Think of your customers as a vibrant mosaic: each one is unique yet there are threads of similarity weaving through them. Marketing segmentation is the art of recognising these patterns, grouping customers based on their shared traits and crafting strategies that resonate with their collective needs and desires.

After establishing groups by means of marketing segmentation, businesses can advertise more effectively to these segments. Each segment may have certain preferences that set it apart. As businesses focus on what each group wants to see, they can enhance engagement, boost interaction and drive sales.

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 or behaviours, or a combination of similar characteristics.

Creating smaller groups based on common factors allows us to better target our audience.

Market segmentation allows a business to develop detailed profiles of each market segment. Once these segments have been clearly defined, marketers can create strategies for segments with the greatest likelihood of buying their products and services.

To achieve that goal, marketers go through a three-step process that clarifies who people are and why they buy products.

Once marketers have isolated their target audience, they must define what’s different about their product. Is it better, faster, cheaper or more advanced than competitive products? To answer these questions, marketers should understand their target audience’s problems and how they can solve those problems creatively.

Companies create a competitive advantage for themselves through product differentiation, helping their products and services stand out as solutions for buyers’ issues.

By identifying a target market, isolating their problems and creating a product that solves those problems, marketers will have a higher probability of success than their competitors.

Market segmentation is the first step towards successful product marketing. Whether companies are marketing to consumers or businesses, market segments help companies gain a better understanding of their customers’ problems and then solve them.

Not every company segments its customers in the same way. There are several different approaches that businesses can use.

Here are three common examples of marketing segmentation.

Companies use mass marketing to sell their products to everyone, using an undifferentiated strategy. For example, companies selling commodities such as salt or generic items with many substitutes may not expend much effort on segmenting their market.

Firms may use one or more narrowly defined target markets to create a highly focused niche market for specialised products. Example: exclusive high fashion apparel, handmade art or customised machinery parts.

Known as hyper-segmentation, marketers can customise a one-to-one marketing approach for each customer to develop a long-term relationship. For example, personalised services such as hair salons and online retailers such as Amazon offer personalised recommendations based on purchase history.

Whether you want to form a handful of segments or thousands of them, your business should understand the five different types of market segmentation.

Let’s break down demographic, psychographic, behavioural, geographic and firmographic segmentation and consider what each type involves and how to use it.

Demographic segmentation assumes that people with common characteristics will have similar lifestyle patterns, tastes and interests that will influence their purchasing habits. Demographics are often combined with other segmentation approaches to develop target markets with the greatest likelihood of buying their products.

Demographics include factors such as age, gender, occupation, income and education. 

The advantage of demographic segmentation is that it is easy to implement. In the U.S., government sources, including the U.S. Bureau of Labor Statistics, provide household, income, education and health data for marketing strategy and business goals.

After using demographics for market segmentation, marketers can use this same information for customer segmentation. Using demographics and behaviours, they can identify:

When combined with behaviour traits and other variables, demographic segmentation provides marketers with valuable insights into which specific customers within their target market will buy their products and a better understanding of how to reach them with the right marketing messages.

Psychographic segmentation divides people into groups based on their personality, lifestyle, social status, activities, interests, opinions and attitudes. Psychographics are an excellent complement to demographics because they identify the motivations behind why people make particular choices.

Psychographic segmentation is a powerful means of understanding your customers’ problems, behaviours and attitudes.

Companies use psychographics for market segmentation to understand:

Behavioural market segmentation describes specific steps in their ideal customer’s buying process. This form of segmentation includes what ideal customers want, why they want it, the benefits sought and how they go about getting their needs met.

Businesses can use behavioural segmentation to study B2C and B2B market segments. When companies understand why people buy, they can make their marketing messaging more targeted. Behaviours can include:

When marketers know why consumers or businesses are buying their products, they can make it part of their segmentation strategy to address those behaviours.

Geographic segmentation allows marketers to group people based on where they live, work or travel. 

Location has a significant influence on buying habits that marketers can use to develop their marketing messages. Marketers use various geographic segmentation variables, including the country, region, county, town/city, climate zone or postcode. 

Culture and population density (urban or rural) are also crucial variables to include in their market research. These location variables will influence what problems people have in that region and how marketers can solve them.

