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Growing a business

What is market segmentation? Definition, types, and examples

Market segmentation is the process of dividing your target customers into smaller, more manageable groups that share common characteristics, such as age, personality traits, location, and other factors. Segmenting the market helps businesses understand customers’ needs so that product, sales, and marketing strategies are better leveraged. This process also allows businesses to create personalized marketing campaigns to reach more specific consumers.

Market segmentation is a great way for your business to target potential customers. Doing this kind of research allows you to better focus your marketing efforts and resources and cater to the specific needs of your audience. 

Learn what marketing segmentation is, types, advantages, how to implement, and examples to help take your marketing plan and business to the next level.

marketing segmentation definition with a picture of a presentation board with targets and arrows.

Types of market segmentation

a list of the four different types of market segmentation highlighted in blue

There are four main types of marketing segmentation, including demographic, psychographic, behavioral, and geographic. Explore each type, examples, and pros and cons for each to help determine which type is the best for your business. 

Demographic segmentation

Demographic segmentation is the process of grouping consumers together based on characteristics that are observable. These characteristics include gender, income, family size, religion, nationality, education level, age, and ethnicity. 

This type of segmentation process is helpful in that it allows companies to focus their resources and advertising efforts more effectively, which also makes it a popular choice because the statistics are easy to interpret. 


  • The information is relatively easy to access. 
  • Research is not costly to implement or obtain.
  • It allows for improved personalization since you can present different messaging to different segments.


  • Limited effectiveness since people in the same demographic don’t always want the same thing.
  • Demographic information is usually vague, so it can be hard to create tailored marketing campaigns. 
  • Data can change drastically in a short period of time, so it can be hard to guarantee that the information will always stay true to that individual (for example, marital status or age).   

Demographic segmentation example

This type of market segmentation is seen with many luxury brands. For example, Gucci and Dior advertise their products through luxury magazines, which target people within a certain income bracket. Another example is seen with Saga Holidays—they only market their travel packages to people over 50. 

Additional forms of demographic segmentation

Here are a few less common forms of demographic segmentation that you can implement into your company’s strategy: 

  • Generational segmentation: This is segmenting based on each generation group, such as millennials, Generation X, baby boomers, and so on.  

  • Life stage segmentation: This strategy splits up groups based on what stage they’re at in life, such as new parents, singles, or married couples.

Psychographic segmentation

Psychographic segmentation occurs when consumers are split up into groups based on psychological traits, such as emotions, thoughts, lifestyles, values, and beliefs. 

This kind of qualitative research tracks the motivation behind the behavior, rather than the consumer’s behavior itself. Much of this data can be gathered through surveys, interviews, digital analytics in social media, and focus groups. This is often seen as the best type of market segmentation since this type of research serves as great insight into how your customer thinks.  


  • You can customize different products for each persona you discover.
  • It stimulates increased communication since you’ll be able to connect to the consumer on a more emotional level. 
  • You can better identify how and why a customer uses your product.


  • It can be more costly to get insights since you need to gather qualitative data. 
  • Results might be misleading since psychographic data may not uncover exactly why a customer bought your product. 
  • It’s more complex to gather data since you need answers to specific questions.  

Psychographic segmentation example

A great example of psychographic segmentation is seen with companies that sell plant-based products. Those companies will perform psychographic segmentation research to find consumers who follow a plant-based lifestyle, such as vegetarians and vegans. 

Behavioral segmentation

Behavioral segmentation groups customers based on their behaviors and actions. This differs from psychographic segmentation because it’s looking into patterns such as purchase, usage, and consumption of a product. 

These patterns can be observed in online shopping habits, website or app activity, brand loyalty, and what needs a customer is trying to fulfill with your product. Behavioral segmentation can also gather insight about seasonality and occasion purchasing and help you maximize your digital marketing efforts

Businesses collect behavioral data through the use of website cookies, third-party data sets, and purchasing data from a CRM platform


  • It gives you the ability to understand the most effective time to influence purchases and how different groups should be targeted.
  • You’re better able to analyze historical behavior patterns to predict future ones.
  • It allows you to make smarter decisions about how to best allocate resources, time, and budget.


