be included in one segment as they have different needs and expectations.
Burberry stocks separate merchandise for both men and women. The management is very clear on the target market and has separate strategies for product promotion amongst both the segments.
A Garnier men’s deodorant would obviously not sell if the company uses a female model to create awareness.
Segmentation helps the organizations decide on the marketing strategies and promotional schemes.
Maruti Suzuki has adopted a focused approach and wisely created segments within a large market to promote their cars.
Suzuki Grand Vitara would obviously have no takers amongst the lower income group.
The target market for Rado, Omega or Tag Heuer is the premium segment as compared to Maxima or a Sonata watch.
Identify expectations of Target Audience
Once the target market is decided, it is essential to find out the needs of the target audience. The product must meet the expectations of the individuals. The marketer must interact with the target audience to know more about their interests and demands.
Kellogg’s K special was launched specifically for the individuals who wanted to cut down on their calorie intake.
Marketing professionals or individuals exposed to sun rays for a long duration need something which would protect their skin from the harmful effects of sun rays. Keeping this in mind, many organizations came with the concept of sunscreen lotions and creams with a sun protection factor especially for men.
Create Subgroups
The organizations should ensure their target market is well defined. Create subgroups within groups for effective results.
Cosmetics for females now come in various categories.
Review the needs of the target audience
It is essential for the marketer to review the needs and preferences of individuals belonging to each segment and sub-segment. The consumers of a particular segment must respond to similar fluctuations in the market and similar marketing strategies.
Name your market Segment
Give an appropriate name to each segment. It makes implementation of strategies easier.
A kids section can have various segments namely new born, infants, toddlers and so on.
Marketing Strategies
Devise relevant strategies to promote brands amongst each segment. Remember you can’t afford to have same strategies for all the segments. Make sure there is a connect between the product and the target audience. Advertisements promoting female toiletries can’t afford to have a male model, else the purpose gets nullified.
A model promoting a sunscreen lotion has to be shown roaming or working in sun for the desired impact.
Review the behavior
Review the behavior of the target audience frequently. It is not necessary individuals would have the same requirement (demand) all through the year. Demands vary, perceptions change and interests differ. A detailed study of the target audience is essential.
Size of the Target Market
It is essential to know the target market size. Collect necessary data for the same. It helps in sales planning and forecasting.
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Authorship/Referencing - About the Author(s)
The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team . MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider . To Know more, click on About Us . The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.
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Brand Experience
Market Segmentation
What is market segmentation?
The benefits of market segmentation, the basics of segmentation in marketing, types of market segmentation, how to get started with segmentation, market segmentation strategy, market segmentation use case examples, ensuring effective segments, common segmentation errors, qualtrics solutions for market segmentation, see how brandxm works, market segmentation: definition, types, benefits, & best practice.
21 min read Market segmentation helps you send the right message, every time, by efficiently targeting specific groups of consumers. Here’s how it works.
By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies . Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income.
Read on to understand why segmentation is important for growth and the types of market segmentation to use to maximize the benefits for your business.
Free eBook: How to drive profits with customer segmentation
Companies who properly segment their market enjoy significant advantages. According to a study by Bain & Company , 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period.
Other benefits include:
- Stronger marketing messages : You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
- Targeted digital advertising : Market segmentation helps you understand and define your audience’s characteristics, so you can direct your online marketing efforts to specific ages, locations, buying habits, interests etc.
- Developing effective marketing strategies : Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
- Better response rates and lower acquisition costs : will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
- Attracting the right customers : targeted, clear, and direct messaging attracts the people you want to buy from you.
- Increasing brand loyalty : when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand .
- Differentiating your brand from the competition : More specific, personal messaging makes your brand stand out .
- Identifying niche markets : segmentation can uncover not only underserved markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
- Staying on message : As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
- Driving growth : You can encourage customers to buy from you again , or trade up from a lower-priced product or service.
- Enhanced profits : Different customers have different disposable incomes; prices can be set according to how much they are willing to spend . Knowing this can ensure you don’t oversell (or undersell) yourself.
- Product development : You’ll be able to design new products and services with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.
Companies like American Express , Mercedes Benz , and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers.
Understanding segmentation starts with learning about the various ways you can segment your market as well as different types of market segmentation. There are four primary categories of segmentation, illustrated below.
With segmentation and targeting, you want to understand how your market will respond in a given situation, like what causes people to purchase your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions .
Demographic segmentation
Demographic segmentation sorts a market by elements such as age, education, household income, marital status, family size, race, gender, occupation, and nationality. The demographic approach is one of the simplest and most commonly used types of market segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. It’s also seen as a simple method of predicting future behavior, because target audiences with similar characteristics often behave in similar ways.
How to start demographic segmentation
Demographic segmentation is often the easiest because the information is the most readily available. You can send surveys directly to customers to determine their demographic data, or use readily available third party data such as government census data to gather further information.
Geographic segmentation
Geographic segmentation can be a subset of demographic segmentation, although it can also be a unique type of market segmentation in its own right. As its name suggests, it creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.
How to start geographic segmentation
Geographic segmentation data again can be solicited from customers through surveys or available third party market research data, or can be sourced from operational data such as IP addresses for website visitors.
Firmographic segmentation
Firmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.
How to start firmographic segmentation
Firmographic segmentation data can be found in public listings for companies and information that the business makes available, as well as trade publications. Again, surveying existing and potential customers can help to build out this data.
Behavioral segmentation
Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach, because you can focus on what you know they are looking for, and are therefore more likely to buy.
How to start behavioral segmentation
Of all the types of market segmentation, behavioral segmentation is likely best started with the information you have on an existing customer base. Though it can be bolstered by third party market research data, the information you already have on customer purchase and usage behavior will be the best predictor of future behavior.
Psychographic segmentation
Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.
How to start psychographic segmentation
Pychographic segmentation relies on data provided by the consumers themselves. Though market research might provide insights on what particular segments are most likely to believe or prefer, psychographic segmentation is best completed with information direct from the source. You can use survey questions with a qualitative focus to help draw out insights in the customers’ own voice.
On-demand webinar: How to drive product design and profits with customer segmentation
There are five primary steps to all marketing segmentation strategies:
- Define your target market : Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace compared to your competitors?
- Segment your market : Decide which of the five criteria you want to use to segment your market: demographic, firmographic, psychographic, geographic, or behavioral. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one to figure out which combination works best for your needs.
- Understand your market : You do this by conducting preliminary research surveys, focus groups, polls , etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
- Create your customer segments : Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
- Test your marketing strategy : Once you have interpreted your responses, test your findings by creating targeted marketing, advertising campaigns and more for your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, relook at your segments or your research methods and make appropriate changes.
Why should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. The market segmentation process is similar, as there will be times you need to revisit your market segments, such as:
In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of businesses to rethink how they sell to customers. Businesses with physical stores looked at online ordering, while restaurant owners considered using food delivery services.
If your customers change, your market segmentation should as well, so you can understand clearly what your new customers need and want from you.
On a yearly basis: Market segments can change year over year as customers are affected by external factors that could alter their behavior and responses.
For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.
At periodic times during the year: If you’ve explored your market and created market segments at one time of the year, the same market segments may have different characteristics in a different season. Seasonal segmentation may be necessary for better targeting.
For example, winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel (back home for the holidays). Knowing this information can help you predict and prepare for this period.
When considering updating your market segmentation strategy, consider these three areas:
- Acknowledge what has changed: Find out what has happened between one time period and another, and what have been the driving forces for that change. By understanding the reasons why your market is different, you can make key decisions on whether you want to change your approach or stay the course.
