marketing segment of a business plan

The No-Nonsense Guide to Market Segmentation (With Tips and 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.

Nearly everybody in sales 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. 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. Unfortunately, it’s not that straightforward.

Building a sales process can be complicated. What one audience might find valuable might just be noise for another.

That’s where effective customer segmentation can bring in some serious value for your business. Different demographics respond differently to marketing campaigns, and finding the right target market for your products or services can help you tailor your marketing strategies to be the most impactful they can be.

This guide to marketing segmentation will help you find your target audience and choose the best market segmentation strategies.

What is market segmentation, what are the benefits of market segmentation, the 10 most common types of market segmentation.

Market segmentation strategies
How to do your own market segmentation

Frequently asked questions about market segmentation

Market segmentation in a nutshell.

Market segmentation is the process of qualifying companies (or people) into groups that respond similarly to specific marketing strategies. This is the first critical step in creating a marketing and sales process tailored to differentiate your business in the market and resonate across multiple demographics.

Market segmentation divides customers into segments based on shared characteristics, behaviors, or other attributes so you can create marketing strategies that appeal to entire groups. Your marketing segmentation strategy will be mainly influenced by what your product is and which types of companies are already buying it.

The history of 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 . 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. As time went on, more and more emerging brands began 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 .

market segmentation example of an ad for cigarettes from the 1970s

Market segmentation provides several benefits to small teams and enterprises alike, including:

Bang for your buck: 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: 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 the 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 that have something in common with your current markets.

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Market segmentation helps savvy marketers categorize their target customers based on shared characteristics to keep their efforts focused and effective. Below are the 10 most common types of market segmentation:

1. 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 market segmentation examples:

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 .
Commercials for vacation homes may target people across ages, genders, locations, and other demographics, but they all appeal to customers with disposable income who are interested in travel.

2. 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 market 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 introverts who would much rather snuggle up with a book than be surrounded by other people.

3. 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 market segmentation examples:

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.

4. Geographic segmentation

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.

5. Price segmentation

Price segmentation alters the price of similar products and services sold to different consumer groups. 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 market 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.
Even more granular: A marketing consultancy may base its prices entirely on the value it can generate for each of its client’s unique situations.

6. Firmographic segmentation

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 market segmentation examples:

Running different ads for different industries—real estate, finance, legal firms, etc.
A B2B sales team only targeting companies with revenues over $100m.

7. Generational segmentation

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.

Generational market 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.

8. 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 market 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.

9. Seasonal segmentation

Seasonal segmentation targets people based on their purchasing habits during certain periods of the year. It can include actual seasons (spring, summer, fall, winter), events (Coachella, Super Bowl), and holidays (Christmas, Mother’s Day).

Seasonal market segmentation examples

A local you-pick berry farm may want to target their ads based on the fruit in season.
A flower shop that specializes in same-day delivery may want to ramp up its ad spend around Mother’s Day targeting forgetful children.

10. 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 customer relationship management (CRM) platform, a website CMS, or a niche-specific software tool, utilizing technographic segmentation can help enhance sales and marketing efforts.

Technographic market segmentation examples

A company that develops WordPress plugins would have no business targeting companies that use a different CMS, like Wix.
It would make sense for a SaaS company to target businesses using an app it just integrated with.

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Market segmentation strategies (and their pros and cons)

Every market segmentation strategy is different but most of them follow one of two fundamental outlines:

1. Concentration strategy

Concentration strategy is when a company determines that its efforts are best focused solely on a single market segment. This strategy is particularly great for small, growing businesses that 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

2. 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.

Pros: Safer, appeals to more consumers, diverse marketing, high growth potential
Cons: Lower conversion percentages, greater marketing spend

How to do your own market segmentation in phases

Ready to complete market segmentation for your company? Here are three phases to follow during the process that will help you ensure you’re analyzing your markets effectively:

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 buy pre-made lead lists and others prefer to do their own research .

Two helpful methods of researching prospects are webforms and surveys. You can place high-quality data behind webforms that requires site visitors to submit their name, email address, and other information to access the content. Surveys can get specific information from potential buyers in exchange for tangible rewards, like a gift card or special offer.

If you’re doing your own research, 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 greater transparency on their websites, which makes reaching out to the correct person much easier.
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.
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.

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Phase 2: Sort the data into segments

There are many ways to go about sorting data. 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?

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 to 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.

Still have questions about market segmentation? Check out the FAQs below for answers to some common questions:

What are some common challenges faced when implementing market segmentation?

Here are a few of the challenges you may encounter when implementing your market segmentation strategy:

Creating segments that are too broad: Your product or service may appeal to several different market segments, but trying to appeal to too many can lead to ineffective marketing and high ad spending.
Creating segments that are too narrow: The opposite problem can also arise. Small segments might be difficult to quantify and distract from other segments with greater buying power.
Not being flexible: Just because a particular segment is currently buying from you doesn’t mean they always will. Be willing to reevaluate your market segments over time to maximize your marketing spending and revenue.

What are the key factors to consider when selecting a target market segment?

