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What is Market Segmentation and How to Use it Best

Market segmentation involves efficiently targeting specific groups of consumers by sending them the right message every time. It helps your brand gain a competitive edge when your message resonates with the audience. A large market share across several customer profiles brings you higher revenue. Understanding your customers is crucial if you want your business to dominate or survive. Every business needs an effective market segmentation strategy to develop a solid value proposition and marketing plan.

What is Market Segmentation?

Market Segmentation or marketing segmentation is dividing your target audience into smaller approachable groups with the same characteristics. It involves creating subsets of your audience based on their needs, common interests, demographics, priorities, and other behavioral or psychographic criteria, which helps you understand your target audience better.

Dividing your market into several groups allows you to undertake more targeted marketing campaigns that give you leverage in sales, product, and marketing strategies. It helps you create a tailored offer according to the specific needs of a particular group of customers, generating more leads and bringing higher revenues.

How Does Market Segmentation Benefit Your Business?

There are numerous advantages that brands segment their market enjoy. All the major companies in the world, like Mercedes Benz, American Express, and Best Buy, use market segmentation strategies to increase their sales, engage better with their customers and build better products. You can benefit and grow your business by dividing your market into groups and then approaching each group separately with their unique needs in mind.
A study showed that about 81% of executive believe that segmentation brought them more profits. It also showed that companies who practice market segmentation strategies enjoy about 10% more profit than those whose segmentation strategy was not as effective over a 5-year time.

Here are some other benefits that you can gain by segmentation:

Tailored Marketing Messages

Effective market segmentation will make your marketing messages less generic and vague. Once you understand the wants, characteristics, and needs of a particular group of markets, it will allow you to speak directly in a way they can relate to.

Targeted Advertising

Market segmentation helps you define and understand your audience’s characteristics so you can direct your marketing strategies to a specific location, age, interests, buying habits, etc.

Develop An Effective Marketing Strategy

Knowing your audience gives you a head start about which marketing strategy they will be more responsive to.

Lower Acquisition Costs and Better Response Rates

You will achieve this by creating marketing communications using advanced targeting and ad messaging on digital and social media platforms like Facebook and Instagram, according to the needs of a specific market group.

Attracting the Right Customers

With market segmentation, you can create targeted, direct and clear offers to attract the right people you want to buy from you.

Increasing Brand Loyalty

Targeted marketing with market segmentation will make your customers feel understood and uniquely well-served, making them more likely to be loyal to your brand.

Makes Your Brand Stand Out

Engaging your audience with more specific and personal messaging differentiates your brand from the competition and makes it stand out.

Staying on Message

Market segmentation makes it easier for you to stay focused on your marketing strategies.

Discovering More Niche Markets

Market segmentation helps you discover underserved markets and new ways of serving existing markets which, in turn, helps your brand grow.

Driving Growth

It allows you to encourage your existing customers to buy from you again or upgrade from a lower-priced product or service.

Brings More Profits

Different audiences have different buying power. Segmentation of your audience helps you set prices according to how much your target segment is willing to spend. This ensures you don’t oversell or undersell yourself.

Helps in Product Development

Once you know the needs of different market segments of your audience, you will be able to design different products that cater to various customer base areas.

How to Segment your Market?

To segment your market better, you need to learn about different ways to segment and understand how your market responds in a particular situation. You may have to incorporate a predictive model into the study to group individuals within identified market segments based on their responses to survey questions. 

Demographic (B2C)

Demographic segmentation based on individual attributes such as:

  • Gender
  • Geography
  • Family Size
  • Nationality
  • Education Level 
  • Occupation
  • Income Level etc. 

It’s a simple and one of the most common forms of segmentation which is quite useful when you are running a small business or when you are trying to sell your first project. It is also one of the most effective forms of segmentation because the products and services we purchase, how much we can spend on them, and how we use them are most often based on demographic factors.