- Don’t wait to start planning: Businesses are always adapting to long-te r m trends , so refreshing market segmentation research puts you in a proactive place to tackle these changes head-on. Once you have your market segments, a good idea is to consider the long-term complications or risks associated with each segment, and forward-plan some time to discuss problem-solving if those issues arise.
- Go from “what” to “why” : Why did those driving forces come about? Why are there risks with your target market? At Qualtrics, we partner with companies to understand the different aspects of target markets that drive or slow success. You’ll have the internal data to understand what’s happening; we help unleash insight into why with advanced modeling techniques. This helps you get smart market segmentation that is predictive and actionable, making it easier for future research and long-term segment reporting.
Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built out across several departments and activities:
Market and opportunity assessments
When your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups.
For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services.
Segmentation and targeting
If you have your entire market separated into different customer segments, then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavioral preferences .
With this information, you can target your products and services toward these market segments, making marketing messages and collateral that will resonate with that particular segment’s criteria.
Customer needs research
When you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements.
Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up.
Product development
If the product or service you’ve developed doesn’t solve a stated problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about an/d how they live their lives, it’s easier to know what products will enrich or enhance their day-to-day activities.
Use market segmentation to understand your customers clearly , so that you can save time and money developing products and services that your customers will want to purchase.
Campaign optimization
Marketing and content teams will value having detailed information for each customer segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect better with specific audiences, making their campaign results more effective.
When their marketing campaigns are combined with strong calls to action targeted to the specific segment, they will be a powerful tool that drives your target market segments towards your sales channels.
After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:
- Measurable : Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments may be made up of people who are more likely to shop during a promotion or sale.
- Accessible : Understanding your customers and being able to reach them are two different things. Your segments’ characteristics and behaviors should help you identify the best way to meet them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio ads to hear about store promotions, while another segment is best reached on your mobile app. One of your segments might be a male retiree who is less likely to use a mobile app or read email, but responds well to printed ads.
- Substantial : The market segment must have the ability to purchase. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but realistically can’t afford them. Make sure an identified segment is not just interested in you, but can be expected to purchase from you. In this instance, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, leisurely retirees who can afford your goods, and successful entrepreneurs who want to show off their wealth.
- Actionable : The market segment must produce the differential response when exposed to the market offering. This means that each of your segments must be different and unique from each other. Let’s say that your segmentation reveals that people who love their pets and people who care about the environment have the same purchasing habits. Rather than having two separate segments, you should consider grouping both together in a single segment.
Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavioral segmentation does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations.
We’ve outlined the do’s , so here are some of the dont’s :
- Avoid making your segments too small or specialized : Small segments may not be quantifiable or accurate, and can be distracting rather than insightful
- Don’t just focus on the segment rather than the money : Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment
- Don’t be inflexible : Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.
Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to get automated from the beginning . Forget spreadsheets – choose market segmentation software to measure and streamline your marketing strategy; as you grow, the technology will scale with you.
Innovative features such as XM Directory allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups.
If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service .
Related resources
Behavioral segmentation 20 min read, what is psychographic segmentation 9 min read, geographic segmentation 12 min read, demographic segmentation 14 min read.
Brand Awareness
Brand Awareness 17 min read
How to build a brand 14 min read, brand extension strategies 11 min read, request demo.
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Market Segmentation Strategy Solutions
A fervent believer in the promise of human powered growth, Russ leads CMG in partnering with companies to help them become aligned, agile, customer-driven enterprises that unleash the potential of their organizations with sustainable improvements in focus, teams, culture, and process our clients.
Knowing your target market is the first step in successfully selling your products and services, and one of the most important. A marketing segmentation strategy helps determine which customers you can build relationships with, how to group them, and what marketing actions to take to best reach your target market.
Creating a customized experience catered to customers lead to higher customer retention rates and more focused marketing campaigns. Market segmentation does the work of aggregating prospective buyers into groups with common needs that are likely to respond similarly to a marketing action.
This strategy can help determine which of your products and services are most wanted and where. Markets are typically grouped by Geography, Demographics, Psychographics, and Behavior. Determining the right marketing segmentation strategy for your business involves using one of or even a combination of these segments to reach a more targeted consumer base.
Create Your Marketing Segmentation Strategy
Identifying your marketing segmentation strategies ultimately involves answering these five important questions:
- Who is your consumer or business market?
- Where is your consumer or business market located?
- What is your consumer or business market interested in?
- How can you market your products and services to this market?
- Why are certain segments interested or not interested in your products or services?
Each of these strategies can be used to target a different customer base.
Demographic
Demographics are the most common form of segmentation. They divide customers by the structure of certain population traits:
- Marital Status
- Social Class
An example of marketing segmentation using demographics is to combine age and income information to target older, wealthy retirees looking to relocate to Florida to sell beachfront property.
Another demographic strategy would be marketing fantasy or war-based video games primarily to younger individuals ages 18-30.
Regional demographics can help you sell products and services, depending on where your customers live.
- International Marketing
Colleges looking to sell sports merchandise will sell items well within the state, but not so well outside home territory. Larger, non-collegiate conglomerates such as the NFL can expect a wider customer base in North America, but don’t need to bother merchandising as much overseas.
Psychographics
Psychographic or lifestyle segmentation targets customer hobbies and interests. This segmentation strategy caters to the most niche markets, where attractiveness, quality, and brand recognition are more important than price.
- Social Status
- Personality Type
One example of a psychographic segmentation strategy would be to target high-end musical equipment to music enthusiasts that want to collect the best gear or equipment as a status symbol for showcase collections.
Behavioral segmentation is relatively new in the digital age and takes into consideration information a company has collected through customer data reports, surveys, or marketing trends.
- Patterns of Use
- Price Sensitivity
- Brand Loyalty
- Benefits Sought
Consumers want the best brands at the best prices, and their buying patterns predict items and services they are more likely to buy. Amazon.com algorithms track your purchases and know that if you buy a book on grilling, you may also like to buy seasoning or barbecue tongs.
Restaurant menus are also broken up into price levels based on behavior, featuring specials, and seasonal items.
Combination Strategy
Selling snow gear to snowboarding hobbyists in Park City, Utah, combines geographic, psychographic, and demographic marketing segments. High-quality craftsmanship is expected, and customers will pay more for quality, innovative snowboards.
By utilizing a market segmentation strategy that is tailored to your target market in your organizations go-to-market strategy, you can optimize competitive positioning and better understand your customer. Putting in the work at this stage will pay off in the long run with customer retention, brand loyalty, and increased revenue.
Need help building your go-to-market strategy? Since 1998, CMG Partners have been leading strategic marketing consultants for some of the largest media and communications brands worldwide. Contact us to help you define your brand solutions strategy and push your organization to Transform, Grow, and Thrive.
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Market segmentation: The no-nonsense guide (w/ examples)
Marketing to the wrong segment can feel like barking up the wrong tree, or more specifically, barking up tens of thousands of wrong trees.
Market segmentation didn’t always exist:
Since the invention of funnel reports, salespeople have been standing around whiteboards trying to crank up their conversion rates.
Nearly everybody in the industry has, at one point or another, heard someone reasoning that simply adding more people to the funnel will improve their sales numbers while preserving their conversion rate.
“Of 10 prospects, 5 bought the product. This must mean that if we market to one million people, 500,000 will buy.”
Similarly, if you’re a sales rep making 30 calls a day, you might reasonably extrapolate that making 60 calls a day would double your closed deals. Or, if you send prospects 1-2 emails a week, you might consider sending 3-4 emails instead. Unfortunately, it’s not that straightforward.
