Market Segmentation: Best Practices and Benefits

August 2, 2022 Zahra Ijaz

Market Segmentation is a marketing term that refers to aggregating prospective buyers into groups or segments with common needs.

Moreover, it refers to those who respond in the same way to a certain marketing action.

This term helps and enables companies to target different categories who perceive the full value of certain products and services differently from one another.

Furthermore, it helps to identify targeted groups of consumers to tailor products and branding in such a way that it is attractive to a particular group.

You can divide the market in several ways like geographically, demographically, or behaviorally.

It helps companies and brands to minimize risks by figuring out which products are the most likely to earn a share of the target market and the best way to market and deliver such products.

However, by reducing risks and clarity about marketing and delivery of a product a company highlights, they can focus their resources on efforts that will be profitable.

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Understanding Market Segmentation

A number of companies and brands can generally use three criteria to identify different market segments:

Homogeneity or common needs within a segment.

Distinction or being unique from other groups.

Reaction or a similar response to the market.

Consider the following example:

An athlete footwear company may have market segments for basketball players and long-distance runners.

As distinct groups, basketball players and long-distance runners respond well to different advertisements.

Moreover, understanding these different market segments will enable the athletic footwear company to market its branding in the right way.

market segmentation 1

It is important to note that market segmentation is an extension of market research that helps to identify targeted groups of consumers to tailor products.

And branding in such a way that is attractive to the group.

Furthermore, the objective of market segmentation is to minimize the risk by finding which products have the best chance of gaining a share of a target market.

It also helps to determine the best way to deliver the products in the market.

This will allow you to increase its overall efficiency by focusing limited resources on efforts that produce the best ROI, i.e. return on investments.

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Types of Market Segmentation

There are four primary types of market segmentation.

However, one type can often be split into an individual segment and an organization segment.

Therefore, the following are the five common types of market segmentation:

market segmentation 2

Demographic Segmentation This is one of the simple, common methods of market segmentation.

It involves breaking the market into customer demographics like age, income, gender, race, education, or occupation.

Moreover, this market segmentation strategy makes an assumption that individuals with similar demographics will have similar needs.

For instance, the market segmentation strategy for a new video game console may reveal that the majority of users are young makes with disposable income.

Firmographic Segmentation This segmentation is just like demographic segmentation.

However, instead of analyzing individuals, this strategy looks at organizations and at the number of employees of the company.

It also looks at the number of customers, the number of offices, or annual revenue.

For instance, a corporate web development company like Markfinit may approach an international firm with a diverse, customizable plan.

While approaching smaller local companies, they may have fixed fees and a more simple product.

Geographic Segmentation This segmentation is a subset of demographic segmentation and approach groups customers by physical location.

It, moreover, assumes that people within a certain geographic area may have similar needs.

An important thing to note is that this strategy tends to be more useful for larger companies that are seeking to expand in different branches, offices, or locations.

Consider the example: A clothing retailer brand may want to display more raingear in their Pacific Northwest location, than in their Southwest locations.

Other Types

Other types of market segmentation are:

Behavioral Segmentation This type of segmentation relies heavily on market data, consumer actions, and the decision-making patterns of the customers.

Furthermore, this approach tends to group consumers based on how they previously interacted with markets and products.

Also, this approach tends to assume that consumers’ prior spending habits are an indicator of what they may buy in the future.

Though their spending habits may change over time or in response to global events.

Consider the example: Millennial consumers in most cases, tend to buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation This is one of the most difficult market approaches.

Psychographic segmentation strives to classify the consumers depending on their:

  • lifestyle
  • personality
  • opinions
  • traits

However, it is important to note that this may be more difficult to achieve as these traits may change easily and may not have readily available objective data.

This approach may also yield the strongest market segment results as it tends to group individuals based on intrinsic motivators as opposed to external data.

A fitness apparel company, for instance, may target individuals based on their interest in playing or watching a variety of sports they enjoy.

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How to get started with Market Segmentation?

There are five basic steps to identify your market segmentation:

1# Define your Market In the first step, you need to look for whether there is a need for your product’s services.

Also, where does your brand sit in the current marketplace?

2# Segment your Market In this step, you need to decide which of the five criteria.

These are demographic/firmographic, psychographic, geographic, or behavior, you want to use to segment your market.

However, it is important to note that you do not need to stick to just one type.

In fact, most companies or brands use a combination, so you can also experiment with each one and find out what works best for you.


3# Understand your Market You can do this by conducting a preliminary research survey, focus groups, pools, etc.

Moreover, you can also ask questions that relate to the segments you chose and use a combination of quantitative, i.e. tickable/selectable boxes.

And qualitative, open-ended for open text response questions.

