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How To Set Up Market Segmentation And Make More Money

Setting up market segmentation in your marketing strategy will get you more bang for your (marketing budget) buck. Here’s how to do it.

You’ve defined your target market, maybe developed a buyer persona, and maybe even created a customer journey map – you are on a ROLL with all this marketing stuff. That’s awesome!

(If you’re just starting here, that’s awesome too! You may want to double back and define your broad target market first though.)

Now that you have all this research and some marketing strategies in mind to reach and develop your customer base, we want those strategies to really hit home and get to the exact right type of people. That’s where marketing segmentation comes in.

If you’re thinking to yourself, “what?! I have to do even more?!” Don’t worry, market segmentation is easier than you may think.

So sit back, relax, put on some chill indie music (or whatever music you’re into), and we’ll cover:

  • What marketing segmentation is
  • Why you need market segmentation
  • The 4 main types of market segmentation
  • How to develop your own segments
  • Some fun examples of how other successful companies have created and used their market segmentation strategy

What Is Marketing Segmentation?

Marketing segmentation is exactly what it sounds like. It’s a business strategy that takes your target market and divides it out into smaller, more specific focus groups with defined similarities. You can segment out your target market in a bunch of different ways such as demographics, interests, locations, needs, or just about any characteristic that you think may be relevant to your business.

Why Your Business Needs Marketing Segmentation

So, why is it important for your business to do this market segmentation? Let’s get into it.

First of all, it just generally lets you get a better idea of who your target customers are and how to communicate with them better. The result? MORE EFFECTIVE MARKETING. Who doesn’t want that?

With market segmentation, you tailor your marketing campaigns to a very specific target audience meaning you can focus on what will resonate with them and drive a higher conversion rate.

But you don’t just have to take my word for it. Analysis from the Harvard Business Review found that over a five-year period, “businesses that successfully tailor product and service offerings to desirable customer segments post annual profit growth of about 15%.”

Plus, a Bain & Company survey reported that 81% of executives said customer segmentation was a critical tool for growing profits.

Here are a few massive benefits you can get from market segmentation:

  • Increase conversions: When you’re targeting people who are already prone to want your products and services and you’re using extra-targeted language to speak directly to that audience, they’re going to convert more.
  • Higher customer satisfaction: Your customers feel more valued because you show you actually understand them.
  • Identifying more niche market opportunities: When you delve into a more specific market segment, you’ll learn more about those customers and will then have a better chance of identifying more niche markets that your product or service will speak to.
  • Make your brand stand out: If your competitors are more general, while you provide focused support or communication, that market segment will see you as the expert of your competitors.

So many benefits of market segmentation! Are you sold yet? Good!

The 4 Main Types of Market Segments

Since there are an endless amount of ways people can be different from each other, there’s also a ton of different ways you can approach creating customer segments. In the true spirit of market segmentation, the marketing community *ahem* segments them out into four types: demographic, psychographic, geographic, and behavioral.

what is market segmentation

1. Demographic Segmentation

Often the most common and easiest to create, demographic segmentation covers the standard, factual or statistical type information about people. Think, all the different “demographics” you might find in your Google Analytics review.

Some examples of demographic segmentation include:

  • Age
  • Gender
  • Income
  • Occupation
  • Family size
  • Race
  • Religion
  • Marital Status
  • Education
  • Ethnicity

These demographics are especially great for businesses whose target customers are people or consumers (B2C companies).

If your business’s target market is other businesses (a B2B company), you may want to consider these demographic segmentation characteristics (some marketers give these characteristics their own category called firmographic segmentation):

  • Company size
  • Annual revenue or profit
  • Industry
  • Job function
  • Company age
  • Number of office locations or sites
  • Number of employees

When you create a demographic segmentation, you’d choose one of these characteristics and group everyone in your target audience that matches that demographic – that’s your demographic segment.

