What is Market Segmentation, and How to Use it Effectively?

Have you ever noticed how companies that manage to make their brand messaging resonate with the audience gain a significant competitive edge over their rivals? Also, a larger market share (especially across more than one customer profile) invariably implies higher revenue. However, I have always observed that many businesses fail to dominate or even survive after five or ten years simply because they fail to understand their customers.

Therefore, businesses must use an effective market segmentation strategy to develop a solid value proposition and marketing plan. In this article, I will help you learn what exactly market segmentation is and how you can best use it to benefit your business.

What is market segmentation?

market segmentation

Market segmentation divides a big market into smaller groups of customers who share the same characteristics. Doing so enables companies to tailor marketing plans and value propositions to generate more leads, conversions and higher revenues.

Customer segmentation tends to start with determining prospective buyers grouped by a common interest or requirement. Further analysis will subsequently reveal a smaller group of prospective buyers belonging to one or more of the following types of market segmentation:

  • Behavioral
  • Demographic
  • Geographic
  • Psychographic

These subsets may belong to one or more groups and are the target customers on which marketers focus their brand messaging. By doing so, they can reap the choicest rewards from market segmentation.

Advantages of market segmentation

It’s time to answer the million-dollar question – what are the benefits of market segmentation?

According to an Epsilon research study, personalization appeals to 90% of all consumers and 80% of them are likely to do business with brands offering a personalized experience. Also, consumers who find the personalized experience appealing are three times likelier to shop more frequently and 10 times more likely to become the brand’s valuable customers.

Other advantages of market segmentation include the following:

Superior marketing and advertising strategies

With the help of market segmentation, companies can develop detailed sales predictions and specific marketing strategies. Market researchers usually identify customer profiles using four market targeting strategies:

  • Undifferentiated market targeting
  • Differentiated market targeting
  • Concentrated market targeting
  • Micromarketing market targeting

Clear Brand Messaging

An overly broad target market has a diverse audience, making the messaging rather generic. In this case, consumers are likely to find the message vague and, as a result, fail to identify with the brand. You can tailor marketing strategies by going for market segmentation and offering customers a more personalized experience.

New Value Propositions

By using market segmentation, companies are able to add more product lines and scale their businesses. One of the best ways to grow a business is to create value by tapping into new customer segments. That is because your revenues naturally increase along with the overall market share.

Better Response Rates and Cheaper Acquisition Costs

Your marketing campaign will fail if the audience does not connect with the brand messaging. On the other hand, companies that communicate effectively with target markets are more likely to be successful.

For example, consider a fashion company running a social media marketing campaign. LinkedIn would be less effective for that purpose since its users mainly use it for professional and business networking. Instead, the company should choose platforms such as Facebook and Instagram.

After running an ad campaign targeting a broad audience, the company wastes money on non-buyers. Thus, they should use filters to define a narrower audience of customers based on age, gender, location, status, and income level. Doing so would bring down the cost of acquiring new customers and personalize their messaging more effectively, leading to higher response rates.

Types of Market Segmentation

Companies can segment a market by using one or any combination of segmentation strategies, such as:

1. Demographic segmentation

This segmentation strategy assumes that people with the same attributes will have similar purchasing habits.

2. Geographic segmentation

Since purchasing habits in different locations may differ, geographic segmentation targets consumers based on their location, work and traveling habits.

3. Behavioral segmentation

Here, “behavioral” doesn’t refer to personality; it refers to how consumers engage and interact with brands. The measurable actions used in behavioral segmentation are:

  • Browsing habits
  • Purchasing habits
  • Spending habits
  • Loyalty to brands

It allows companies to learn how consumers react to engagements and interactions, giving them more insight into customer decision-making and buying.

4. Psychographic segmentation

This type of market segmentation is based on people’s psychological or intrinsic traits and focuses on the interests and personalities of consumers.

How to create effective market segmentation?

Now that you are familiar with the concept of market segmentation, here’s what you can do to identify market segments.

Identify goals and set objectives

First of all, you need to set goals and break them down into objectives that will bring you closer to achieving your goals.

Develop effective market segmentation strategies

Research and data are the two critical components of market segmentation. Once you finish defining the demographic, geographic, psychographic, and behavioral segmentation, you will have a customer profile in your hands. It will vary depending on marketing intent, such as creating new markets or increasing market shares.

How to best use your customer segmentation strategy?

Go-to-Market (GTM) is a popular strategy that defines how a company plans to use its resources to gain a competitive edge in delivering its value proposition to the consumers. Also, it is a roadmap that includes predicting product performance in the market and measuring product viability.

The processes generally comprising a GTM strategy include:

Identifying target markets

Marketers research reachable markets and closely scour the playing field for possible gaps.

Defining customer segments

Market researchers narrow down potential markets into separate customer segments. After that, they analyze them and ascertain the ones that can benefit the most from their value propositions. Simultaneously, they make financial projections as well.

Determining brand positioning

Companies know that a strong brand position is vital for success; thus, they work on how they want consumers to perceive their brand and products.

Selecting the right communications channels

Choosing the proper channels to communicate with consumers is arguably the most crucial aspect of GTM. Besides the number of people using a specific medium, marketers ensure that each channel aligns with their brand image and can gain a competitive advantage.


In the wake of the COVID-19 pandemic, digital marketing became necessary for many companies to survive and thrive. Market segmentation allows you to break down a prospective market into smaller target markets classified by distinct characteristics. You can then identify the target customer profiles and develop strategies for each segment through your website, social media profiles, online store, and more.