Understanding market segments can help brands and marketers target their audience in product sales. Identifying market segments can significantly enhance your product development process, allowing you to tailor product offerings to meet the needs of diverse segments effectively. These segments can be anything from men vs. women to high-income vs. low-income. Keep reading to learn about what is market segmentation, the types and benefits of market segmentation, and market segmentation strategies in this all-encompassing guide.

What is Market Segmentation? 

Market segmentation is when a brand divides its target audience into approachable groups. Market segmentation involves dividing a larger market into smaller subsets, utilizing factors such as demographics, needs, interests, and priorities to ensure a more targeted approach. These psychographic or behavioral criteria can be used to understand your target audience better.  

Benefits of Market Segmentation 

Companies that carve out market segments stand to gain significant advantages. According to Bain & Company’s study, 81% of executives believe that market segmentation is essential for growing profits. The study also found that companies with effective market segmentation strategies enjoy a higher profit of up to 10% compared to companies without an effective strategy. Other important benefits of market segmentation are– 

  • Stronger marketing messages: Your marketing messages will no longer be generic and vague. You can directly communicate with specific groups of your audience in a way that’s relatable and speaks to their needs, wants, and characteristics.  
  • Digital advertising tailored to your needs: Understanding and defining your target audience’s characteristics through market segmentation enhances your strategy’s precision and effectiveness. This helps your team direct marketing efforts to specific locations, ages, interests, and buying habits.  
  • Development of effective marketing strategies: You need to know your target audience to get a head start on methods, tactics, and solutions that will gain traction and invoke responsiveness.  
  • Low acquisition costs matched with better response rates: This point is a result of creating marketing communications that are effective in the form of ad messaging and advanced targeting on social media platforms.  
  • Attracting the right customers: You can attract the right customers effectively and make them want to buy from you through clear, targeted, and direct messaging.  
  • Increased brand loyalty: When customers sense that they are understood, they often feel valued and well-catered to by your brand, increasing their likelihood of remaining loyal.  
  • Differentiation from competition: The more specific and personal your ad messaging is, the more you stand out among your competitors.  
  • Identifying niche markets: Having market segments can help you uncover underserved markets and serve existing markets. These new markets can present opportunities for you to grow your brand.  
  • Staying on message: Segmentation makes the marketing process quite linear, which helps your marketing team stay focused and not get distracted by less effective areas.  
  • Driving growth: You can fuel brand growth by motivating customers to make repeat purchases. Market segmentation also helps customers trade up from a lower-priced service or product.  
  • Enhanced profits: Customers have varying ranges as disposable incomes, so prices can be set based on how much your target audience is willing to spend. This helps you avoid underselling or overselling your products.  
  • Product development: Market segmentation helps brands design new products and services that keep your customers and their needs in mind. Product segmentation can help you create products for different segments of your customers.  

Types of Market Segmentation 

When it comes to type of market segmentation, we talk about targeting different parts of your customer base and how they’ll react in a given marketing situation. This means that we take a deep dive into what causes a person to purchase your products or services when we ask ourselves, “What are market segments?” 

Demographic Segmentation 

Demographic segmentation is when a pool of customers is sorted by elements like household income, marital status, family size, education, age, race, gender, nationality, occupation, etc. The demographic approach is the most commonly used type of market segmentation. This stems from the ease with which individuals can be classified based on their purchasing choices, usage patterns of products and services, and their spending willingness. Demographic segmentation also helps brands predict future behavior since target audiences with similar characteristics will often act in similar ways.  

Information about demographics are widely available, making demographic segmentation the easier form of segmentation. Your team can directly send surveys to customers which helps them determine demographic data. You can also use readily available third-party data like government census to gather further information.  

Geographic Segmentation 

Geographic segmentation frequently serves as a subset of demographic segmentation, yet it also stands as a distinct category of market segmentation in its own right. Under this form of segmentation, different target customer groups are created based on their geographical locations. This is because potential customers have specific interests, preferences, and needs based on their locations. Your marketing team needs to understand climates and geographical locations of customer groups to determine how and where to sell and advertise to expand your business.  

