Market Segmentation: Definition, Types & Best Practices (2023)

The basics of segmentation

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

DefinitionClassification based on individual attributesClassification based on company or organisation attributesClassification based on attitudes, aspirations, values, and other criteriaClassification based on behaviors like product usage, technology laggards, etc.
ExamplesGeography Gender Education Level Income LevelIndustry Location Number of Employees RevenueLifestyle Personality Traits Values OpinionsUsage Rate Benefit Types Occasion Purchase Decision
Decision CriteriaYou are a smaller business or you are running your first projectYou are a smaller business or you are running your first projectYou want to target customers based on values or lifestyleYou want to target customers based on purchase behaviors
DifficultySimplerSimplerMore advancedMore advanced

Types of market segmentation

With segmentation and targeting, you want to understand how your market will respond in a given situation, like purchasing 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 tosurvey questions.

Demographic segmentation

Demographic segmentationsorts a market by elements such as age, education, income, family size, race, gender, occupation, and nationality. Demographic is one of the simplest and most commonly used forms of 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.

Geographic segmentation

Geographic segmentationcan be a subset of demographic segmentation, although it can also be a type of segmentation in its own right. 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.

Firmographic Segmentation

Firmographic Segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organisations. 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.

Behavioural Segmentation

Behavioural Segmentation divides markets by behaviours 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 behaviours enables marketers to develop a more targeted approach, because you can focus on what you know they, and are therefore more likely to buy.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behaviour 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 get started with segmentation

There are five primary steps to segmentation:

  1. Define your market:Is there a needfor your products and services? Is the market large or small?Where does your brand sitin the current marketplace?
  2. Segment your market: Decide which of the five criteria (demographic/firmographic, psychographic, geographic or behaviour) you want to use to segment your market. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one and find what works best.
  3. Understand your market: You do this by conductingpreliminary 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) andqualitative(open-ended for open text responses) questions.
  4. Create your customer segments:Analyse the responsesfrom your research to highlight which customer segments are most relevant to your brand.
  5. Test your marketing strategy: Once you have interpreted your responses, test your findings on 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.

Market segmentation strategy

Why should market segmentation be considered a strategy?A strategyis a considered plan that takes you from point A to point B in an effective and useful way. Market segmentation 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 howthe 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 collections.

If your customers change, then 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 on year as customers are affected by external factors that could alter their behaviour 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 in the Spring, the same market segments may have different characteristics at a different time of the year.

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 too (back home for the holidays). Knowing this information can help you predict and prepare for this period.

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

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

Market segmentation use case examples

Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built in 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 andopportunities 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, orbehaviour preferences.

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

Customer needs research

When you know a lot about your customers, you can understandwhere your business is connecting wellwith 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 the 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 and how they live their lives, it’s easier to know what products will enrich or enhance their day to day.

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

Campaign optimisation

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

If the campaigns are combined with strong calls to action, the marketing campaigns will be a powerful tool that drives your target market segments towards your sales channels.

Ensuring effective segments

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

  • Measurable: Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product.For example, one of your segments may be those 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 behaviour 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 have 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 realise that segmenting based on behaviours doesn’t give you actionable segments, but behaviour 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 organisations.

Common segmentation errors

We’ve outlined thedo’s, so here are some of thedont’s:

  • Avoid making your segments too small orspecialised: 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, toget automated from the beginning. Forget spreadsheets – choosemarket segmentation softwareto measure and streamline your marketing strategy; as you grow, the technology will scale with you.

Innovative features such asXM Directory allow you to build your own customer segments and start personalising 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 ourMarket Segmentation Research service.

  1. Demographic
  2. Psychographic
  3. Geographic
  4. Behavioural
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What are the 4 types of market segmentation? ›

Demographic, psychographic, behavioral and geographic segmentation are considered the four main types of market segmentation, but there are also many other strategies you can use, including numerous variations on the four main types.

What is market segmentation and its types? ›

Market segmentation is the process of dividing a broad population into subgroups according to certain shared factors. These groups may have common demographics (age, gender, etc.), geographic location, attitudes, behaviors, or a combination of similar characteristics. A consumer may belong to multiple market segments.

What is the best definition of segmentation? ›

Segmentation is the process of dividing a company's target market into groups of potential customers with similar needs and behaviours. Doing so helps the company sell to each customer group using distinct strategies tailored to their needs.

What is market segmentation PDF? ›

Market segmentation is the actual process of identifying segments of the market and the. process of dividing a broad customer base into sub-groups of consumers consisting of. existing and prospective customers.

What are the 5 benefits of market segmentation? ›

The major 5 benefits of market segmentation are Determining market opportunities, Adjustments in marketing appeals, Developing marketing programs, Designing a product, Media selection which is the major and the most important of them all.