4# Create your Customer Segments Analyze the response you will receive for your research.

This will help to highlight which customer segments are most relevant to your brand.

5# Test your Marketing Strategy Once you interpret the responses, you need to test your findings on the target market.

During this, you can use conversion tracking to see how effective it is.

And keep testing.

In case the uptake is disappointing, relook at your segments or your research methods.

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The strategy you can Implement

If you are wondering why market segmentation should be considered a strategy, then consider the following:

A strategy is a plan that helps you from a certain point A to reach a certain point B in an effective and useful way.

Therefore, market segmentation is similar.

There will be times you need to revisit your market segments like:

In times of Rapid Changes This includes a recent example of COVID-19 where a lot of businesses were forced to rethink how they sell to customers.

A number of businesses with physical stores looked t online ordering while restaurant owners considered curbside pickups.

Thus, if your customers change, then you should also change your market segmentation, so you can understand what your new customers need and want from you.

On a Yearly basis, Market segments tend to change year on year as many customers are affected by certain external factors.

These can alter their behavior and responses.


For instance, natural disasters that occur due to global warming can affect whether a family chooses to stay living in an area to more of such events.

Moreover, on a large scale, if your target customer segment moves away from one of your sales regions to another.

You may want to consider re-focusing your sales to more populated areas.

At Periodic Times during the year If you explore your market and create segments in the Spring.

The same market segments will have different characteristics at different times of the year.

For instance, winters tend to have a number of holidays with Christmas affecting most families.

This holiday affects the buying habits of your market segment, how they behave, and where they will travel too.

Understanding and knowing this information can help predict and prepare for this period.

Things to Consider

While considering updating your market segmentation strategy, consider the following three areas:

Acknowledge what has Changed It is important to find out what occurred between one period to another.

And what have been the driving forces for that change?

When you understand this and the reasons why your market is different, you can make key decisions.

On whether you want to change your approach with changing times or stay on the course.

Don’t wait to Start Planning Businesses are always changing and adapting to long-term trends.

Therefore, refreshing your market segmentation research will put you in a proactive place to tackle these changes head-on.

Moreover, when you have your market segments, it is a good idea to consider the long-term complications or risks that come with each segment and forward plan.

This will help to solve problems in case any issue arises.

Go from What to Why What are the driving forces?

Why are there risks with your target market?

You can partners with external companies to understand the different aspects of the target markets that drive or slow your success.

Furthermore, you will also have internal data to understand what is happening.

It helps you to get smart market segmentation that is predictive and actionable.

Thus, making it easier for future research and long-term segment reporting.

Ensuring Effective Segments

After determining your market segments, you will want to make sure that they are useful and a good analysis should pass the following:

Measurable This means that your segmentation variables are directly related to purchasing a certain product.

You will be able to calculate or estimate how much a certain segment will spend on your product.

For instance, one of your segments may be the ones who are more likely to shop during promotions or sales.

Accessible Understanding your customers and the ability to reach them are two different things.

The characteristics of your segments and behavior will help you to identify the best way to meet you.

You may, for instance, find that a key segment is resistant to technology.

And tends to rely more on newspaper or radio ads to hear about promotions.

While you can reach another segment from the mobile apps.

Substantial The market segment you create needs to have the ability to purchase.

If you are a high-end retailer, for instance, your store visitors may want to buy goods, however, in reality, they cannot afford them.

Therefore, make sure that the segments you identify are not just interested in you.

But also to make a purchase from you.

Actionable It is important that your market segments should produce a differential response when you expose them to market offerings.

This means that each of your segments must be different and unique from another.

You will want to iterate on your findings to make sure you have found the best fit for the needs of your

  • marketing,
  • sales,
  • and product organizations.

Common Errors

The following are the errors you need to consider while creating segments:

Avoid making your Segments too Small or Specialized Small segments may not be quantifiable or accurate.

Moreover, they can be distracting rather than insightful.

Do not just Focus on the Segment, rather than Money You may identify large segments in your strategy.


However, unless it has the buying power and wants or needs for your product, it will not deliver a return on investment.

Do not be Inflexible  It is important to note that customers and circumstances change.

So do not let your segments become too firm.

Make sure to let them evolve and change with changing times and trends.

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Final Thoughts

It is important to make sure that your market segmentation does not need to be complicated to be effective.

You can get automated from the beginning, and use market segmentation software to measure and streamline your marketing strategy, as you grow.

It will help you realize that not all customers have the same interests, purchasing power, or consumer needs. Instead, it will help to strive to make marketing endeavors more strategic and refined.

Thus, by developing specific plans for specific products you target audiences, you can increase your chances of generating sales and become more efficient with the available resources.

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