  • Customer behavior is never 100% accurate since data is subjective. 
  • Behaviors never remain the same with customers, so your strategies will have to be adaptable.
  • You may have to hire a behavioral specialist to analyze your data, which can be costly. 

Behavioral segmentation example

An example of behavioral segmentation can be seen with a beauty retailer website that may find that older purchasers lean toward purchasing bottled shampoo, while younger purchasers prefer bar shampoo. 

This can also be seen with companies that launch advertising campaigns for special occasions such as Valentine’s Day and Christmas.  

Additional behavioral segmentation types

There are also a few subtypes of behavioral segmentation strategies you can utilize although they aren’t as popular. This includes: 

  • Value segmentation: This is a way of splitting consumers into groups based on how much they’re likely to spend by looking at previous purchase data.
  • Seasonal segmentation: This process studies and groups together consumers based on seasonality purchasing, such as holidays and events. 


Geographic segmentation is grouping your target audience based on their location and its characteristics. Although this is a simpler form of market segmentation, the data is highly useful since it allows you to send out location-specific information and ads. 

Geographic segmentation can identify users by a specific country or ZIP code, language, and characteristics of their location such as climate or population size. Becoming familiar with consumers’ geographic regions can help you figure out where to sell and advertise, and even where to expand your business globally


  • You may be able to save resources since you’re allocating specific products to different markets.
  • It can be a good option for businesses with limited budgets. 
  • Data is easier to gather since it’s easier to determine where a person lives versus their psychological traits. 


  • This kind of market research assumes that people in a given geographic area are similar, which is not always the case. 
  • Research needs to be performed in conjunction with another segmentation strategy to be the most effective. 

Geographic segmentation example

Geographic segmentation can be seen with clothing retailers that target people in colder climates and advertise warm clothes, or an ice cream shop that targets those who live in hot climates.

Benefits of market segmentation

list of the benefits of market segmentation featuring a pen and paper, a bag of money, and a green calculator

If implemented properly, there are many benefits of market segmentation. Explore the various advantages below.

Boosts business growth

Market segmentation can help reveal areas where you can expand your business. For example, you could perform demographic segmentation research and uncover a new market that you didn’t know you had. Geographic segmentation can also help you uncover different physical locations where you may have the potential to grow. 

Reduces costs

Market segmentation can reduce your costs and help with revenue management since you’ll be directing financial resources into channels that directly reach specific segments. 

Improves customer retention

Market segmentation improves customer retention and overall brand loyalty. With research, you’ll be able to better connect with your audience, which will help them feel understood and attracted to your product or service. 

Differentiates you from competitors

Investing time and research into market segmentation allows you to stand apart from the crowd since you’ll be able to craft more personalized and specific marketing messages.

Increases profits

Market segmentation, especially behavior segmentation, is advantageous because you’re able to better understand how much a person is willing to pay for a given product. Having this kind of data can help you set a pricing strategy to ensure you’re not over- or under-selling yourself. 

Gives ideas for product development

Performing market segmentation analysis can help you make better decisions when it comes to product development. You may find that the current products you’re selling aren’t resonating well with your target market—by doing some research, you may uncover new needs that can help launch product ideas and diversify your current product.

Maintains new data and fresh insights

Assessing your audience with research can help keep the flow of new data going so that you can influence their preferences and needs continuously with your marketing campaigns. This also helps you stay on top of trends and shifts in the industry.

Allows for mass customization

Segmenting your market can make it easier for your business to offer tailored products and services to consumers per their specific needs and wants. 

Improves business focus

Market segmentation pushes your business to focus on specific markets, rather than trying to serve too many at once and diluting the brand. If you target a specific segment, then you’re able to improve your core competencies.

Market segmentation strategy: Steps to implement

5 steps to implement market segmentation featuring a woman wearing an orange shirt, some gears, a paper and magnifying glass and a paper with some graphs.

After doing the research and gathering and analyzing your data, it’s time to put it all together into a successful strategy for your marketing plan. Read more about the different strategic directions and the steps involved in creating an impactful campaign. 