Sales processes are complicated. What one audience might find valuable might just be noise for another. For instance, a restaurant mailing BOGO offers might have a high success rate on residents who live within one freeway exit’s distance of your establishment.
However, mailing those same BOGO offers across state lines would see those conversation rates drop down near zero. This no-brainer is a textbook example of market segmentation as it illustrates how demographics respond differently to marketing strategies.
Skip ahead:
What is market segmentation.
- The 4 most common types of market segmentation
6 less common types of market segmentation
What are the benefits of market segmentation.
- Market segmentation strategies
- How to do your own market segmentation
Market segmentation in a nutshell
Market segmentation is the process of qualifying companies (or people) into groups that respond similarly to marketing strategies. This is the first critical step in creating a sales process tailored to resonate across multiple demographics.
Your marketing segmentation strategy will be mainly influenced by what your product is, and which types of companies are already buying it.
An ideal market segment is:
- Large enough to earn profit
- Stable, not going to vanish after a short time
- Reachable by your marketing strategies
- Homogenous and responds similarly to your marketing strategies
The expression “market segmentation” was first coined by Wendell R. Smith in his 1956 publication Product Differentiation and Market Segmentation as Alternative Marketing Strategies . Smith wrote that modern marketing appeals to selective rather than primary buying motives.
In other words, consumers are actively contrasting products against one another rather than simply purchasing a product to satisfy an immediate need. This realization was the inception of the modern market segmentation we practice today.
Before 1956, there wasn’t a huge market variety, and general stores tended to carry only one or two brands’ versions of the same product. At the time of the publication, more and more emerging brands were offering similar products and thus needed to differentiate themselves with branding and by targeting different markets.
It wasn’t enough to just manufacture ketchup, you had to identify your brand as America’s ketchup , or kids’ ketchup , or fancy ketchup .
The 4 most common types of segments
Savvy salespeople and marketers categorize their prospects into customer segments in order to keep their efforts focused and effective. When your prospects are grouped correctly, it’s much easier to target specific groups and tailor your efforts for maximum impact. Below are the most common forms of segmentation.
Demographic segmentation
Demographic market segmentation is the most commonly used form of market segmentation and entails categorizing your market based on age, gender, income, profession, race, religion, education, location, family situation, etc.
Demographic segmentation examples:
- A great example of this: Switch to the cartoon channel and check out those commercials. Do Nerf guns and neon-colored slime appeal to someone your age? Yeah us too, bad example .
- A recruiter running one of those mostly annoying LinkedIn InMail campaigns. Ideally, they’d be targeting people who are currently looking for a job. Yet, somehow they manage to flood my inbox daily.
Psychographic segmentation
More specific characteristics are categorized under the umbrella of psychographic segmentation . Less tangible than demographic segmentation, this classification method includes details like lifestyle, personality, beliefs, values, and social class.
This evaluation is important because two individuals can possess identical demographic information but make purchasing decisions completely differently, and thus require different marketing.
Psychographic segmentation examples:
- Health and wellness advertisements might not go a long way with someone who prefers to spend their money on video games and energy drinks, even if they work in the same industry and live in the same apartment building.
- Advertisements for large social gatherings (events, clubs, bars) might not appeal to extroverts who would much rather snuggle up with a book than being surrounded by other people.
Behavioral segmentation
At its core, behavioral segmentation is the act of categorizing prospects based on their actions, usually within your marketing funnel. For instance, prospects who visited a landing page for an upcoming event might benefit from receiving a personalized invitation.
Segmenting your market based on behaviors is typically done by marketers within their marketing automation software , but any company with a mailing list has already performed behavioral segmentation simply by tracking prospects who have signed up to receive emails.
Behavioral segmentation examples:
- Grammarly sends new users who have stopped using their chrome extension for a few days an email which addresses common reasons of churn – technical difficulties, not seeing the value, not enough features, etc.
- Sending emails to website visitors who have left items in their cart. “But wait…come back.”
- A retargeting campaign that only displays ads to people who have previously purchased an item.
Geographic segmentation
The most straightforward of the gang, geographic market segmentation takes into account prospects’ locations to help determine marketing strategies. Although SaaS sales are relatively unaffected, a salesperson of gigantic coats knows to avoid pitching to Arizona residents.
Geographic segmentation variables and examples:
- Climate: Swimwear brands shouldn’t be targeting Alaska residents in January.
- Cultural preferences (based on location): For obvious reasons, the McDonald’s in Germany sells beer.
- Population type: A bicycle company may segment its audience differently depending on the population type – rural (mountain bikes; thicker tires; more durable), urban (road bikes; thin tires; lightweight), etc.
- Density: A giant strip mall may require a high density of foot traffic to thrive.
Price segmentation
Price segmentation is the process of altering the price of similar products and services to different consumer groups.
If you still have a student ID to get those sweet discounts, even though you graduated years ago, then you’ve experienced price segmentation. Or, if you ever forced your kids to pretend to be under a certain age to qualify for the “kids eat free” special, then you understand the power and utility of price segmentation.
However, price segmentation can get much more granular. It can be used to identify customers who may be willing to pay more for a particular product or service that they perceive to be more valuable.
Done correctly, price segmentation can capture the maximum amount of revenue for each transaction.
Price segmentation examples:
- Broad: Senior discount, veteran discount, coupons, etc.
- Granular: Computer processors are priced differently when sold to a company as a part (like inside an iMac) than when sold to a consumer as a standalone product. For one, this is because of bulk discounts, but it’s also because the processor may be a large chunk of the total cost of goods for the iMac. Apple’s high price sensitivity means the computer processor manufacturer doesn’t have much flexibility in its pricing.
- Even more granular: A marketing consultancy may base their prices entirely on the value they can generate for each of their client’s unique situations. They may charge a small business $75/hr for a low-level consulting call. And they may charge a multinational corporation $2,000/hr to review their Q1 marketing budget.
Firmographic segmentation
Firm ographic segmentation is similar to demographic segmentation…but for a firm . Take a second to let the creativity of the wording waft over you.
Instead of categorizing consumers based on age, location, income, etc, firmographic segmentation categorizes companies based on industry, annual revenue, job function, company size, location, status, performance, etc.
For B2B marketers, utilizing firmographic segmentation is non-negotiable to a high-performing marketing strategy.
Just as the demographic segmentation variables can help you form a buyer persona at the consumer level, firmographic segmentation can help you develop a buyer persona at the company level.
Firmographic segmentation examples:
- Nutshell running different ads for different industries – real estate, finance, legal firms, etc.
- A B2B sales team only targeting companies with revenues over $100m.
Generational segmentation
“Ok, boomer” – Something you’ve either been on the giving or receiving end of at some point in your life – whether you know it or not.
Generational segmentation is almost comparable to the “age” variable in demographic segmentation. However, generational market segmentation goes beyond age by considering the difference in preferences, habits, lifestyles, and attitudes of a particular generation.
It’s self-evident that the generations are vastly different.
Someone born in the 1960s will likely have experienced a different culture than someone born in the 2000s.
According to a segmentation survey conducted by Buzzstream and Fractl:
- Baby Boomers consume the most content
- Baby Boomers consume a larger portion of their content in the morning
- Gen Xers are the least active tablet users
- More than 25% of Millennials use their mobile phones as their primary content viewing device
- Baby Boomers view more world news and politics than other generations
- Millennials are more likely to share memes than other generations
- Baby Boomers are more likely to share videos than other generations
- Gen Xers are more likely to share content on Twitter
Generational segmentation examples
- Utilizing more memes on Facebook to target a larger percentage of Millennials.