For example, if you have your target market or you’re looking at your customer base and 40% of them are 25-30 years old, 30% are 31-35, 20% are 20-24, and 10% are over 36. Each of these age ranges is a demographic market segment.

2. Psychographic Segmentation

Psychographic segmentation focuses on grouping your target audience by their personalities or inner traits. These aren’t quite as obvious as demographics because they don’t show up on the surface.

These are some examples of psychographic segmentation:

  • Values
  • Goals
  • Needs
  • Pain points
  • Hobbies
  • Personality traits
  • Interests
  • Political party affiliation
  • Sexual orientation

Some of this information you can still find through website monitoring software like Google Analytics because it can track data like what other sites your visitors go to. However, you’ll likely need to get a lot of this information from other sources such as customer surveys or interviews.

Psychographic segmentation can be especially useful in deciding your brand or marketing messaging. We know that emotions and values can be an incredibly powerful marketing tool to create conversions, so this type of segmentation can help you design your marketing strategy around topics your target segmentation feels strongly about.

For example, if one of your psychographic segments really values environmental sustainability, you’d want your marketing campaigns directed at that segment to focus on how your product is environmentally friendly.

3. Geographic Segmentation

Geographic segmentation is, you guessed it, market segmentation based on the customer’s geographic location. This type of segmentation is especially useful if you have multiple brick-and-mortar locations or offices.

These are a few ways you might think about creating a geographic segment:

  • Zip code/post code
  • City
  • Country
  • Population density
  • Distance from a certain location (like your office or store)
  • Climate
  • Time zone
  • Dominate language

Different regions and locations can have a big impact on your customer’s lifestyle, needs, and purchasing habits, so they’re an important thing to consider. Geographic segmentation is another characteristic that can be fairly easy to track through your Google Analytics or other data you already have such as shipping locations, so it’s worth taking a look at even if you decide not to actually create a market segmentation out of it.

For example, geographic segmentation would be useful to include if you’re a small local business that only services a specific location so you’d want to target customers based in that location. Another example could be if part of your target market lives in a rural area while another part lives in an urban city – in each segment you’d want to tailor your marketing efforts to reflect the unique struggles or experiences that come with either urban or rural living.

4. Behavioral Segmentation

Behavioral segmentation focuses on the actions your target audience takes. Similar to psychographic segmentation, behavioral segmentation can often take a bit more research and data than geographic or demographic because it goes deeper than surface-level info.

However, unlike psychographic, behavioral segmentation tends to focus more on purchases and interactions rather than opinions or thoughts.

Here are some examples of behavioral market segmentation you may want to consider:

  • Purchasing habits
  • Brand interactions (for example, following or interacting on social media vs calling customer service)
  • Spending habits
  • Customer loyalty
  • Actions taken on a website (such as reading a blog or signing up for your newsletter)

Behavioral segmentation can be especially useful because it often relates directly to how your customers react to your brand. The type of customer that reads blog posts may be different than the type that subscribes to a newsletter or a loyal customer probably won’t need as much convincing as a prospective customer might.

When developing your marketing strategy, you definitely want to ask yourself what behavioral customer segmentation you’re marketing to because it can dramatically change how you interact with potential customers. For example, you probably act differently around your best friend than you do with someone you’ve just met, right? Same thing should go with your marketing strategy depending on if the group of people is current customers or new customers.

How to Develop Your Own Marketing Segments

If you’re looking at this and thinking, “cool, those segmentation categories make sense and all, but how do I create these for my own business?!” Don’t stress – we’re gonna go over that right now! And the good news is it might be easier than you think. (Hint: it’s pretty similar to the process of creating buyer personas.)

We’ll break it down here into three actionable steps.

1. Conduct Audience and Market Research

If you’ve already defined your broad target market (ideally, you have), then this work is easy because you’ve basically already done it! You may find you’ll want to do a bit of extra research on the specific market segmentation you’re focusing on, but in general, you can cruise through this step and be proud of the hard work you’ve already done.

