Market segmentation

Did you know you’re being targeted? Since the advent of “big data” and advertising on social networks, personalized ads are everywhere. We’ve all had that experience where we discuss a product with a friend, then see an ad for it. Sometimes it seems we’ve simply thought about a product only to see it pop up in a Facebook ad. Don’t worry – marketers can’t read your mind. They are just using very effective market segmentation – and it’s something your business must be doing.

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What is market segmentation?

The market segmentation definition is the act of dividing a broad consumer or business market that usually consists of existing and potential customers into sub-groups of consumers that are based on a chosen type of shared characteristics. According to market segmentation theory, the business can then target the segments that will provide it with the most value. Market segmentation allows you to discover who your best customer will be, and then personalize your product or service for them in order to create raving fan customers. Knowing your target audience is important before you even begin working on sales and marketing. Market segmentation is also useful to business owners who want to enter new markets or increase sales.

The importance of market segmentation

Segmenting potential consumers into those who are most likely to buy your products or services is an incredibly effective form of marketing. It helps you develop buyer personas to really hone in on your ideal customers based on their age, gender, buying habits and other demographics. Once you have created buyer personas, you can target your marketing messages to these personas, ensuring that you get the right messages to the right people to prompt them to patronize your business.  

There are many possibilities for dividing the market into segments. Your market segmentation strategy will depend on what you are selling and how your business is structured. The same company can even have different targets for different products or services it offers, or have several target segments for the same product and vary its advertising methods and messaging. 

Types of market segmentation

There are three main methods you can use to perform market segmentation. Which method(s) to use will depend on your product or service, your company’s location and your monetary resources.

1. Geographic

Geographic segmentation means separating your market by region. The region can be your state, your area, your country or even the world for huge corporations. If you operate a retail store or a coffee shop, your target audience will be people in your town and the surrounding areas. If you sell surfboards, your target markets will be on the coasts. When you use geographic segmentation, you will almost always want to use some demographic segmentation as well.


geographic segmentation

2. Demographic

demographic segmentation

Demographic segmentation involves statistical data that can be gathered about a population, such as gender, age, income or education levels, profession, family structure and more. Narrow down your target audience using at least one or two of these, if not more. Age is especially important, as is income level. Certain types of marketing, such as influencer marketing, will be more effective on certain age groups. And a demographic will not buy your product if they can’t afford it – or if they think it is too cheap.

3. Psychographic

Psychographic segmentation involves values, lifestyles, and beliefs that a person develops over time. This can mean anything from the sports teams they support to the music they like to whether they are a thrifty spender or a dog lover or a family man. Because it isn’t statistical, this can be the most difficult type of segmentation. Surveys and focus groups are two tools that can help you understand your audience at a detailed level.

Geographic segmentation is the easiest, and in today’s data-driven world, demographic data is also relatively easy to come by. Psychographic data is harder to gather. You’ll want to use a combination of these market segmentation methods to determine your target audience.

psychographic segmentation

How to build your market segmentation strategy

Your market segmentation strategy must be specific enough that you maximize your ROI, but not too specific that you lose out on the buying power of a group. Once you’ve identified your target audience, your strategy will also inform the methods you use to reach them – you wouldn’t advertise a product for Gen Z on the radio or one for working professionals during daytime television.

1. Establish your brand identity

Your brand identity is the building block for your entire business – you must know what you are really selling and what your company values are. What do you offer that sets you apart? What makes you talkably different than your competitors? What message do you consistently send about your business to both your employees and your customers? Once you nail this down, you can determine who will find the most value in your product.

2. Survey your industry

Start with market analysis – gather data on your industry and its main customers, as well as on your competitors. Identify customer needs and where your competitors may be leaving openings for you. Estimate how much of the market you’ll be able to capture and perform trend analysis to predict future opportunities.

brand identity


3. Gather customer data.

You can find market segmentation data in a variety of places, such as government resources, industry publications, annual reports and media coverage and press releases. You can use your company website, social media, current advertising and customer service complaints or forums to track users. You can also perform original research such as focus groups, surveys and user testing – or hire a company to do so.

4. Narrow it down.

Target market segmentation is a process of elimination. Dig into the data and start asking questions. Is the segment size big enough? Are the profit margins high? How strong are your competitors with each segment? What level of investment is required? Will the segment grow in the future? Focus your market segmentation strategy on those with the highest levels of opportunity in these areas.

5. Think of your target audience as one person.

Create a user persona for each market you want to target that embodies all the traits of that audience. These will allow you to tailor your sales and marketing content very specifically for each target market. You can have several personas if you have a variety of products or services that may appeal to different demographics. Show them how your product fulfills their needs and solve their unique problems and you’ll gain customer loyalty for life.

target audience

Market segmentation examples

Say you’re a workout clothing retailer. Your clothes sell for a premium price because they are made by immigrants who are given jobs hand-sewing the clothing in an initiative to give them a good start in the United States. By using psychographic market segmentation, you would want to target potential customers who are philanthropically inclined and interested in immigrant issues, who go to the gym, who have mid-to-high incomes and who tend to give money to international causes.

Now say you’re a new company offering unique travel adventures for Millenials that take them to out-of-the-way places not normally seen as vacation spots. You might want to use demographic market segmentation to identify how to reach consumers in their early 20s who have disposable income. You could then narrow it down further by using psychographic market segmentation to find those who like to travel and are interested in other cultures. Finally, you could implement behavioral market segmentation to further narrow it down to those who spend a certain amount on travel each year and who are single, since millennials who are married are more likely to focus on building a home and career than they are on traveling.

Successful scaling is the goal of any business owner, and market segmentation theory is vital to achieving that goal. Don’t throw your money away targeting an audience that won’t buy your product or service – put your marketing dollars in the right place and you’ll see profits soar. Learn more about how to increase your profit margins and much more at Business Mastery, and launch yourself toward your business goals.

Ready to use market segmentation to your advantage?

Learn how to use market segmentation to your advantage with Tony Robbins’ 7 Forces of Business Mastery free content series.