- Altering your content publishing schedule to mornings to target a larger percentage of Baby Boomers.
Life stage segmentation
Life stage segmentation is the process of dividing your market based on the life stage of your target audience. Someone who is married with 5 kids may respond well to an emotional advertisement about convertibles during their midlife crisis.
Life stage segmentation examples
- Ads about life insurance may not appeal to sophomores in college, but they may appeal to someone who just started a family
- Someone who just entered the workforce for the first time may be more interested in a new apartment than someone who is retired.
Seasonal segmentation
Seasonal segmentation targets people based on their purchasing habits during certain periods of the year. It can range from actual seasons (spring, summer, fall, winter), events (Coachella, Super Bowl), and holidays (Christmas, Mother’s Day).
Seasonal segmentation examples
- A local company selling crop tops and hangover antidotes may want to target people based on the timing of Coachella.
- A flower shop that specializes in same-day delivery may want to ramp up their ad spend targeting forgetful sons and daughters.
Technographic segmentation
Much like firmographic market segmentation, technographic segmentation only applies to B2B audiences. It’s used to target companies based on the types of technology they’re using. Whether it’s a CRM, a website CMS, or a niche-specific software tool, utilizing technographic segmentation can help enhance sales and marketing efforts.
Technographic segmentation examples
- A company that develops WordPress plugins would have no business targeting companies that use a different CMS, like Wix.
- Let’s say a SaaS company just launched a valuable cross-compatible integration with another app. It would make sense for them to the target businesses using the app they just integrated with.
Market segmentation isn’t just for big businesses. In fact, smaller teams whose efforts aren’t yet focused benefit the most from segmenting their audiences.
When companies are still struggling to get off the ground and maintain their momentum, it’s easy to get too hung up on what has worked in the past to try marketing to new groups.
The benefits of market segmentation are:
Bang for your buck.
Market segmentation can help companies get the most out of their marketing efforts. With tailor-made, demographic-specific messages and advertising, companies can more effectively communicate with their audiences, begin boosting their conversion rates, and actually spend less on broad advertising.
Better conversion rate
Simply put, the more information you have about your various audiences, the more specificity you can add to your outreach, which will help your prospects convert more easily.
Customer retention
By marketing towards customers who have already gone through their own buyer’s journey, segmentation makes it easier to keep them engaged and pitch them with occasional upgrades. And with their segment data you’ve captured, you know how to talk to them.
Expanding your efforts
Segmentation can be a great way to pursue new markets. Clothing retailers are a great example: The Gap clothing company, after studying its audience, determined it would be advantageous to launch a new brand called Baby Gap, and completely reoptimized their business from a supply chain level just to do so.
Because of all the information you gather about your prospects, proper segmentation can help you determine if there’s a case to explore new endeavors such as this.
Without market segmentation, companies are at risk of getting pulled into a self-perpetuating cycle, wherein they inadvertently market to a specific demographic, and then assume that that demographic is their only viable demographic because they’re the only ones buying:
“Everyone who responded to our direct mailer was over the age of 65. This must mean that our target market is only people 65 or older.”
Market segmentation strategies (and their pros and cons)
Once you’ve completed your market segmentation and you have very clear insight into your various marketable audiences, you’re in a great position to create an impactful marketing strategy. Every strategy is different but most of them follow one of two fundamental outlines:
Concentration strategy
Concentration strategy is when a company determines that their efforts are best focused solely on a single market segment. This strategy is particularly great for small, growing businesses who have demonstrated a viable use case within a specific market. Focusing on one segment will allow the company to invest more time, energy, and resources into one specific market, which minimizes advertising spend and potentially mitigates wasting efforts across multiple segments.
Concentration strategy is like putting all your cards on the table—if it doesn’t work out, it can end badly. If the market segment hasn’t been properly vetted and turns out to be a bust, all of your marketing efforts could be wasted. Be sure to do some careful planning and execute thorough market testing before committing your business to a single market segment.
Pros: High conversion percentages, repeatable marketing practices, less marketing spend
Cons: “All-or-nothing,” growth potential is limited to segment size
Multi-segment strategy
Multi-segment marketing (or differentiated marketing,) is when a company’s marketing strategies are designed to advertise one product to more than one market segment.
Although apparently “safer” than concentration strategy, multi-segment marketing is a much larger tax on a company’s marketing spend, as it requires completely different campaigns for each market segment.
However, if a particular segment is extremely receptive and converts well, it’s easy to tailor your strategy to market more directly to that segment.
Multi-segment marketing is “safer” from the standpoint that if a company advertises across numerous channels, they’re bound to scrape up some revenue from one of them.
The downside is that it’s a less targeted use of a company’s marketing efforts, and thus could result in a potentially lower average ROI than a concentrated one-segment strategy.
Pros: Safer, appeal to more consumers, diverse marketing, high growth potential
Cons: Lower conversion percentages, greater marketing spend
Learn more: An Introduction to Market Segmentation as Strategic Tool
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How to do your own market segmentation in phases
Phase 1: gather the data.
First things first, it’s time to gather data so that you can use it to form your market segments. There are many ways to go about it—some people like to go with pre-made lead lists , others prefer to do their own research .
If you’re in the latter category (you probably should be), you can frame your searches along the following categories.
Researching by company size:
Size can mean a number of things, but is most often measured by the number of employees, number of customers, or overall sales revenue a company claims. Some companies have transparency on their websites , which makes reaching out to the correct person much easier.
Using free references like Bloomberg can help uncover basic information about a company in question.
Researching by industry:
It’s unlikely that your product is applicable across all industries, which is why industry segmentation exists. Industry segmentation will help you ensure that you’re not wasting your time by targeting a company with no need for your product.
Some companies have nondescript names like Amphastar and Wong, Doody, Crandall, and Wiener , so make sure you know what they actually do before you place them into a category.
Researching by location:
If you’re offering a location-specific product or service, like landscaping services within the local community, your geographic market segmentation is probably pretty airtight: You probably use handy tools like lead maps , and engage in local marketing wherever possible.
For other industries, like IT staffing, your reach might be international. Whatever your product, location is a crucial thing to know about a company, because it will help you decide which sales tactics to use, and when to send your emails if you’re communicating across time zones, at the least.
Researching by needs:
This method of segmentation entails qualifying companies based on whether they need your products or services. While this definition is straightforward, the process behind making this determination may not be, depending on what you’re offering.
If you sell landscaping services, you can use Google Maps to look up a company’s HQ. If their office is in a tower in New York City, they probably don’t need any landscaping.
Capturing data in web forms:
Web forms are the industry standard for capturing prospect data. The practice is simple: if you have high-quality content that would provide a lot of value to your site visitors, you can place that content behind a web form that requires users to submit their name, email address, and other information before they can see it.
The form’s questions should be light and noninvasive, as to not discourage users from filling it out, but constructive enough to give you enough context when communicating with them in the future.
Somewhat of a niche marketing method, surveys can be tactically deployed to get highly specific information from potential buyers in exchange for highly specific content or rewards.
The standard survey format usually offers a tangible reward—like a gift card or a free product—in exchange for a decent chunk of voluntary user data.
Although somewhat abstract, surveys are still one of the best methods of obtaining hyper-targeted data about users and companies. Because, let’s face it, no one is going to advertise their meme habit right on their company website.
Phase 2: Sort the data into segments
There are many ways to go about this process. Most involve expensive analysts, marketers, and lots and lots of time. Although the DIY route is faster, it is no substitute for a comprehensive market segmentation strategy.