Five key factors to consider when selecting market segments for your marketing strategies are:

Whether the segment is measurable
Whether the segment is large enough to generate a profit for your business
If the segment is stable and won’t vanish after a short time
If the segment is reachable by your marketing strategies
Whether the segment is homogenous and will respond similarly to your marketing strategies

How can you effectively redefine your target market?

If you’ve determined that your target market no longer fits, you can always identify new markets . Here are a few tips for doing so:

Identify trends and patterns: Do companies that make a certain amount of annual revenue seem to be shying away from your offerings? If you want to reach those customers, identify any patterns in which products or services they choose instead and strategize for how to provide the value they’re looking for.
Listen to customer feedback: Your current (or former) customers are valuable sources of feedback. Consider what they’re saying about your product or service and whether you’re meeting their needs. You may be able to identify new opportunities.
Diversify your marketing channels: Using multiple channels to reach your target market can be a highly effective way to increase exposure for your brand. Consider diving into new channels like content marketing, email marketing, SEO, and online advertising to drive engagement with your target audience.

Additional 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

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.

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5 Types of Market Segmentation with Examples

CEO Avada Commerce

Drive 20-40% of your revenue with Avada

You’ve invested a large amount of money and much time into an efficient marketing strategy, and you really hope your message resonates perfectly with your potential customers. Is it right?

This is the reason why market segmentation is important. This practice enables you to concentrate your marketing efforts on each customer segment so you can better satisfy their demands. Your brand can leverage this method to combat your competitors as you show your potential customers that you understand them and apprehend what they need.

Therefore, to know more about What is Market Segmentation? 5 Market Segmentation Examples that will Inspire You , please read on.

Let’s start now!

What is Direct Response Marketing
Types of Digital Marketing
Reach vs Impression: What Are The Differences?

What is market segmentation?

Market segmentation is the process of classifying a market of potential customers into small groups or segments based on multiple features significant to you. In a group, customers share the same characteristics and react similarly to your messages.

The aim of segmentation is that you are capable of introducing a more tailor-made message that will be accepted successfully. This is beneficial for organizations that have a product or service in the marketplace that shows off different uses for different groups of customers.

Market Segmentation based on business types

So what criteria can we base on to implement market segmentation? Here are the two criteria we want to introduce to you:

B2C business

Except for professional customers or prosumers, customers are often more sensitive to price and tend to come up with an impulsive decision. Segmentation of these types of consumers shows their purchasing habits.

B2B business

B2B purchasers are a different type. They are not sensitive to price. As your products can save the business money and time or make money, then it’s worth it. Price is just a secondary factor.

They will consider how much it impacts on their workflow and how difficult it is to carry out.

5 Types of market segmentation and examples

Demographic Segmentation

Demographic segmentation is the easiest and the most popular applied type of market segmentation. Organizations utilize it to form broad segments of the population in terms of age, gender, location, religion, family size and so on.

These are typically black and white groups that provide you a profile of whether or not someone can purchase your products. For instance, if you offer a product for people 21 and beyond, then those who under that age would not be for you.

Correspondingly, products for men usually won’t be relevant to women unless you offer it as a gift.

Behavioral Segmentation

Behavioral segmentation involves the way people decide over time or react to stimuli. For instance, the method that a business uses during Christmas time will differ from the rest of the year.

They recognize that people are more receptive and may be willing to make bigger orders. Younger generation and athletes would love brands like Jordan and Air Max whereas older people would vote for brands like New Balance.

Geographic Segmentation

As its name, the market segmentation type divides people into different groups based on their physical location. This type may be helpful for your company as the demands of your consumers are different from area to area.

For instance, people living in the countryside wouldn’t need a subway but those who work in the city would.

It’s also possible for you to use geographic segmentation to bring special deals to your potential consumers. Besides, you can use it to acclimate the language and tone of your messages.

In Georgia, people would consider soda as coke until you ask several questions. In Chicago, every soda is called pop.

Psychographic Segmentation

Psychographic segmentation is used to form groupings based on customers’ lifestyles, interest and activities. Demographic segmentation shows you someone is a younger male, while psychographic segmentation tells you they go to the cinema on the weekends.

This type of segmentation indicates what customers do and why they purchase. It is quite similar to behavioral segmentation, but there exists a difference.

Behavioral segmentation lets us know that this demographic segment buys paper straws. Psychographic segmentation tells us this demographic segment buys paper straw because they can be recycled and the buyers are environmentally conscious.

Lenovo collaborated with Newstar, carried out market segmentation, and built personalized banners on their homepage that boosted click-through rates by 30% and conversion rates by 40%.

Firmographic segmentation

This type of market segmentation refers to analyzing and grouping business-to-business audiences and customers according to similar features that are important to your business. The way a firmographic grouping will search for one company may differ from the way it searches for another company.

Does this mean one organization is compatible with their firmographic segmentation and another is not?. No, it just means their KPIs are different from each other. For instance, a domestic brand may divide their leads based on location and these locations are north, south, east and west. Meanwhile, an international brand may also divide based on location, but their groups are Asia, Europe, South America, North America, Australia and so on.

