Market Segmentation: Types, Examples, and Strategies

Market segmentation is a crucial component of any successful marketing strategy. Why? Well, just think about your own target market.

Hopefully, everyone in your target market has an interest in your products or services. But are all of your potential customers the same age, sex, or located in the same region? Do they have the same income and education levels? Do they all have the same pain points, needs, or desires?

If your market is like most, your target audience includes a large variety of potential customers. Because of this, a strategy that doesn’t take into consideration the diversity of characteristics within the target market runs the risk of missing the mark more often than not.

As expert marketer Seth Godin said, “Your customer isn’t ‘Everyone’.” You need to get specific about who you’re communicating with when it comes to your marketing. This is where a market segmentation strategy comes into play.

What Is Market Segmentation?

A market segment is a group of individuals within a larger target market who share a particular set of characteristics. Most target markets will have a number of different market segments, or groups that share similar traits.

For example, if we were to look at the athletic footwear market, we’d discover a variety of different segments:

One segment might be made up of true athletes who are training hard in the gym every day
Another segment may be looking for a comfortable pair of shoes to wear when walking their dog
Some customers may be interested in style to impress others in their social group
Others might be looking for stability to reduce pain and prevent falls

The high school basketball player and retired grandmother both have an interest in athletic sneakers, but for very different reasons. Each segment represents customers with different characteristics, desires, needs that will influence their experience when shopping for, purchasing, and using the product.

What Is Market Segmentation and Why Is It Important in Marketing?

Segmentation is the process of taking a broad market and breaking it into various groups (A.K.A. segments) according to specific characteristics, desires, or needs.

Take a brewery for example, their broad target market consists of customers who want to drink good beer and eat pub style food. When looking at the broad target market, however, many segments exist inside of the market.

They might identify a segment that eats vegetarian, one that wants to drink IPAs, one that wants to spend less and drink more, one that prefers clever names for the beers, and one that likes to bring their whole family out for dinner.

So, why is segmentation important for marketing teams? Well, understanding segments can help in a few ways. To summarize, we can say it like this:

Segmentation helps marketers make the right offers to the right customers with the right message.

Returning to our brewery example, let’s say the marketing team identified a valuable segment of their market made up of families with high incomes and young children. The marketing team might try to draw this audience toward their business by focusing their marketing efforts on this particular segment.

For example, the marketers might create an offer for a kids meal or add some outdoor seating with a small playground set for kids. They’d place their advertisements in places where parents will see them, and in their messages, they’d focus on the family friendly atmosphere and might show images of families eating out.

Common Types of Market Segmentation

There are endless ways to segment any market. When it comes to your unique target market, you should define how you want to segment based on your unique needs and goals.

Getting creative with your segmentation can help you unleash new value in your market, but if you’re looking for some quick criteria, these types of segmentation are sure to be useful:

Geographic segmentation: Where is your audience located geographically? Do they live in the city or in a rural area? What languages do they speak?
Demographic segmentation: What are the age groups, religions, sexes, income levels, education levels, or family sizes?
Psychographic segmentation: What lifestyles, interests, hobbies, opinions, or influencers define your audience?
Behavioral segmentation: Where are audience members at in their buyer journey, what brand loyalty traits do they possess, what price sensitivity exist, what’s the purchasing style, and how high is their usage rate based on behavior?
Media preference segmentation: What social media platforms, television networks, newspapers, search engines, and other media outlets does the audience engage with?
Benefit segmentation: What do audience members hope to get out of the offering? What are their desires, pain points, and needs?

B2B Market Segmentation & Firmographics

Segmentation for B2B (Business-to-business) marketers differs from the kind of segmentation B2C (business-to-consumer) marketers do. While B2C customers focus on the characteristics of their individual customers, B2B marketers focus on firmographics and business needs.

Firmographics are characteristics of a business organization that can be used as criteria for segmentation. Instead of using Demographics, psychographics, or behaviors like B2C marketers, B2B marketers might focus on other criteria such as:

Industry
Number of employees
Location
Revenue
Purchasing power
Customer lifetime value
Customer profitability
Product usage

In order to make effective marketing decisions, B2B marketers also need to understand the buying process and decision making criteria within the businesses. This will ensure the marketing experience is designed specifically for the business they’re approaching.

A 4-step Market Segmentation Strategy & Market Segmentation Example

When it comes to segmenting your audience to prepare for a targeted campaign, intuition and luck will only take you so far. Businesses that have the most success with customer segmentation have a clear strategy in place.

Before we get into the hands on work of developing a strategy, let’s try to come up with a definition for Market Segmentation Strategy. A working definition might go something like this:

A market segmentation strategy is the process through which you identify, organize, research, and target a specific segment of a broad target market.

Built into this definition, we can pull out a four step process for developing a segmentation strategy.

Identify the major segments inside your broad customer base—In this step, you’ll do some broad market research to uncover what kinds of characteristics, desires, and needs exist within your target market.