Concentrated strategy

Concentrated strategy is when a business decides that its marketing efforts are best suited to focus on a single market segment. This niche marketing strategy is most commonly used by small and growing businesses that have shown a viable use case in a market. 

Narrowing in on one market can allow your business to invest more resources into that specific market, which will reduce advertising spending and waste efforts on less viable markets. Be aware that this is a strategy that puts all of your eggs in one basket, so make sure you’ve properly vetted your market options.   


  • Repeatable marketing practices 
  • Reduced advertising spending
  • Higher conversion rates


  • All-or-nothing approach can be risky 
  • The potential for growth is dependent on segment size 

Differentiated strategy

Differentiated, or multi-segment marketing, is when you choose to market one product or service to multiple segments. Although you are able to reach a larger audience with this strategy, your expenses go way up since you’ll need a mix of marketing techniques and campaigns, so this method tends to be better for a business with a larger budget. 

This can also be a very successful strategy if you find that a specific segment converts well and doesn’t change repeatedly, so it’s easier to tailor your strategy directly. It also allows you to reap the benefits of multiple segments, even if it’s just a little. 

However, since you’re using a less targeted approach, your return on investment may be lower than average than if you used a concentrated strategy.   


  • Less risky than concentrated strategy 
  • Appeals to a wider range of customers 
  • More diverse marketing strategies
  • High growth potential 


  • Lower conversion rates 
  • Higher marketing spend

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How to implement your strategy

Once you’ve determined whether you want to follow a concentrated or differentiated method, follow these five steps to implement your market segmentation strategy: 

1. Define your market 

Before beginning with your segmentation strategy, it’s important to define your market. To do this, ask yourself: 

  • How large is the market?
  • Where does my brand fit in the market landscape?
  • Is there any demand for my product or solution I’m looking to provide? 

Ensure that the group of consumers included in your market have a general common characteristic, such as income or marital status. These are all factors that you should consider before choosing a segmentation method type. 

Tip: Don’t forget to ensure that your market has a genuine interest in your product or service—this is one of the most important factors when building out your strategy.

2. Pick your segmentation strategy 

Based on what you’ve learned above, choose a strategy that you feel is the best fit for your business, whether it be demographic, behavioral, psychographic, or geographic. There is no right or wrong—feel free to mix and match your strategy or combine a few until you get a feel for what’s working the best. 

Tip: Be sure to update your strategy as your customer base evolves to stay on top of their wants and needs. 

3. Understand your audience 

After you’ve decided which segmentation strategy is best for your business, it’s time to zero in on your audience and understand them and their needs better. Prepare questions to ask your focus groups to gather information. To do this, run surveys, polls, focus groups, and check any data from online tools. 

Tip: Keep it simple—research methods and segment maps that are too complicated are hard to read and won’t get your point across as clearly. . 

4. Build out customer segments

Once you’ve categorized and grouped together the answers from your respondents, start building out the different customer segments. Interpreting and analyzing the data will help inform how to create well-defined subgroups of your audience. During this process, be sure to ask yourself: 

  • Is the segment measurable?
  • Is the segment stable and not going to quickly change?
  • Is the segment big enough to allow me to earn a reasonable profit? 
  • Will the segment be reachable with my marketing strategies?
  • Is the segment likely to respond well to my strategy?

Tip: Avoid creating a segment that’s too small—if the group of people is not large enough, you risk losing their buying power and may potentially only gather nonquantifiable metrics. 

5. Test the effectiveness of your strategy 

Now that you have your segments, you’re ready to test out your strategy. This entails making a plan for each of your marketing channels and tools and seeing what works. 

Over time, you’ll have to improve your strategy with trial and error to get the best possible outcome from your market segmentation efforts. 

Tip: Be sure to focus on characteristics that are beyond segment size. Look for markets that offer the most optimal potential for product placement and category creation. 

Include market segmentation in your business plan

Knowing and meeting your customers’ wants and needs is essential for creating a successful marketing strategy. It’s all about sending the right message that will connect well and stick with your audience. Market segmentation will not only improve your reach and profitability, but it can take you to that next level of growth and opportunity.

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