If you haven’t already done your research (that’s okay, we still love you) or you want to want to dig in a bit more, here’s a quick refresher on some ways you can collect information on your target market.

  • Look at Your Existing Customers: Your existing customer will be your first line of attack when it comes to market analysis because you know they’re buying your product or service. Get as much information that you can from your current customers (without being annoying) and try to hone in on some of those characteristics within the different types of market segmentation. If you’re having trouble getting info from your customer base, you can also try a brief post-purchase survey.
  • Look at Your Analytics: Almost every search or social platform has its own analytics tool that can help you decipher who’s checking out your company. If you need more instruction on this, you check out our different analytics guides for GoogleFacebookTwitterPinterestInstagram, and YouTube.
  • Look at Your Competition: If you’ve already identified your main competitors, see if you can tell what their market segmentation strategies are. Can you tell who they’re trying to communicate with or target? If you can, there’s a good chance you want to be targeting that audience too.
  • Use Public Resources: To get a general idea of your industry or get information on a demographic you know your customers are a part of, public resources such as information from trade fairs, annual reports, Chambers of Commerce, and Bureau of Labor and Statistics can be a big help.

2. Analyze Data and Look for Segments

Once you have your market research all set up, it’s time to start digging into that juicy data. This process can feel a little intimidating at first, but it’s worth it and can be really fun and interesting if you take the right mindset.

What’s the right mindset? One that’s open to new information and curious about your buyer. Kind of like the mindset you want when you go on a blind date or are just meeting someone for the first time. It’s exciting, new, and interesting! Not boring, tiring, or annoying.

Once you start to look at the data and parse it out, you’ll likely see patterns or similarities start to show up. You’ll want to consider your company’s specific industry and goals to choose the best types of market segmentation to focus on, but even without that, you’ll probably see different groups take form. Those will be your market segments.

Be sure to look at characteristics from all the different types of market segmentation such as age, values, interests, location, and buying behaviors. If you’re able to, try to keep the different characteristics linked to the person, so you can see which characteristics tend to go together.

Jot down these different segments and groups of people. Take note if it seems like there are multiple different groups in your audience and see if you can identify ways that join different users together.

Once you’ve pulled out some overarching similarities and a few different segmentation variables, dive into each segment a little bit more and essentially create a mini buyer persona on that specific segment. Depending on the size of your audience and your company, you can go as in-depth as you want with your market segmentation research. Just make sure to keep each segment manageable and in a big enough group that you feel you could create a marketing campaign specifically around that segment.

3. Test Your Market Segmentation Strategy and Make Changes As Needed

After you have your segmentation analysis, it’s time to put it to the test and create some segmented campaigns that take into account your segmentation criterion. You can run this marketing effort even with a lower budget through campaigns like a Facebook ad, Instagram ad, or Google ad.

Compare the targeted strategies to other marketing strategies you run with mass marketing and if your segmented campaigns show better results (think conversion rates) than the broader one, you know you’re onto some effective segmentation.

If not, well, that’s okay too – it just means you’ll want to do a bit more thinking on how to reach that segmented section.

The more you test, the more you’ll be able to fine-tune your segmentation process.

Market Segmentation Examples

Now that you have your marketing segments, it’s time to put them to use! If you’re drawing a blank for what to do with your brand new target customer segments, take a deep breath.

In.

Out.

Relax.

Segmentation marketing strategy at a base level isn’t hugely different than any other marketing strategy – it’s just a little more targeted.

To help you better understand what we mean here, we’ve put together a few different examples of other companies using marketing segmentation strategy. For each example, we break down how they’ve used a segmentation approach, why it works, and how you can use it in your own marketing mix.

Psychographic Segmentation on Twitch with DoorDash

market segmentation example in ecommerce

What’s something gamers like? Having food delivered to their house so they don’t have to stop gaming!