Organize the audience into segments—Here, you’ll define your segments based on various features and characteristics within your market.

Research and choose a segment—Then, you’ll do some deeper research on each segment to figure out which you’d like to focus on in your marketing campaign.

Create offers, craft messaging, and choose venues—Based on your research, you’ll create offers for the segment you want to target, craft the messaging you’d like to approach them with, and figure out what venues will provide the most exposure for your target segment.

Let’s walk through each step and use the Demographics and Audience Overlap dashboards to uncover potential market segments.

Identify Your Market’s Major Segments

The broadest level of your market segmentation strategy is the identification process. Here, you’re exploring your broad market to better understand what groups exist within your target market. There are many ways to do this, including:

Government data sources
Publicly available data or reports from research firms
Website analytics
Social media platforms
Market research software

For this example, we entered nike.com into the Demographics dashboard and selected adidas.com and puma.com to define the market.

Looking at the Demographics dashboard, we discovered that the main segment of the audience for these domains is men aged 25 to 34.

Here, we can see where the majority of the audience exists in terms of age and sex. We can also uncover difference among our chosen brands, for example, it appears puma.com has a higher than average audience segment in the 25-34 segment and has higher than average female representation in their audience.

We can also scroll down inside the Demographics report to look at geographic data for our chosen domains which will show us where audiences are located.

For nike.com, it looks like the United States, the United Kingdom, and Germany are the leaders in terms of audience. If we wanted to look deeper into the United States, we could turn to the U.S.A. dashboard for state by state data.

Organize the market into segments

Based on the data we gathered in the last section, we can pull out at least three segments of our market we might target in a future marketing campaign. Here are three options:

Females aged 25-34 living in California and prefer Puma sneakers
Males aged 45-54 who live in Texas and prefer Nike sneakers
Males aged 18-24 who prefer Adidas sneakers and live in Florida

After doing some deeper research on your identified segments, you’ll want to choose the segment you want to target in your marketing campaign. The segment you choose to target will depend on your resources and your goals.

When choosing a particular segment, you may want to consider:

Size—Is it large enough to support your goals?
Growth potential—Is the segment going to grow in the future in size or purchasing power?
Purchasing power—Will the segment have the resources to purchase your product?
Needs and wants—Is the segment’s needs and wants aligned with what you have to offer?
Competition—What is the level of competition within the segment? Are you able to differentiate your product?

The Hooley’s Segment Attractiveness and Resource Strength Framework

The Hooley’s Segment Attractiveness and Resource Strength Framework is another way to identify which segment is the best choice for your next campaign. The framework helps you identify the most attractive market segments and your ability to compete for those segments.

The framework consists of two dimensions: segment attractiveness and resource strength.

The segment attractiveness dimension evaluates the potential of a particular market segment, while the resource strength dimension evaluates a company’s ability to compete in that segment.

Segment attractiveness is evaluated based on the following criteria:

Market size and growth potential
Profitability and potential returns
Competitive intensity and rivalry
Entry barriers and ease of entry
Customer needs and wants
Compatibility with the company’s mission and values

Resource strength is evaluated based on the following criteria:

Financial resources
Marketing capabilities
Human resources and skills
Technological capabilities
Distribution and supply chain capabilities
Brand equity and reputation

With this data, you can weigh the potential of various segments to figure out which are the best, which need improvement, which are poor prospects, and which are your worst prospects.

Create offers, craft messaging, and choose advertising venues

After making a final decision on which segment to target, you’ll need to decide how to design your offers, how to communicate with the audience, and where to share your messages so they reach your desired audience.

When it comes to designing your offers, think about the segment’s major pain points and their biggest desires. Are they tight on disposable income? Do they want something to do with their kids? Are they looking for something practical or are they seeking leisure?

These kinds of questions will help you think about what kind of offer to make to gain their interest.

When developing your messaging, use language that the segment uses in their daily lives. For instance, you may want to avoid slang or trendy language with an older audience. If your advertising contains images or sounds, make sure they resonate with the segment’s everyday experience.

Finally, choose advertising venues where your audience segment spends their time. One way to do this is with the Also Visited table in the Audience Overlap dashboard.

Let’s say we wanted to run some voice ads on music streaming websites. We could filter the Visited Domains table to show only music-based domains. Here’s a look at the top visited domains in the music category among our chosen shoe brands.

If we wanted to run ads for our shoes, we might look to these three domains as audiences for the chosen shoe brands also spend time here.

Think Long Term with Your Market Segmentation Strategy

Audience segmentation is a powerful tool that can help you improve your marketing plan and more effectively reach your target audience. By breaking your market into smaller, more specific groups based on key characteristics, you can create more relevant and personalized marketing campaigns.

It’s important to remember as you move toward the future that markets change and audiences evolve. Because of this constant change, it’s important to return to your segmentation strategy on a regular basis to make sure you’re still speaking to your audience’s needs. This will allow you to build longer and stronger relationships with your customers, increase engagement, and ultimately drive sales.