Assuming time and money are an obstacle, you can approximate your own market segmentation by compiling your data into one single source and running filters on it to manually group your prospects and companies together by segments.
Remember, ask yourself the following:
- Is this segment measurable?
- Is this segment large enough to earn a profit?
- Is this segment stable, and not going to vanish after a short time?
- Is this segment reachable with my marketing strategies?
- Is this segment homogenous, and will they respond similarly to my marketing strategies?
This sample data template can help you get started! (Just make a copy so you can add your own customer data.)
Phase 3: Plug in your marketing channels
Now that your segments have been firmly established, it’s time to connect the dots and breathe life into your marketing. This means establishing a plan for each of your marketing tools and channels, and coming up with real ways to reach your segments with them.
You’ll be attributing different marketing and sales tactics to each stage of your pipeline, and determining what sticks. The good news is that your market segments are clearly defined and you’ll be able to speak to them clearly.
The real challenge is continuously improving your efforts with trial and error to get the best possible conversion rates.
There’s a good, old-fashioned way to map this out quickly and easily:
- Draw your pipeline stages horizontally across a sheet of paper
- Above each pipeline stage, jot your marketing channels, like Linkedin, emails, or webinars, with blank space in between them
- Below each marketing channel, write exactly how you will use this tool at this pipeline stage, like “email prospects a link to a recorded webinar”
Repeat this exercise for each market segment to help establish a concise and repeatable process for marketing towards your various audiences. You can fully flesh out your segmented marketing strategy by configuring your sales software and email automation around the outline you’ve created, and then make tweaks as needed.
To this end, some CRMs have reporting and performance tracking as well as custom reporting to help you figure out what’s working and what needs to change.
Now you’ve got your demographics clearly segmented, your strategy figured out, and your sales processes mapped tightly to your market segments.
Because of this, you should have a clear understanding of how to talk to your prospects, and how to differentiate your outreach efforts based on the market segment.
The challenges that lie ahead are rooted in constantly adjusting your marketing—testing your messages, your tactics, and measuring your audiences’ responses.
If you’re ready to put your sales and marketing automation into action, get started with a free nutshell trial today!
Educational resources:
- Sales tactics encyclopedia: 19 strategies for prospecting, qualifying, and closing
- The complete guide to researching sales prospects: 13 tools to help you understand your buyers
- The ultimate guide to cold calling
- 16 B2B cold email templates that sales experts swear by
- How to Build a Sales Process: The Complete Guide
- Buying a lead list: The pros, the cons, and the things that might land you in jail
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Market Segmentation: You’re Doing It Wrong
In fact, a study done by Harvard Business claimed that in the US, 85% of 30,000 new product launches failed because of poor market segmentation .
Marketing segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and application for the relevant goods and services.
Marketing campaigns are then designed and implemented to target these specific customer segments.
Why Should You Care About Market Segmentation?
One of the main reasons to use market segmentation is to gain a competitive advantage by understanding the needs of a specific customer base. Many mass marketing techniques that are used assume all customers are the same.
This isn’t ideal .
It’s not that results aren’t attainable through mass marketing, it’s just not as an efficient process as market segmentation . Correctly using market segmentation allows you to better know your customer base, and align your marketing efforts and messaging strategy.
Strategic Planning: Common Segment Descriptors
Descriptors are customer characteristics, used during the strategic planning phase, that are significant enough to divide your market. You won’t use all of these descriptors for every campaign, but you should know them.
- Psychographic : Grouping your customers into cultural clusters, social status, lifestyle and personality type.
- Decision Makers : Grouping your customers based on who decides to purchase your product within the company structure.
- Behavioral : Grouping customers by product usage. For example; light, medium or heavy users. This stage also factors in brand loyalty and the type of user.
- Geographic : Grouping customers by a specific area, such regions of the country or state and urban or rural.
- Distribution : Grouping customers based on where they go to purchase your product, such as online, store or through a catalog.
- Demographic : Grouping customers by age, income level, gender, family size, religion, race, nationality, language, etc.
Market Segmenting Best Practices: 4 Simple Rules
Market segmentation doesn’t have to be as difficult as most business professionals make it. The process just takes time and research. It is important to prepare and do your research upfront to truly determine your segments and then align with marketing efforts.
Four Simple Rules for Market Segmentation
- 1. Don’t define your segments too broadly. This will give you a greater opening to a competitor who targets more narrowly.
- 2. Organize your business by market segments. Many begin by establishing market-focused teams or groups which later get organized into a market-focused business model.
- 3. Manage your segments globally. Sometimes regional organization can set you up to be blind-sided later by a more dynamic global economy.
- 4. Complete your analysis and research (strategic market segment portfolio), then be bold about attacking those segments.
Good vs. Bad Market Segmentation Research
So at this point, you are probably asking yourself; what am I doing wrong? What is good market segmentation? Good market segmentation research should provide your company with a clear direction to move forward with and an idea of which markets will be best to target. The market your research shows to target should represent a high share of potential profitability to the company. It should also be easy to identify among the population of research.
If your market segmentation research is not meeting the above requirements, then that is what you’re doing wrong. You’ll need to re-gather your research team and clearly define their goals and the information they should be gathering from their market segmentation research.
Bad market segmentation research is a waste of your time, money and energy . Therefore, it is worth investing in a team or educating yourself, so you can clearly define your segments, and properly market to them. These segments should be ones your competitors don’t even know exist. This end goal will dramatically improve your marketing efforts – in tern – boosting your market share and profits.
Implementing a Better Market Segmentation Plan
There are 4 main stages that need to be considered when implementing or revising your market segmentation plan:
1. Objective Setting
- Set segmentation objectives and goals
- Identify segmentation variables and develop hypothesis
2. Identify Customer Segments
- Research design
- Data collection
- Analyze data and identify segments
- Validate all results
3. Develop Segmentation Strategy
- Select target segment
- Identify segmentation implications & recommendations
4. Execute Go-To-Market Plan (launch plan)
- Identify key stakeholders
- Develop communications & operational launch plan
- Execute and monitor
As you can see by the above breakdown, within each stage there are sub-steps that need to be thought about before moving on to the next stage.
Most marketers fall short during the first two stages. The research and data collection, though often rushed, is the most important stage of the implementation process of market segmentation.
Market Segmentation Example
After you work through implementing your marketing segmentation plan, it would be typical to see something like the below diagram to demonstrate to your team and all parties involved.
This example shows you the possible markets your product or service can be broken down into after all the research has been done and analyzed. It also demonstrates how far you can break down a particular segment, which is crucial to truly finding your target market and adapting a marketing plan to align with it.
Final Thoughts
“Beautiful product development in an ugly market segment simply makes no sense.” – Dan Adams
Most people do not understand their customer groups well enough to do full-blown market segmentation and that’s OK. Knowing and admitting that is half the battle. As you grow, you will learn more about each customer group and then further be able to make “spotlight” assessments on what segments look the most attractive for your business.
Keep in mind, you do not need to be an expert, but you do need to be able to admit that you may be doing things wrong and try to improve on those areas. Typically, for most businesses, market segmentation and research is one of those areas.
This is just the beginning of an effective campaign. Once you’ve created segments, it’s time to move on and create a buyer persona . From there, you can look at targeting your potential customers in social media , and nurturing those leads into sales !
- Content Marketing
- Conversion Rate Optimization
- Email Marketing
- Lead Generation
- Mobile Marketing
- Online Marketing
- Pay Per Click
- Repurposing Content
- Reputation Management
- Search Engine Optimization
- Social Media Marketing
4 Types of Market Segmentation: Real-World Examples & Benefits
Published: Dec 6, 2022
Updated: 12/12/2022
Market segmentation is the foundation of any successful long-term marketing strategy.
