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

What is market segmentation?

Market segmentation refers to a business splitting 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.

Since marketing, advertising, publicity, and promotion have begun focusing more on personalised 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.

Retargeting and personalised marketing

Knowing your market’s needs and reaching out to the right people at the right time may provide potential customers with what they want. Personalised marketing typically leads to higher conversion rates, reduced acquisition costs, and less revenue wasted on ineffective marketing efforts.

Marketers are continuously searching for new opportunities to personalise their message. A powerful way to do this is through retargeting, also called remarketing. This strategy targets 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, allowing marketers to serve ads based on the user's visited pages. 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 lets you get the right message to customers at the right time.

4 reasons why market segmentation is important

Market segmentation can be a powerful tool that helps you make improved marketing decisions and better understand your audience. Four of the primary benefits of market segmentation include:

1. Increasing the efficiency of marketing campaigns

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

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 on product differentiation, adjusting your products, services, or content to customers' needs.

3. Spending your marketing budget more effectively

With market segmentation, you can spend money promoting products to segments 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. Behavioural segmentation

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

Example: You can divide banking customers into segments, such as online banking users and those who use physical branches. Online banking products may be more successful when marketed to a receptive group of online banking users. 

2. Attitudinal segmentation

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

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

3. Demographic segmentation

Demographic segmentation is a very common form of segmentation. For instance, you might divide the market based on gender, family size, age, income, occupation, education level, and nationality. Generational 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 neighbourhood (micro-marketing). Firms that employ geographic segmentation may market differently to potential customers in specific areas to maximise the effectiveness of their marketing efforts.

Example: London marketing might mention Manchester United and the term London Town or the Square Mile.

5. Psychographic segmentation

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

Example: Outdoor gear companies may 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 you split your market into segments, you can choose appropriate marketing strategies to target them. The steps involved in this process are as follows:

1. Define your market and the opportunity.

The first step is to define the market's boundaries, 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 with common characteristics, including behaviours, attitudes, demographics, location, beliefs, and more.

3. Research your market to understand it.

You need to develop a good understanding of each segment. Consumers may have different needs, wants, desires, and buying behaviours. 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 that 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 versus in-person), and so on.

5. Test your marketing strategy.

Before launching a new product or marketing campaign, test it 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.

Collect customer feedback and review its success after launching a new product or marketing campaign. 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 resonate with your target audience. The following offers three primary 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 maximise profitability.

Personalised content and messaging

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

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 the larger market to a small, specific group of people 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 purchase.

How different jobs use market segmentation

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

*All salary data is sourced from Glassdoor UK as of September 2024.

Product manager

Average annual base salary (UK): £61,419 [1]

Product managers define and establish a product’s strategy, roadmap, and features. In this role, you’ll lead the process of getting customer feedback, gathering market intelligence, and using the information to inform product decisions.

Market segment manager

Average annual base salary (UK): £52,696 [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. As a segment marketing manager, you must understand the needs of your target customer segment and define what messaging and products will appeal to them.

Brand manager

Average annual base salary (UK): £43,179 [3]

Brand managers are responsible for defining a brand's voice and managing its presence in the marketplace. If you work in this role, you will oversee the creation of content that communicates consistently with the brand's positioning and objectives. By forming different buyer personas, brand managers can develop specialised messaging for customers as part of the brand voice.

Digital marketing manager

Average annual base salary (UK): £44,557 [4]

Digital marketing managers are responsible for marketing products or services using digital channels like search engines, email, social media, and websites. Your primary focus in this job is driving specific types of people to the company website. Segmentation is important when planning pay-per-clicks, search engine optimisation, and social strategies.

Content marketing specialist

Average annual base salary (UK): £41,804 [5]

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

Marketing analyst

Average annual base salary (UK): £37,250 [6]

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

Build marketing skills with Coursera.

Marketing segmentation helps you gain a deeper understanding of your target market. Additional benefits include providing more effective marketing strategies and approaches customised to that market’s unique preferences and requirements. 

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 and communicate a marketing 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, amongst 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. In this programme, you'll learn how to sort, clean, and visualise data that can inform key marketing strategies.