Firmographic (B2B)

Firmographic segmentation is quite similar to demographic segmentation, but firmographics is based on organizations’ and companies’ attributes, such as:

  • Size of Business
  • Number of Employees
  • Revenue
  • Industry Location

It is also a simple segmentation that works best for smaller businesses or those who are running their first project. This segmentation helps you differentiate between how to address a small business and an enterprise corporation.

Psychographic (B2B/B2C)

This segmentation is based on behaviors like technology, tools, and product usage. In this segmentation, your can divide your target audience based on their:

  • Lifestyle Personality
  • Opinions
  • Personality Traits
  • Values
  • Interests

It is a more advanced segmentation where you send targeted messages to your audience based on their interests, values, and lifestyle. Psychographic segmentation is particularly useful in large markets such as fitness, where you can sort individuals into groups of those who want to exercise and those who want healthy living.

Behavioral (B2B/B2C)

This segmentation is based on their purchase behaviors. It involves gathering data about your target customers and making them an offer based on their buying history. In behavioral segmentation, you divide markets by their decision-making and behavior patterns, such as consumption, purchase, usage, and lifestyle. It allows you to develop a more targeted approach as you can focus on what you know they are more likely to buy. For example, older buyers may tend to purchase soap bars, while younger consumer groups may be more likely to purchase a bottled body wash.

How to do Market Segmentation to Your Advantage?

Define Your Market:


How can your market feel the need for your products and services? Is the market small or large? Where does your brand stand in the marketplace?

Divide Your Market into Smaller Groups:

Determine which market segmentation criterion will best suit your product or service, whether geographic, psychographic, behavioral, demographic, or firmographic. You don’t necessarily have to stick to just one type of segmentation. Instead, you can use a combination, as most brands do. Experiment with each one and decide which one works best.

Understand Your Market

Conducting preliminary research surveys, polls, focus groups, etc., will help you understand your market. Ask questions that relate to the market group you have chosen. Use a combination of qualitative (open-ended for detailed responses) and quantitative (tickable boxes) questions.

Create Your Segmentation

Evaluate the responses from your survey and highlight which customer segments are more relevant to your company, product, or service.

Experiment with Marketing Strategies

Once you have analyzed the responses and created segmentations based on the responses, it is time to test your findings on your target market and see how effective it is using conversion tracking. If you don’t get the desired results, review your segments, research methods, or strategy.

How to Change Your Market Segmentation Strategy According to Changing Needs of Your Audience to Grow your Business?

Developing an effective Market Segmentation Strategy is crucial for the growth of any business. It helps you achieve your business goals and highlights where you need improvement in your strategy to achieve your goals. With well-built market segmentation, you will easily be able to revisit your market segments when need is, such as:


When There Have Been Rapid Changes in The Market:

We have a great example of rapid changes in the Covid-19 pandemic, which forced businesses to rethink how they can sell to their customers. Restaurant owners started using curbside pickups, and businesses with physical stores shifted their entire operations online.

Keeping your hand on the pulse of your customers will help you understand their needs and expectations of you. If your customers change, your market segmentation should change too.

Revisit Your Market Segmentation Yearly:

There are hundreds of factors in play that can change the behavior and responses of your customers. It is advisable to review and change your market segmentation every year.

For instance, if a group of your target customers moves away from the sales regions you were targeting, you might want to shift your sales activities to a more suitable area.

Change in Segmentation During the Year:

A market segment can have different characteristics at different times of the year. For example, Winter has more holidays than summer, which can impact people’s buying habits; they might be willing to spend more on holidays than on other days in the year. Having more information regarding market segments’ needs over the year will help you prepare an effective sales strategy.

A Few Things to Consider When Updating your Market Segmentation Strategy

Accept What has Changed and Use it to your Advantage

Acknowledge the changes that occur over a certain period and what caused that changes. Understanding the changes and their causes will help you decide whether to change your course or keep going with the same strategy.