Where a person lives can influence everything from their food choices to the car that they drive. Businesses can use geographic segmentation to determine the best products to sell to their customers. 

An example of geographic segmentation is the marketing of lawnmowers based on whether an area is rural or urban. Ride-on lawnmowers will generally be more in demand in rural areas, where people are more likely to have larger gardens and more space to store one, whereas hand push mowers are likely to sell better in urban areas, where gardens tend to be much smaller and storage space at a premium. Knowing the geographic area’s details helps marketers identify which gardening accessories, plants and garden furniture will sell best in each location. 

Alternatively, a clothing company could recommend raincoats to someone living in a wetter part of the UK. Adapting the products you advertise to a customer based on their location can radically change how much they consider a purchase.

Related reading: The complete guide to segmentation surveys

Firmographic segmentation is to B2B marketers what demographics are to B2C marketers. Firmographics explain their business target market characteristics and include their industry, number of employees, legal status, company size, financial standing and other business-related variables.

Firmographics provide information for marketers who want to understand companies’ strengths and viability within their target market. They focus on their financial performance and growth trends to see whether the market segment is growing or experiencing a decline.

Firmographic data examples include:

Market segmentation is the basis for successful product concepts, launches, marketing messages, advertising and other critical marketing activities. 

Companies invest crucial resources into understanding their ideal customer’s problems to overcome those challenges with valuable products and services. After investing time and effort into market segmentation, what is the benefit for companies?

Companies spend billions of pounds on marketing and advertising when they know exactly who their audience is and what they want. Marketers now collect vast amounts of data about their target audience to ensure that their marketing messages appeal to the right customer, at the right time, for the right products.

Surveys are a great way to test marketing messages to see whether they resonate with the target audience. They start by creating a hypothesis about how they think their survey respondents will react. The survey results help them build better messages and more successful campaigns.

Companies have great ideas for new products, but they must determine whether those ideas solve a problem for their target audience. Without market segmentation, companies will waste time and effort on a product that sounds good but doesn’t sell.

Surveys help take the pulse of a target market. Within a few hours, companies can quickly find out whether: 

Getting the correct answers from a well-defined target market helps companies focus on successful products that their audience will buy.

Trends change quickly. Social media can provide insights into new customer behaviours, but marketers don’t know whether they are viable opportunities unless they measure those behaviours.

Understanding the behaviour of a target market is the core of market segmentation. As new trends take hold, it is up to marketers to find out which ones are new opportunities and which ones will disappear overnight. 

Marketers are responsible for identifying emerging customer problems, defining new marketing messages and testing new product concepts. To identify new opportunities, marketers need to frequently test their target audiences for new insights and verify whether customers are still enjoying existing products.

Market segmentation contains a robust data set that includes customer data that other departments can use to help the company succeed. In B2B companies, the marketing and sales departments are often closely linked, with sales depending on marketing to generate qualified leads that drive greater revenue. 

The department in charge of pricing products also needs market and competitive data to price products correctly, helping them to maintain a competitive edge. No manufacturing division suddenly wants to work overtime because of a sudden need for 100,000 widgets to meet increased demand, so sharing buyer trends and demand keeps production on track. 

Market segmentation data is not intended only for the Marketing department. It should be shared so the entire company can serve its customers.

Companies want to do more than just sell products to their target audience. They want to establish a relationship with their customers so that they keep buying products. When customers know, love and continually buy a company’s products, they have created brand trust.

Market segmentation identifies which audience is most likely to buy not just once but also to make future purchases. By creating a brand identity that customers appreciate, firms start to increase brand awareness and build a trusted relationship with their target market. They stay focused on that trust, creating marketing messaging, new products, valuable content and current information, thus creating a customer experience that keeps consumers and B2B clients returning for future purchases.

Target market segmentation helps marketers understand their ideal customer’s problems and behaviours, creating solutions that build a long-term brand trust that benefits both parties.

Understanding market segmentation allows businesses to create more engaging, tailored content that every customer will love. Segmenting your audience is vital for delivering effective marketing materials and increasing engagement with your customers.

Learn more about how to segment your data with SurveyMonkey, creating detailed customer groups that enable highly effective business communications. Sign up today to get started with customer segmentation.