What is market segmentation and its importance? ›

Segmentation helps marketers to be more efficient in terms of time, money and other resources. Market segmentation allows companies to learn about their customers. They gain a better understanding of customer's needs and wants and therefore can tailor campaigns to customer segments most likely to purchase products.

Why is market segmentation important? ›

The goal of market segmentation is to help businesses understand distinct groups of consumers that make up their market. By grouping people with similar characteristics and attributes, marketers can effectively target the segments that are most valuable to their business.

What is basis of market segmentation? ›

There are three main types of segmentation bases. Each works well with different businesses and industries, so it's essential to consider your options before deciding on the best for your needs. The three main types of market segmentation are demographic, psychographic, and behavioral.

Who is the father of segmentation? ›

The father of market segmentation is widely considered to be Wendell Smith (1956) who proposed market segmentation as an alternative to product differentiation.

What is the best segmentation strategy? ›

Target market segmentation based on demographics can be one of the most effective ways to target specific customers. The reason for this is because you can uncover the demographics of your audience easily.

What are the 6 segmentation methods? ›

This is everything you need to know about the 6 types of market segmentation: demographic, geographic, psychographic, behavioural, needs-based and transactional.

What are the 8 parts of marketing? ›

Start with a solid marketing plan with these 8 components:
  • Market Research. First, you need to understand the environment that you are selling in by using tools like a SWOT Analysis. ...
  • Target Audience. ...
  • Market Strategies. ...
  • Goals & Objectives. ...
  • Media & Tactics. ...
  • Budget and Action Plan. ...
  • Metrics. ...
  • Content Plan & Schedule.
30 Jan 2017

What are the 6 steps in segmenting a market? ›

These six steps will help you define market segments from scratch or re-draw existing segments with greater clarity.
  1. Spot Identifying Characteristics. How are your customers differentiated? ...
  2. Decide What Matters Most. ...
  3. Analyze Your Database. ...
  4. Research Prospects. ...
  5. Prioritize High-Value Segments. ...
  6. Tailor Your Approach.
31 Jan 2017

What is market segmentation by Kotler? ›

According to Philip Kotler, “Market segmentation is the sub-dividing of market into homogeneous subsets of customers, where any subset may conceivably be selected as a market target to be reached with a distinct marketing mix.”

What is strategic segmentation? ›

A marketing segmentation strategy further divides your target market into subgroups that are easier to manage. Knowing your target market is the first step in successfully selling your products and services, and one of the most important.

Who created market segmentation? ›

The expression “market segmentation” was first coined by Wendell R. Smith in his 1956 publication Product Differentiation and Market Segmentation as Alternative Marketing Strategies.

What are the characteristics of a market segment? ›

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

What are the 7 market segmentation characteristics? ›

It includes age, gender, family status, occupation, income, race and religion. Marketing to demographics enables you to better resonate with your customers. Geographics: Region, climate and population density are the key areas that affect your customers' needs with this type of segmentation.

What are the 3 components of a segmentation strategy? ›

Segmentation can be approached in three main ways: firmographic, behavioural and needs-based. Firmographic segmentation is by far the simplest, grouping customers by aspects such as age, gender, company size, industry vertical, income and location.

What are the types of market? ›

Types of the market:
  • Monopoly: A monopolistic market is a market formation with the qualities of a pure market. ...
  • Oligopoly: ...
  • Perfect competition: ...
  • Monopolistic competition: ...
  • Monopsony: ...
  • Oligopsony: ...
  • Natural monopoly:

What are the levels of segmentation? ›

There are 5 level of market segmentation which are as follows.
  • Mass Marketing.
  • Segment Marketing.
  • Niche Marketing.
  • Local Marketing.
  • Individual Marketing.

What is market segmentation age? ›

A demographic segmentation strategy in which a product-market is grouped into segments based on the basis of age so that the organisation can more precisely target its offerings to the needs and wants of each stage of life of interest to it.

What is segmentation also called? ›

segmentation, also called metamerism, or metameric segmentation, in zoology, the condition of being constructed of a linear series of repeating parts, each being a metamere (body segment, or somite) and each being formed in sequence in the embryo, from anterior to posterior.

Which are the important segmentation methods? ›

Demographic, psychographic, geographic, and behavioral are the four pillars of market segmentation, but consider using these four extra types to enhance your marketing efforts.

What is the most common segmentation method? ›

Common Approaches to Market Segmentation
  • Geographic: nations, states, regions, cities, neighborhoods, zip codes, etc.
  • Demographic: age, gender, family size, income, occupation, education, religion, ethnicity, and nationality.
  • Psychographic: lifestyle, personality, attitudes, and social class.
1 Dec 2021

What are the methods for segmentation? ›

4 Methods of Segmentation
  • Geographic Segmentation.
  • Demographic Segmentation.
  • Psychographic Segmentation.
6 Jul 2016

What are the 5 primary steps of segmentation? ›

The process of market segmentation consists of 5 steps: 1) group potential buyers into segments; 2) group products into categories; 3) develop market-product grid and estimate market sizes; 4) select target markets; and 5) take marketing actions to reach target markets.