To get maximum value from your marketing budget, get to the heart of your customers’ shopping motivations by splitting your market into subgroups – then you’ll be in a stronger position to serve your customers’ unique needs.
According to research from SALESmanago , 77% of marketing ROI comes from segmented, targeted and triggered campaigns. So, if your marketing campaigns are falling flat, do more market research to understand what makes your customers tick across each segment.
One of the reasons market segmentation techniques drive more revenue for your business is because they can help you deliver personalized customer experiences. That’s why the best personalization tools let you segment your audience so you can:
- Drive more email and SMS leads
- Lift website conversion rates
- Improve average order values
- Increase customer lifetime value
In this blog, I’ll walk you through the four main types of market segmentation:
1. Demographic
2. Psychographic
3. Geographic
4. Behavioral
And I’ll also cover:
Transactional segmentation
Technographic segmentation, generational and life stage segmentation, firmographic segmentation.
- 8 benefits of market segmentation
What is market segmentation?
Market segmentation is a technique you can use to divide your customer base into subgroups based on shared characteristics, such as age, income, hobbies and location. The aim of segmentation is to tailor marketing efforts to your ideal customer profile (ICP), i.e. the customers most likely to buy your product or service.
For example, a customer at an organic food shop is likely to have some or all of these characteristics:
- Gender: Male or Female
- Income: $100,000+
- Life stage: Home owner, no children
- Interests: Healthy eating, sustainability, sport
Rather than wasting your budget on campaigns that target a broad section of the market, use messaging that resonates with a market segment made up of customers with those attributes. You should also consider which channels are likely to drive the highest engagement.
For this hypothetical organic food shop, a Pinterest campaign marketing products with sustainable ingredients would be a strategic way to appeal to potential customers. Why Pinterest and not another social channel? Well, not only do 9 out of 10 Pinners browse the social media platform for purchase inspiration, it’s also used by up to 80% of Millennial women and 40% of Millennial men.
Why is a market segmentation strategy important?
According to Bain and Company , businesses that tailor strategies to customer segments generate yearly profit growth of 15% vs 5% for businesses that don’t. In short, market segmentation can drive significant growth.
Segmentation techniques are major profit drivers because they help you define your target market and qualify customers as users of your product or service. You can then provide the personalization that 73% of shoppers now expect from brands – sending the right message, through the right channel, at the right time.
Market segmentation also helps you to:
- Enter new markets
- Build products that solve customer pain points
- Streamline sales processes
- Drive more revenue from email marketing
- Drive more revenue from social media marketing
- Increase customer retention
4 Key market segmentation types & examples
1. Demographic segmentation: The who
Widely used by D2C ecommerce brands, demographic segmentation is one of the most simple yet effective kinds of segmentation. You can use demographic segmentation to split your audience and create customer personas based on objective information, such as:
- Level of education
- Profession/role in a company
For example, if you segment your audience based on your customers’ income, you can target them with products that fall within the constraints of their budget. If you’re a small business or new to ecommerce, this is a straightforward type of segmentation with three key advantages:
- It’s easy to collect information
- It’s simple to measure & analyze
- It’s cost-effective
Luxury goods manufacturer Montblanc worked with Yieldify to present a selection of offers across their website. They lifted conversions by 118% with a Father’s Day deal offering a free gift to customers spending over £200 – a threshold that took the spending expectations of Montblanc’s target audience into account.
2. Psychographic segmentation: The why
Psychographic segmentation is the process of grouping people together based on similar personal values, political opinions, aspirations and psychological characteristics.
For example, you can group customers according to their:
- Personality
- Social status
- Opinions
- Values and beliefs
Because these characteristics are subjective, psychographic is a harder segment to identify – but it’s also the most valuable. The best places to gather data for psychographic segmentation are through your audience analytic tools and social media, but you should also use surveys, interviews and focus groups to strengthen your customer understanding in this segment.
Through psychographic segmentation, you can get a deep insight into your customers’ likes, dislikes, needs, wants and loves. You can then create marketing campaigns that resonate with their psychographic profile.
Yieldify’s personalization technology helps you create on-site experiences that capture more psychographic information about your customers. For example, Heidi, a leading online travel agency, collected information about their customers’ preferred skiing style with layered lead capture experiences.
3. Geographic segmentation: The where
Geographic segmentation is the process of grouping customers based on where they live and where they shop. People who live in the same city, state or zip code typically have similar needs, mindsets and cultural preferences.
The real advantage of geographic segmentation is it provides an insight into what your customers’ location says about a number of geo-specific variables, such as their:
- Climate
- Culture
- Language
- Population density – (urban vs rural)
As with all market segmentation methods, you’ll need to analyze your data to understand how each factor influences your customers’ shopping behavior. For example, people living in colder climates are likely to be in the market for winter clothing and home heating appliances.
You can also use geographic segmentation to solve practical problems. With Yieldify, global fashion brand Nautica used geo-targeting to show different customers when they could guarantee Christmas delivery. Customers in rural areas had to order earlier than urban areas, so Nautica’s delivery countdown timers adapted according to the customer’s location.
4. Behavioral segmentation: The how
Behavioral segmentation is the process of grouping customers based on common behaviors they exhibit when they interact with your brand.
For this type of segmentation, you can group your audience based on their:
- Spending habits
- Purchasing habits
- Browsing habits
- Interactions with your brand
- Loyalty to your brand
- Product feedback
Gather this objective data through your website analytics and you can identify patterns in your customers’ behavior that help predict how they’ll interact with your brand in the future.
Then you can leverage this hypothesis to provide personalized recommendations that address your customers needs. For example, Spotify provides its users with curated daily mixes based on the types of genres and artists they’ve listened to previously.
At Yieldify, we use behavioral segmentation to deliver highly relevant and targeted campaigns based on behaviors including:
- Number of sessions to your website
- Number of pages visited
- Time spent on site
- URLs visited
- Page types visited
- Exit intent
- Shopping cart value
- Campaign history
- Referral source
For example, Petal & Pup tailor their email lead generation messaging for visitors arriving from Facebook.
Other types of market segmentation with examples
Demographic, psychographic, geographic, and behavioral are the four pillars of market segmentation, but consider using these four extra types to enhance your marketing efforts.
Technographic segmentation groups people based on the technology they use and how they interact with it. For example, you could segment early adopters of new tech and target them when you launch a new product to market.
Alternatively, you could present customers with deals depending on what device they use to shop online. For example, you could show Apple products to consumers who use Safari.
Generational segmentation expands on demographic segmentation by grouping customers based on their generation – Boomers, Gen Z, Millennials, etc.
You can also segment customers by factors including marital status, home ownership and number of children.
For example, Bank of America successfully incorporated life stage segmentation in their digital marketing strategy. They invited customers using their Family Life Banking program to specify their life stage circumstances when they signed up. From there, they directed customers to a microsite designed specifically for that segment.
Using transactional segmentation you can group customers based on their previous purchase interactions with your brand, including:
- Source of brand discovery – e.g. social media, organic
- Date of most recent order
- Total number of transactions
- Average order value
Most of the market segments I’ve discussed focus on D2C brands, but firmographic segmentation is a tool B2B companies use to create more impactful marketing campaigns.
Firmographic segmentation is the process of analyzing and classifying B2B customers based on shared company characteristics, and is similar to how D2C marketers use demographic segmentation.