Geographic segmentation data is usually taken from customers through surveys or third-party market research data. One approach involves collecting operational data, like the IP addresses of website visitors.  

Firmographic Segmentation 

Like demographic segmentation, firmographic segmentation also looks at data but instead of mapping individuals, firmographics maps data from organizations. This form of market segmentation looks at things like number of employees and company size. For example, an advertisement for enterprise corporations and small businesses would obviously be different.  

Firmographic segmentation data can be taken from public listings for companies and information that businesses make readily available and trade publications. Once again surveys filled in by existing and potential customers will help your team build this data.  

Behavioral Segmentation 

Behavioral segmentation occurs when a customer market is segmented according to various behaviors and patterns of decision-making. These metrics include purchase, consumption, usage, and lifestyle. For example, younger buyers prefer coffee and older buyers may prefer tea. Segmenting markets based on purchasing behaviors lets marketers develop a targeted marketing approach. Your marketing team can focus on what your customers are looking for which they are more likely to buy.   

Out of all the types of market segmentation, this type of segmentation needs you to start collecting data from your existing customer base. You can surely also use third-party market research data, but we suggest cracking down on the data you already contain on customer purchase and usage behavior. Customer usage and purchase behavior are effective indicators for future behavior.  

Psychographic Segmentation 

Psychographic segmentation focuses on psychological aspects of customer behavior. Under this form of segmentation markets are diving a pool of customers according to personality traits, values, interests, opinions and lifestyle. For example, gyms use market segmentation to cater to customers who are interested in fitness, exercise, and healthy living.  

Psychographic segmentation uses data that your consumers will provide themselves. Of course, market research also provides insights on what segments are likely to have which beliefs and what preferences. However, psychographic segmentation is best completed with information directly from the source. You can also use survey questions which have a more qualitative focus to get more insights on your customers.  

Segmentation Strategies 

Crafting a successful market segmentation strategy requires a meticulous approach with five key steps:  

  • 1. Define Your Target Market: Begin by thoroughly understanding your ideal customer. Analyze the demand for your products or services within different segments. Determine the overall market size and assess your competitive landscape. This step lays the foundation for your entire segmentation process.  
  • 2. Segment Your Market:  Choose the most relevant segmentation types for your business. Consider firmographic (for B2B), demographic, behavioral, geographic, and psychographic factors. While most brands employ a combination of these, start by experimenting with different segments to identify the optimal mix for your marketing goals. 
  • 3. Understand Your Market: Dive deeper into your customer base through primary research. Utilize polls, focus groups, and surveys to gather both qualitative and quantitative data related to your chosen segments. Ask targeted questions to gain valuable insights into customer preferences and behaviors. 
  • 4. Create Customer Personas: Analyze the research findings to pinpoint your most valuable customer segments. Develop detailed customer personas that represent each segment, including their demographics, interests, pain points, and motivations. This will help you tailor your marketing messages effectively.  
  • 5. Test and Refine Your Strategy: Validate your segmentation by launching targeted marketing and advertising campaigns. Employ conversion tracking to measure the effectiveness of your efforts. Continuously test and iterate your strategies to optimize your approach and achieve the best possible results. 

By following these five steps, you’ll be well on your way to developing a robust market segmentation strategy that drives customer engagement, enhances brand loyalty, and ultimately boosts your bottom line. 


Market segmentation is not some complicated marketing strategy, it’s often quite simple. We suggest you automate your databases, because spreadsheets are tedious and tiring to work with. Instead, opt for segmentation software that’ll help measure and divide your targeted audience easily. Technology is important to streamline the marketing process and to help your company grow. You can use the above-mentioned steps to create market segments successfully and create products and services that best suit your customer base, We hope this blog helped you understand what market segments are, grow your brand, and happy marketing!