What are the 5 segmentation categories? ›

The five types of market segmentation include:
  • Behavioral Segmentation.
  • Psychographic Segmentation.
  • Demographic Segmentation.
  • Geographic Segmentation.
  • Firmographic Segmentation.
16 Apr 2022

What are the 4Cs of marketing? ›

The 4Cs for marketing communications: Clarity; Credibility; Consistency and Competitiveness. What is it? The 4Cs (Clarity, Credibility, Consistency, Competitiveness) is most often used in marketing communications and was created by David Jobber and John Fahy in their book 'Foundations of Marketing' (2009).

What are the 4 keys of marketing? ›

The four Ps of marketing is a marketing concept that summarizes the four key factors of any marketing strategy. The four Ps are: product, price, place, and promotion.

What are the 5 keys of marketing? ›

The 5 P's of marketing – Product, Price, Promotion, Place, and People – are a framework that helps guide marketing strategies and keep marketers focused on the right things.

What are the 10 steps of the marketing process? ›

10 steps to create a marketing plan for your company
  • Make a diagnosis of the company. ...
  • Analyzes the business environment. ...
  • Do a competitive analysis. ...
  • Define your audience and your ideal customer. ...
  • Define your positioning. ...
  • Set your goals. ...
  • Define KPIs. ...
  • Define your strategies.
8 Sept 2022

What are the 4 market segments and give an example of each? ›

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

What are the four 4 types of market and describe each? ›

In this article, we will discuss the four different types of market structures namely perfect competition, monopolistic competition, monopoly, and oligopoly.

What is the step 4 in segmenting markets? ›

Step 4: Select Target Markets

Remember that you are not identifying their current target market. Rather, you are developing the grid based on your market-product strategy and segmentation. group potential buyers into segments. group products to be sold into categories.

Is 4ps a market segmentation? ›

Today we will focus on the four Ps of Market Segmentation. The idea was established by Neal Borden in 1964. These 4 Ps should help you to identify who's attention you want to gain. Product, Price, Place, and Promotion.

Why is segmentation important? ›

Segmentation helps marketers to be more efficient in terms of time, money and other resources. Market segmentation allows companies to learn about their customers. They gain a better understanding of customer's needs and wants and therefore can tailor campaigns to customer segments most likely to purchase products.

What are the 5 market categories? ›

The five major market system types are Perfect Competition, Monopoly, Oligopoly, Monopolistic Competition and Monopsony.

What are the 4 main markets? ›

Economic market structures can be grouped into four categories: perfect competition, monopolistic competition, oligopoly, and monopoly.

What are the 4 S's of marketing? ›

Key Points

The 4s web marketing mix provides a high level model to help you with your online marketing plans. The 4S stand for: Scope, Site, Synergy and System. The Scope of your web marketing mix is the overall strategy that you have for this part of your operation.

What are segmenting methods? ›

There are four main customer segmentation models that should form the focus of any marketing plan. For example, the four types of segmentation are Demographic, Psychographic Geographic, and Behavioral. These are common examples of how businesses can segment their market by gender, age, lifestyle etc.

What are the characteristics of a good market segment? ›

Often companies offer multiple products that appeal to different market segments and let customers self-select.
Regardless of your approach, a useful segmentation should include these six characteristics:
  • Identifiable. ...
  • Substantial. ...
  • Accessible. ...
  • Stable. ...
  • Differentiable. ...
  • Actionable.
9 Jul 2014

What are the 5 steps in the STP process? ›

How to create an STP model for your business: Implementation strategy
  1. Step 1: Define your market. ...
  2. Step 2: Create audience segments. ...
  3. Step 3: Identify the more attractive segments. ...
  4. Step 4: Evaluate your competition. ...
  5. Step 5: Fix your positioning. ...
  6. Step 6: Determine your marketing mix.
9 Mar 2022

What is 4p and 4c in marketing? ›

The 4Ps of product, price, place, and promotion refer to the products your company is offering and how to get them into the hands of the consumer. The 4Cs refer to stakeholders, costs, communication, and distribution channels which are all different aspects of how your company functions.

What is marketing mix 7ps? ›

What started as the four Ps of marketing has quickly evolved into the seven Ps of marketing and includes product, price, promotion, place, people, process, and physical evidence.

Is marketing a 4p or 5p? ›

What are the 5 P's of Marketing? The 5 P's of Marketing – Product, Price, Promotion, Place, and People – are key marketing elements used to position a business strategically.


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