Use these 7 factors to create firmographic customer segments:
- Company size
- Number of employees
- Performance
- Executive title
- Sales cycle stage
8 Benefits of Market Segmentation
1. better roi from marketing.
According to research from SALESmanago , 77% of marketing ROI comes from segmented, targeted and triggered campaigns.
2. Set your omnichannel strategy
The deep insights you glean from a strong market segmentation process will help you set an omnichannel strategy that better addresses your customers’ needs. For example, if a high percentage of your customers are from Gen Z, tailor your messaging across all channels to speak to their cultural and social reference points.
3. Build customer loyalty
Market segmentation helps you build the personalized journeys your customers are craving. According to Accenture , 79% of consumers are more loyal to brands that use personalization tactics.
4. Reach new markets
Segmentation helps brands identify gaps in the market. For example, world-renowned camera company Canon took a 40% share in the low-end digital camera market by spotting an opportunity to sell cameras to children without smartphones.
5. Reduce customer acquisition costs
The insights you glean from creating segmented customer personas will make your marketing campaigns more effective. That can be said for both D2C and B2B brands.For example, insurance giant Metlife set annual savings targets of $800 million after streamlining its sales process to consider the behaviors and attitudes of each customer segment.
6. Build better products
With a clearer understanding of who your customers are, you can create products that better serve their needs, desires and expectations.
7. Higher quality email & SMS leads
You’re more likely to get leads into your email and SMS databases by adapting your opt-in form according to customer segments. With Yieldify, American footwear company Rockport drove 30% more revenue per lead using a segmented approach to lead capture.
8. Drive more revenue from email marketing
Marketers have increased open rates by 14.3% and revenue by up to 760% using segmented email campaigns.
Build your own market segmentation strategy
I hope this blog has given you a clear understanding of how you can use market segmentation tactics to optimize your market strategy. If you want more information about how you can leverage market segmentation on your ecommerce website, check out this page on Yieldify’s audience segmentation capabilities.
Market Segmentation FAQs
Market segmentation is the process of dividing the market into subsets of customers who share common characteristics. The four pillars of segmentation marketers use to define their ideal customer profile (ICP) are demographic, psychographic, geographic and behavioral.
The four main types of market segmentation are: 1. Demographic 2. Psychographic 3. Geographic 4. Behavioral
Market segmentation helps you qualify customers of your product or service and serve them with more personalized marketing campaigns that speak to their unique needs. A good market segmentation strategy will help you: – Drive more marketing ROI – Reach new markers – Cut customer acquisition costs – Build better products – Increase brand loyalty
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What Is Market Segmentation?
- How It Works
- Determining Your Market Segment
- Limitations
- Market Segmentation FAQs
The Bottom Line
Marketing Essentials
Market Segmentation: Definition, Example, Types, Benefits
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Market segmentation is a marketing term that refers to aggregating prospective buyers into groups or segments with common needs and who respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.
Key Takeaways
- Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
- Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
- Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
- With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
- Market segmentation can also increase a company's demographic reach and may help the company discover products or services they hadn't previously considered.
Market Segmentation
Understanding market segmentation.
Companies can generally use three criteria to identify different market segments:
- Homogeneity , or common needs within a segment
- Distinction , or being unique from other groups
- Reaction , or a similar response to the market
For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.
Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).
Market segmentation allows a company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).
Types of Market Segmentation
There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment. Therefore, below are five common types of market segmentation.
Demographic Segmentation
Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.
Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.
Firmographic Segmentation
Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .
Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed fee, more simple product.
Geographic Segmentation
Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.
Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.
Behavioral Segmentation
Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.
Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.
Psychographic Segmentation
Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This may be more difficult to achieve, as these traits (1) may change easily and (2) may not have readily available objective data. However, this approach may yield strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points.
Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.
Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits (i.e. how innovative or risk-favorable a customer is).
How to Determine Your Market Segment
There's no single universally accepted way to perform market segmentation. To determine your market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.
Phase I: Setting Expectations/Objectives
- What is the purpose or goal of performing market segmentation?
- What does the company hope to find out by performing marketing segmentation?
- Does the company have any expectations on what market segments may exist?
Phase 2: Identify Customer Segments
- What segments are the company's competitors selling to?
- What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
- What data do we want to collect, and how can we collect it?
- Which of the five types of market segments do we want to segment by?
Phase 3: Evaluate Potential Segments
- What risks are there that our data is not representative of the true market segments?
- Why should we choose to cater to one type of customer over another?
- What is the long-term repercussion of choosing one market segment over another?
- What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?
Phase 4: Develop Segment Strategy
- How can the company test its assumptions on a sample test market?
- What defines a successful marketing segment strategy?
- How can the company measure whether the strategy is working?
Phase 5: Launch and Monitor
- Who are key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
- What barriers to execution exist, and how can they can be overcome?
- How should the launch of the marketing campaign be communicated internally?
Benefits of Market Segmentation
Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include;
- Increased resource efficiency. Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad reach approach.
- Stronger brand image. Marketing segment forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, a company's branding and messaging is more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
- Greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that you land the right client that fits your product line and demographic.
- Stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they way to convey to the market and to competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
- Better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort towards specific ages, locations, or habits via social media.
Market segmentation exists outside of business. There has been extensive research using market segmentation strategies to promote overcoming COVID-19 vaccination hesitancy and other health initiatives.
Limitations of Market Segmentation
The benefits above can't be achieved with some potential downsides. Here are some disadvantages to consider when considering implementing market segmentation strategies.
- Higher upfront marketing expenses. Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.
- Increased product line complexity. Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This has the downside risk of creating an overly complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.
- Greater risk of misassumptions. Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations within individuals of a given population.
- Higher reliance on reliable data. Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends and when market segments may have shifted from prior studies.
Examples of Market Segmentation
Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.
Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.
A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.
Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.
Why Is Market Segmentation Important?
Market segmentation realizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.
What Are the Types of Market Segmentation?
Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how the particular group stands apart from others, and reaction, or how certain groups respond to the market.
What Are Some Market Segmentation Strategies?
Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.
What Is an Example of Market Segmentation?
Upon analysis of its target audience and desired brand image, Crypto.com entered into an agreement with Matt Damon to promote their platform and cryptocurrency investing. With backdrops of space exploration and historical feats of innovation, Crypto.com's market segmentation targeted younger, bolder, more risk-accepting individuals.
Market segmentation is a process companies use to break their potential customers into different sections. This allows the company to allocate the appropriate resource to each individual segment which allows for more accurate targeting across a variety of marketing campaigns.
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- Week 5.1 Types of Marketing Research
- Week 5.2 Marketing Research - Problem Definition
- Week 5.3 Formal Research Design
- Week 5.4 Data Collection, Analysis, and Conclusions
- Week 6.1 Market Segmentation
- Week 6.2 Steps of Segmentation
- Week 6.3 Product Positioning and Sales Forecast
- Week 7.1 New Product/Service Development
- Week 7.2 Product Life Cycle
- Week 7.3 Branding
- Week 7.4 Packaging and Labelling
- Week 8.1 Seven Ps of Service
- Course Schedule
- Contact Information
- Course Description and Learning Outcomes
- Grade Breakdown
- About the Course Author
- Materials and Resources
- Credits and Copyright
- Course and Department Policies
- University Policies
- Territorial Acknowledgement
- Activities and Assignments
- Introduce Yourself
- Case Study Videos
- Podcast Discussions
- Group Marketing Plan Project
- SmartBook Practice Quizzes
- Submitting to a LEARN Dropbox
- Module 1-Week 1: Introduction to Marketing
- Module 1-Week 2: Marketing Strategy
- Module 1-Week 3: External Analysis
- Module 1-Week 4: Consumer Behaviour
- Module 2-Week 5: Marketing Research
- Module 2-Week 6: Target Market Selection
- Module 2-Week 7: New Product Development, Product Life Cycle, and Branding
- Module 2-Week 8: Seven Ps of Service
- Module 3-Week 9: Pricing Stategies
- Module 3-Week 10: Marketing Channels and Supply Chains
- Module 3-Week 11: Developing Promotional Mix
- Module 3-Week 12: Advertising, Sales Promotions, Public Relations, and Green Washing
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Week 6.2 Steps of Segmentation
Identifying the target market starts with segmentation. Once you understand your customers and are able to segment the market, you can identify the target market with the most potential. There is a process of segmenting the market and then selecting and reaching the target segments. The process has five steps as shown in the figure below.
