What Is Market Segmentation? How It Works, Careers, and More

What is market segmentation?

Market segmentation is when a business splits potential customers into groups based on shared characteristics. These characteristics include location, age, income, credit rating, usage rates, or buying habits. Market segmentation can help inform and create a marketing plan that meets the needs of a target audience instead of creating a one-size-fits-all marketing strategy.

Given that marketing, advertising, publicity, and promotion have begun to focus more on personalized marketing and retargeting, market segmentation is key to marketing success.

Market segmentation vs customer segmentation

In your research into market segmentation, you may come across a similar term: customer segmentation. The main difference between these approaches to segmentation is the following:

• Market segmentation divides the market of potential customers into segments.

• Customer segmentation divides your existing customer base into segments.

Read more: What Is Customer Segmentation? + How to Reach Customer Segments

Retargeting and personalized marketing

Knowing your market needs and reaching out to the right people at the right time may provide potential customers with what they want. Personalized marketing typically leads to higher conversion rates, reduced acquisition costs, and less wasted revenue on marketing efforts that aren’t productive.

Marketers are continuously searching for new opportunities to personalize their message. A powerful way to do this is through retargeting, also called remarketing. This strategy is used to target ads specifically at internet users who've previously interacted with your site, mobile app, or online content and thus may have some level of interest in your products.

Retargeting works by placing a cookie on a user's browser, which allows marketers to serve ads based on the pages that the user has visited. For example, if someone visits a city vacation destination on your website, it makes sense for you to show them city-based hotel advertisements on other channels that they see. Retargeting also allows you to get the right message to customers at the right time.

4 reasons why market segmentation is important

There are several benefits of market segmentation, including:

1. Increasing the efficiency of marketing campaigns

When specific subsets of customers are targeted, your marketing content can become more relevant and effective with the audience you are targeting.

2. Understanding your target market better

Market segmentation gives you a more complete picture of who your customers are. With real, actionable insights, you can focus your efforts on product differentiation, adjusting your products, services, or content to customers' needs.

Read more: What Is a Target Market? And How to Define Yours

3. Spending your marketing budget more effectively

With market segmentation, you can spend money on promoting products to segments that are more likely to buy from you. For example, if your product is expensive and designed for business users, you may not want to invest your budget on social media channels that appeal to teenagers.

4. Becoming more competitive

Market segmentation can build brand awareness and authority in your niche. Market segmentation can also help you identify gaps in the market and fill certain segments' unmet needs.

5 types of market segmentation

You can segment your market in several ways. As a marketer, you’ll need to decide which segmentation strategy works best for your business:

1. Behavioral segmentation

Behavioral segmentation groups consumers based on their use of or response to a product. Behavioral segments are typically difficult to identify because behavior is not always consistent over time. 

Example: Banking customers can be divided into segments like online banking users and those who use physical branches. Online banking products may then be more successful when marketed to a receptive group of online banking users. 

2. Attitudinal segmentation

Attitudinal segmentation categorizes potential customers based on their attitudes, beliefs, opinions, and values. Unlike behavioral segmentation, which is based on observable actions that consumers take, attitudinal segmentation focuses on the psychological and emotional aspects of how consumers behave.

Example: An eco-friendly company can market to consumers who prioritize sustainable products and practices.

3. Demographic segmentation

Demographic segmentation is a very common form of segmentation. Your market can be divided based on characteristics such as gender, family size, age, income, occupation, education level, and nationality. Generational segments and cultural segments can also be included in a demographic basis for segmentation.

Example: Diapers will likely sell best to families with infants and young children.

4. Geographic segmentation

Geographic segmentation groups consumers based on where they live. This could mean country (national marketing), state (regional marketing), city (local marketing), or neighborhood (micro-marketing). Firms that employ geographic segmentation may market differently to potential customers in specific areas to maximize the effectiveness of their marketing efforts.

Example: New Orleans marketing might mention the Saints and the term Big Easy.

5. Psychographic segmentation

Psychographic market segmentation is a system that groups consumers by their interests, opinions, and lifestyle perspectives. This system rests on the idea that people's psychological traits influence consumer behavior.

Example: Outdoor gear companies may choose to target people who consider themselves active, adventurous, and outdoorsy.

The market segmentation process

The segmentation process is an initial step in marketing your business. Once your market is split into segments, you can use appropriate marketing strategies to target these segments effectively. The steps involved in this process are as follows:

1. Define your market and the opportunity.

The first step is to define the boundaries of the market, such as a specific geographic area, an age group, or income level. Develop a clear picture of the products or services you offer and the type of consumers who might want to buy them. If you’re highly specific, you can build better segments.

2. Segment your market.

Split up the market you've identified into groups that share common characteristics, including behaviors, attitudes, demographics, location, beliefs, and more.