Plan Right Away

Adapting to long-term trends is crucial for the survival of businesses. Reviewing and keeping your market segmentation fresh puts you in a proactive position to deal with changes head-on. Keeping in mind the risks associated and long-term complications with each segment, planning ahead, and having solutions ready before those issues arise will save your business.

Focus on “Why” Instead of “What”

Find out why there are risks with your target market. Why is your target customer segment’s behavior changing? Collecting the internal data will help you understand what’s happening, which, in turn, will allow you to develop advanced modeling techniques that are predictive and workable. This also makes it easier for long-term segment reporting and future research.

Some Case Scenarios to Help you with Building Market Segmentation For Your Business

Confused about where to use market segmentation in your business? Check out these examples to get ideas on building market segmentation across several marketing activities and departments.

Market Assessments

When you look for growth opportunities and want to enter into a new market, segmenting the market will help you predict the sales potential. For instance, once you have identified the opportunities and threats related to them in a new market, you can align it with your knowledge about your customer segment to predict how your target audience might respond to your offers, products, or services.

Segmentation and Targeting

Segmenting your market into different groups and collecting information about each segment helps you target your product or service toward these groups more effectively. This will help you develop a powerful marketing message that will resonate with the segment’s needs, wants and expectations.

Undertake your Research

Collecting information about your customers’ needs, preferences, habits, practices, and buying behavior will help you figure out where your business connects well with your customers and where improvements can be made. Researching your target market will help you understand and identify gaps in your offerings so you can make improvements.

Product Development

If your product or service isn’t useful to your target customer or doesn’t solve their problem, it will be difficult to sell them. When you understand what your target audience wants, it is easier to develop a product or offer a service that will solve their problems, and that’s the product or service they will want to purchase.

Campaign Optimization

Having detailed information about each market segment allows you to personalize your marketing campaigns. Personalized messaging resonates with your audiences better and allows you to connect with them better, making your campaign more effective.

Common Segmentation Mistakes that are Putting Your Business on a Risk

Focusing on the Segment and not on Money

You might focus on a large segment regardless of whether they have the buying power and need for your product or service. If your targeted audience doesn’t want your product or can’t buy your service, it will not deliver a return on investment.

Segmentation is too Small or Specialized:

Small segments may not be accurate or quantifiable. And they can be distracting instead of being helpful or insightful.

You are Inflexible

Your customers and circumstances will keep on changing over time, so if you don’t segment according to the changing environment, you will lose them. The best way to retain your customers is to evolve with them.

How to Use Market Segmentation to Scale Return on Investment?

After determining your segments, see if your segmentation passes the following tests to ensure they will be useful.

Is it Measurable?

Your segmentation will be measurable if the variables you used to segment the market are directly related to purchasing a product. You should be able to predict how much your customer group will spend on your product or service. For instance, one of the groups may be the one who is more likely buy your product or service during a sale or with a promotion.

Is it Accessible?

Understanding your customers and figuring out how to reach them are two different things. You should be able to find the best way to approach your customers based on your segments’ habits and behavior. For example, if your target segment relies on radio or newspaper ads instead of technology to learn about store promotions, you should meet them with radio and newspaper ads.

Is it Substantial?

Your market segment must have the buying power to purchase your product or service. For instance, if you are a high-end retailer, your target segment may want to buy your goods, but in reality, they might not be able to afford them. You have to ensure that your target market group is not only interested in you but should also have the capacity to purchase from you.

Is it Actionable?

Each market group should be unique and different, responding differently to your market offering. For example, if your research tells that people who care about the environment and people who love their pets have the same purchasing habits, you should group them together in a single segment.

Take Away

Market segmentation doesn’t have a definite set of rules. It’s a trial-and-error process in which you learn and correct your mistakes as you go through it. Market segmentation doesn’t have to be as complicated as some marketers make it to be. Getting automated from the beginning with market segmentation softwares that streamline and measure the progress of your marketing strategy. 

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