DoorDash used this interest segmentation (a hobby of playing video games) and created an ad campaign to speak to that target audience. Not only have they created a specific ad that speaks to the wants of the audience, they’ve also chosen to run it on a platform that the customer segment uses so it’s more likely to get the users’ attention.

Why it works: DoorDash knows their product solves a problem for gamers, they identify how to communicate with the segment they’re targeting, then run the campaign on platforms that that audience is on.

How you can use it: If you identify a psychographic segment such as an interest or hobby within your market that you want to reach, research where people who do that hobby hang out online or offline (Instagram, Twitter, Twitch, YouTube, TikTok, Reddit, hobby magazines, etc.), then run your campaign on that platform to get the best return on investment.

Behavioral Segmentation Campaign With Caviar

market segmentation examples

When you sign up for Caviar (a food ordering service) with your email, the company sends you a welcome email offering a discount on your first order. The segmentation process here is behavioral because it targets users who have recently signed up for the service online, but have not made a purchase yet.

If the message went to someone who hadn’t signed up or who signed up and has already used the service, this messaging wouldn’t have any impact because the potential customer would either be creeped out or annoyed about why Caviar has their email or they wouldn’t be able to use the deal because it wouldn’t be their first order. However, with this behavioral segment, it hits the perfect sweet spot where the messaging can actually work.

Why It Works: Caviar uses this interaction-based segmentation to tailor the timing and messaging of their campaign to give the customer that extra nudge and incentive to use their service.

How You Can Use It: If you have an email newsletter or have a different opt-in or account-based service, consider creating a personalized message that automatically sends out to anyone who opts in or signs up.

Demographic Segmentation on Facebook with Ruffwear

segmentation marketing

Dogs are totally part of family size, right? Yes, yes they are. Which puts this ad solidly in the demographic segmentation category.

In the messaging of this Facebook ad, Ruffwear specifically speaks to dog owners writing “If your furry trail companion…”. Given Ruffwear is a brand that specifically sells gear for dogs, this strategy would fall under a broad segment that would likely apply to almost all of their target customers.

However, with the language questioning if your pup is “ready to carry his or her own gear,” it signals this campaign is ideally aimed at either new dog owners or dog owners who have puppies and are just starting to be able to carry gear. That language distinguishes between dog owners who are looking to replace an old dog pack or want a different one than they already have.

Why It Works: Sometimes, a broad target segment is really all you need and that will have a wider reach than super specific segments. At the same time, the ad speaks directly to that target customer and addresses their wants.

How You Can Use It: Especially if you’re a small business and don’t have too many funds to devote to developing a lot of marketing segments, focusing on a larger concentration segment strategy might be your best choice.

Geographic Segmentation with the Belvada Hotel

geographic segmentation example

The  BelVada Hotel ran this ad campaign in the  Travel Nevada Visitors Guide to focus on people who either live in other parts of Nevada or are going to visit Nevada. Since the BelVada Hotel is based in Tonopah, Nevada, choosing to advertise in a guide on the state is kind of a no-brainer.

However, hotels can be tricky, because you want to focus on people going to the geographic location, but you don’t want to target people who already live there.

Why It Works: By choosing a visitors guide to put their ad in, the BelVada Hotel is not only covering a geographic segment but also goes within that to a behavioral segmentation on people who plan to travel to Nevada. This way the company reaches a very specific audience to get the most out of target marketing.

How You Can Use It: If you work within a specific geographic location, think about segmenting within that geographic market and identifying platforms that specifically cater to the location.

Johanna Flashman

Johanna Flashman

Johanna Flashman is a freelance writer, content marketer, and SEO strategist with a passion for connection, advocacy, and outdoor adventure. She runs an inclusive online information hub for women freelancers in the outdoor industry called The Freelance Outdoorswoman. You can find her on LinkedIn, Twitter, at johannaflashman.com, or contact her directly at jayflash0@gmail.com.