3. Research your market to understand it.

You need to develop a good understanding of each segment. Consumers in each may have different needs, wants, desires, and buying behaviors. Your research can involve surveys, or other types of research, such as focus groups and interviews.

4. Create your products and marketing strategy.

Once you have defined and researched each segment of target customers, you can develop the products and marketing strategies to best reach each group. Your strategy should tell you how each product fits into the market, what price to charge, what promotions to run, which channels to sell through (e.g., online vs. in person), and so on.

5. Test your marketing strategy.

Before launching a new product or marketing campaign, test it out with a small group of people from within that segment. Improvements can then be made before going ahead with a full launch. Honest feedback from consumers is important for a product’s success.

6. Get feedback and review your success.

After launching a new product or marketing campaign, collect customer feedback and review how successful it has been. Evaluate success based on sales volume, profit margins, and other key metrics. Make any necessary changes, and use the process again with future products or services.

Market segmentation strategies and their benefits

Market segmentation strategies allow you to create tailored messages that will resonate with your target audience. Here are three main ways that marketing segmentation strategies can help:

Adaptable prices

You may offer different prices to different groups based on location, demand, and income level. A good example is flexible airline pricing, where prices rise and fall based on who will travel and how much they are willing to pay. By changing your price based on the type of customer you're dealing with, you'll maximize profitability.

Personalized content and messaging

This form of segmentation involves delivering customized content to a particular audience based on their interests. An e-commerce website showing recommendations based on browsing history is an example of content personalization. Customers are more likely to engage with content relevant to their needs and interests.

Read more: How to Develop a Content Strategy: Step-By-Step Guide

Precision targeting

A precise target market is a specific subset of a larger market you can target with your marketing efforts. The precise targeting strategy involves narrowing down the larger market to a small, specific group of people who are likely to buy for similar reasons.

The precise targeting approach aims to improve conversion rates by carefully targeting prospects with similar characteristics and needs. Instead of casting a wide net, identifying and targeting specific segments helps you reach customers who are more likely to make a purchase.

How different jobs use market segmentation

Many marketing professionals use market segmentation in their work. Some have to carry out analysis themselves while others use the analysis provided by other professionals.

*All salary data is sourced from Glassdoor as of September 2023.

Product manager

Average annual base salary (US): $147,018 [1]

Product managers are responsible for defining and establishing a product’s product strategy, roadmap, and features. They are responsible for getting feedback from customers, gathering market intelligence, and using this information to guide their product decisions.

Read more: What Does a Product Manager Do? And How to Become One

Market segment manager

Average annual base salary (US): $177,097 [2]

Segment marketing managers deal with a particular segment of the market. For example, a bank might have one segment marketing manager who deals with small businesses and another with large enterprises. A segment marketing manager should understand the needs of the customer segment they are targeting and define what messaging and products will appeal to them.

Brand manager

Average annual base salary (US): $95,146 [3]

Brand managers are responsible for defining a brand's voice and managing its presence in the marketplace. This involves overseeing the content creation that communicates consistently with the brand's positioning and objectives. By forming different buyer personas, brand managers can develop specialized messaging for customers as part of the brand voice.

Read more: What Does a Brand Manager Do? Guide

Digital marketing manager

Average annual base salary (US): $89,929 [4]

Digital marketing managers are responsible for marketing products or services using digital channels, such as search engines, email, social media, and websites. Their primary focus is to drive specific types of people to the company website. Segmentation is important when planning pay-per-clicks, search engine optimization, and social strategies.

Read more: Digital Marketing: What It Is and How to Get Started 

Content marketing specialist

Average annual base salary (US): $55,957 [5]

Content marketing specialists create content, such as blog posts, videos, or podcasts that engages customers and supports a brand's message. These specialists have to understand how to segment customers based on what type of content they like. They can produce content for each customer segment that will catch their attention and make them more likely to buy from the brand.

Marketing analyst

Average annual base salary (US): $69,966 [6]

Marketing analysts collect data from customers' responses to different types of marketing. This data can help companies determine which segments are profitable, which need more attention, and which are no longer valuable.

Read more: Marketing Analytics: Definition, Benefits + Career Guide

Build marketing skills with Coursera

Develop or strengthen your marketing skills with any of these top-rated courses or Professional Certificates on Coursera:

• For an introductory course, start with Wharton's Introduction to Marketing. In approximately 10 hours, you’ll learn about the fundamentals of marketing, including how to develop a marketing strategy and how to communicate that strategy.

• To prepare for a career in marketing, try Google's Digital Marketing and E-Commerce Professional Certificate, where you'll learn about email marketing and marketing analytics, among other topics, and get job-ready for an entry-level marketing role in less than six months.

• To enhance your marketing skills, explore Meta's Marketing Analytics Professional Certificate, where you'll learn how to sort, clean, and visualize data that can inform key marketing strategies.