Firmographic segmentation can have an effect on the way you access potential customers, the information you push forward as advantages, and the solutions being recommended. For instance, if you have an accounting solution that can be suitable for small businesses and enterprise customers, you would not use the same method to access them.

For small businesses, you can implement paid ads and try to achieve direct sign ups. For enterprise clients, you may concentrate on lead generation, demos, and create tailored solutions to satisfy their demands. Firmographic segmentation provides you with the insights to come up with those decisions.

Examples of successful market segmentation business

Automobile industry

The automobile industry can be a good example of market segmentation. Every person needs a car to travel. However, is traveling from one place to another is the one and only “need” on the basis of which brands market their products? Then why are there a lot of various makes, models and versions from one single company?

This is because purchasers mainly need private and convenient transportation. Nevertheless, there are some other considerations that people want to make. Some people want to buy a large and spacious car to have enough rooms for family members. Some may wish to own vehicles with strong power and high speed. And even others purchase a car as a status symbol.

Automobile companies totally understand how to identify and make use of these differences.

Regarding the Volkswagen Polo, what will spring to people’s minds would be some attributes such as robust, affordable and hatchback. But do you know the Volkswagen group produces Audi , Lamborghini and the Porsche among others?

Volkswagen has some different characteristics for different customer groupings. It can be trustworthy to some and elite to others. It has boosted the science of clustering purchasers with the same demands and invents a focused marketing mix for every cluster to position its vehicles as the perfect choice in the market.

Victoria’s secret

Victoria’s Secret deals are creating and marketing women lingerie and beauty products. They concentrated on women and “women” is the main market segment in their marketing campaign. Applying demographics segmentation, this company is also classifying their target market with product differentiation as PINK for adolescent girls.

The company Victoria’s Secret also uses geographic segmentation to serve their customers not only in America but also in the UK and Europe. They currently own more than a dozen stores.

Victoria’s lingerie brand is available in nearly 75 countries with about 1000 stores worldwide. It also owns 990 sales points in the USA. In addition, this company developed geographical segments to China in the lingerie market.

Moreover, as an example of psychological market segmentation, Victoria’s Secret also grouped its consumers according to women’s personalities and self-confidence. Victoria is growing towards a sexy, fashionable and open-minded trait.

Furthermore, in behavioral segmentation, this company has loyal consumers because Victoria makes them feel alive and self-assured. Clients buy Victoria lingerie product lines for prestige and they also go for this brand during birthdays and holidays.

In demographic segmentation, Coca Cola company aims to serve youngsters from 15 to 25 years old. This organization creates income level groups including different packing, for instance, returnable glass bottles, plastic bottles and tins with various pricing programs.

Using geographic segmentation, Coca Cola has many customer groups in different regions such as Asia Pacific, North America, Latin America, Europe, and Eurasia and Africa.

Besides, Coca Cola is considered a great example of psychographic segmentation. They created Diet Coke for those who are health conscious, offered a number of energy drinks for those who need energy particularly in sport, and also provided Real Gold for busy people in offices.

Plus, in behavioral segmentation, Coca Cola consumers are classified into segments on the basis of their knowledge of, attitude toward, use of and response to a product. Coca Cola buyers can be recognized according to occasions such as weddings, festivals or birthdays. Sometimes, to promote Coke - a drink to quench thirst and to refresh, the company includes prizes in the top cover.

Apple has divided the overall electronics market into mainly early adapters and wealthy market groupings.

Wells Fargo and JP Morgan

The bank industry is another great example of market segmentation. Both Wells Fargo and JP Morgan are large banks with a variety of different products that request market segmentation to best market them individually.

What are the benefits of market segmentation?

Segmentation marketing was invented to serve one main goal: increase ROI

With the aid of customer segmentation and personalized marketing strategies, organizations decrease the risk of implementing campaigns to uninterested customers. This improved campaign effectiveness concentrates resources on more ROI-generating efforts. Now we’ll look deeper to see how it exactly works.

Boosted competitiveness and market expansion

By concentrating on a certain subset of potential customers, your competitiveness in that market group naturally accelerates. If you’re concentrating mainly on retired seniors, investing much time and a lot of resources into them, your brand recall and brand loyalty are probably to be enhanced, knocking out other competitors.

Your market share can also rise by concentrating on specific market segments. For example, with a geography-based market campaign, you can begin market your products to San Francisco, then the bigger bay area, and consequently the state of California.

Enhanced time and money efficiency

If you launch marketing campaigns tailored particularly for distinct groups, you are able to prioritize consumer segments that are likely to get involved and convert. By putting more conversion efforts on them, rather than distributing resources evenly throughout all segments, tie and money are spent more effectively.

Better relationships and customer retention

The process of market segmentation refers to continually learning more about your customers so you can better satisfy their demands. The more you understand them, the stronger your interaction and your relationship with them becomes.

Closer relationships make it more difficult for them to leave you - improved customer retention . As you implement customer segmentation to track their changing situations - they age, have families, change jobs, grow more interests, have more purchasing patterns - you can certainly market to them. By offering products and services that intrigue consumers at different life stages, you are able to keep customers who might switch to your competitors.