:max_bytes(150000):strip_icc()/Market-Segmenation-76c1fe9e48ff4906bc2a565bb67c6862.png)
Evan Tarver has 6+ years of experience in financial analysis and 5+ years as an author, editor, and copywriter.
Updated June 27, 2024 Reviewed by Reviewed by Khadija KhartitKhadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. She is a FINRA Series 7, 63, and 66 license holder.
Fact checked by Fact checked by Yarilet PerezYarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.
Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors, in order to better understand and market to them.
Companies can generally use three criteria to identify different market segments:
An athletic footwear company, for example, might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.
Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).
Market segmentation enables companies to better target the customers interested in buying their goods or services. If done effectively, it should generally result in a higher return from marketing investment and better revenues and profits.
There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment.
Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics such as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.
Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.
Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy focuses on organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue.
Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed-fee, more simple product.
Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.
Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.
Behavioral segmentation relies heavily on market data, consumer actions, and the decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. It assumes that consumers' prior spending habits are an indicator of what they may buy in the future.
Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.
Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This approach may yield the strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points. However, it's also difficult to achieve, primarily because the traits it focuses on can change easily and there may be a lack of readily available objective data.
Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.
Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits, such as how innovative or risk-favorable a customer is.
There's no single universally accepted way to perform market segmentation. To determine market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.
Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include:
The approximate percentage of company revenues that are spent on marketing, according to the spring 2024 CMO Survey.
Market segmentation also comes with some potential downsides. Here are some disadvantages to consider when implementing market segmentation strategies.
Market segmentation is evident in the products, marketing, and advertising that people use every day.
Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments. For example, different zip codes can have drastically different average incomes, which impacts car buying budgets, and terrain. People living in a big city tend to prefer smaller cars, while people living in the country may prioritize greater fuel efficiency and perhaps even off-road capabilities.
Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.
A sports shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious people, and individuals who have health issues or who spend a lot of time on their feet. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.
Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.
Market segmentation recognizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.
Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how a particular group stands apart from others, and reaction, or how certain groups respond to the market.
Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.
Upon analysis of its target audience and desired brand image, Crypto.com has spent the past few years targeting younger, bolder, more risk-accepting individuals with its "fortune favors the brave" slogan. Part of this strategy has involved using celebrities it thinks may appeal to its target audience. In 2021, actor Matt Damon became the face of the brand. Then, in 2024, rapper Eminem, whose rags-to-riches story is well publicized, took over.
Market segmentation is a process companies use to break up their potential customers into different groups or segments. This allows a company to allocate the appropriate resources to each individual segment, resulting in more accurate targeting across a variety of marketing campaigns.