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Step 1: Group Potential Buyers into Segments
There are five main criteria to use when forming the segments:
- Potential for increased profit: Segmentation is costly. Businesses apply segmentation only if it will lead to higher profits. If there is no chance of increasing profits, then there is no need for segmentation.
- Similarity of needs of potential buyers within a segment: Potential consumers who are in the same segment must share similar needs and wants. Businesses take marketing actions towards each segment and they expect to get the same reaction from the consumers who are in the same segment.
- Difference of needs of buyers among segments: Potential consumers who are in different segments must have different needs and wants. If they share similar needs and wants, they should be in the same segment. Different segments require different marketing actions, which means greater costs. It helps to lower the costs if the firm combines the segments that are not significantly different so that it reduces the number of marketing actions.
- Potential of a marketing action to reach a segment: Reaching a segment requires effective marketing actions. If the actions are very complicated or impossible to take then there is no point in segmentation.
- Simplicity and cost of assigning potential buyers to segments: As mentioned earlier, segmentation is costly. It requires research to identify specific needs of potential buyers. If the research shows the needs are very diverse and that trying to segment will lead to so many micro segments to which it will be very costly to reach out then there is no point in segmentation.
When segmenting, we can pick from many segmentation variables. There are four main dimensions of segmentation: Geographic, demographic, psychographic, and behavioural segmentation. The table below shows these dimensions and the variables corresponding to each dimension.
Concept Check Question:
Which of the following statements is false regarding segmentation?
Step 2: Group Products to be Sold into Categories
Businesses pay close attention to the differences in the needs of consumers in each segment. In order to address the needs in the best way possible, businesses create differentiated products. These products could be different based on the features of the product, pricing, distribution, etc. As you have learned, companies have full control over the marketing mix elements (4Ps) which allows them to create different mixes of the 4Ps to create differentiated products.
Segmentation and green consumerism
It is very common to apply demographic segmentation, or segmenting a market based on population characteristics. However, there are many other variables that could be used, as you have seen in the chart above.
In addition to the variables listed so far, there is also segmentation based on environmental friendliness. Companies with a green focus pay attention to segmentation aligned with consumers’ environmental orientation.
One important point is that segmentation can be done using a combination of different variables rather than just a single variable. Using a single variable is also fine but in many cases a single demographic variable may not be sufficient in understanding and segmenting a given market. As a result, marketers combine a number of variables that might be relevant to their target market.
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Example: Cosmetics companies, such as Clinique, combine many variables in their segmentation, specifically gender, income, and occupation. These variables help to distinguish segments for different lines of cosmetic products.
Step 3: Develop a Market-Product Grid and Estimate Size of Markets
You have seen an example of a market-product grid from Sleep Country. Below is an additional example from a fast food restaurant that is located next to an urban university. We label the market segments in the horizontal rows and products in the vertical columns as shown in the table below. The market sizes are estimates from zero to three. Zero means no potential. One represents small potential. Two represents medium size potential. Three shows the most potential.
The blue-shaded area in the table shows the target markets. The reason behind the selected target market is coming from the potential market size estimates. There is almost no potential for breakfast. For that reason, the restaurant decided not to serve breakfast at all. The non-student segment is also eliminated from the target market due to lower potential compared to the student segment. The restaurant still serves non-students but all marketing activities are directed towards students since they are promising the highest market size estimates.
Step 4: Select Target Markets
Once you develop a market-product grid, it is fairly easy to identify the target market from the grid based on the highest market size estimates.
The grid is the tool to use when selecting a target market.
Concept Check Questions:
1. The first step in segmenting and targeting markets that link customer needs to marketing actions is to
2. In a market-product grid, what factor is estimated or measured for each of the cells?
Step 5: Take Marketing Actions to Reach Target Markets
Identifying target markets makes it possible to take actions towards the segments we include in the target market. Based on the characteristics of each segment, marketers decide on the best tools to reach out to these segments. We will cover promotional strategies in future lessons.
Market Segmentation for Small Business
What is market segmentation and how your business can use it.
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Market segmentationis the process of dividing your target market into distinct groups of buyers that require different products or a different marketing mix . It is one of the steps that go into defining and targeting specific markets.
Businesses that target specialty markets will promote their products and services more effectively than a business aiming at the "average" customer. By using market segmentation to communicate more effectively with your customers, you can give your business the marketing edge over competitors.
Your business must analyze the needs and wants of different market segments before determining your own niche .
How to Divide a Market Into Segments
Your opportunities to effectively market your business increase when you recognize the different needs and wants of segmented customer groups. To be effective in market segmentation:
- Segments or target markets should be accessible to your business.
- Groups must be large enough to provide a solid customer base.
- Each segmented group requires a separate marketing plan.
You can divide your target market into segments using a variety of factors. The bases for segmenting consumer markets include:
- Demographic traits such as age, family size, life cycle, and occupation.
- Geographic location, including city, state, region, or country.
- Behavior , such as knowledge, product usage, or consumer attitudes.
- Psychographic traits, including lifestyle, values, and personality.
Once you've identified your target market, you can break that audience down into smaller groups based on these factors.
How to Determine Your Segmentation Groups
When you create a detailed description of your ideal customer , you are likely to find that you need more than one persona to really identify the segments you are targeting. The following questions can give you a starting point for defining your customer segments and learning how to reach them.
- Who are your highest and lowest value customers in terms of revenue and profitability?
- What commonalities do you see in the consumers you are targeting?
- What groups can you divide customers into based on demographic information, income, or location?
- What interests do your customers have in common?
- What values do your customers have in common?
- Are there patterns in your customers' behavior?
- Do they make their purchases online or in stores?
- How knowledgable are customers about your industry, products, or services?
- Do they require a consultation before purchase or is the purchase strictly transactional?
- Are customers more likely to be satisfied with a purchase or want to exchange/return products?
The more you understand both your current and prospective customers, the better you can segment . Similarities can be broad factors like customers' age or income; they can also be as granular as where customers shop, where they research information, and how they found out about your business.
Does Market Segmentation Require Research?
Large companies often segment their markets by conducting extensive market research. This research can be too expensive for small businesses to invest in, but there are alternative ways for a small business to practice market segmentation.
To effectively segment your market without investing in private market research, you can learn about your customers through:
- Data from trade and association publications.
- Consumer behavior reports from research firms.
- Publicly published research and qualitative studies.
- External measurement services.
- Watching and imitating your competitors' marketing.
- Talking to key trade buyers about new product introductions.
There are many reasons for dividing a market into smaller segments. Any time you suspect there are significant, measurable differences in your market, you should consider market segmentation. Segmentation will make your marketing easier, reveal new niche markets to reach, and help you use your marketing resources as efficiently as possible.
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