What Is Market Segmentation? (How it Works, Careers, and More) (2023)

What Is Market Segmentation? (How it Works, Careers, and More)

Market segmentation is when a business splits customers into groups based on shared characteristics such as location, age, income, credit rating, 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.

Marketing, advertising, publicity, and promotion have changed over the years and have focused more on personalized marketing and retargeting. These two trends have changed how marketing is done and is ushering in an era where market segmentation is key to marketing success.

What is market segmentation?

Market segmentation divides customers in a market into smaller and relatively similar groups. A common way to segment markets is to base the segmentation on demographics, which results in segments such as age, gender, income, and so on. You can segment markets in other ways, such as by usage rates or product benefits.

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 lead 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, which uses the data on a person's digital footprint.

Retargeting works by placing a cookie on a user's browser, which allows marketers to serve ads based on the pages that user has visited. It is one way marketers can personalize their message to consumers that have already shown an interest in their brand. 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.

Market segmentation increases the efficiency of marketing campaigns. When specific subsets of customers are targeted, you may become more relevant with your marketing efforts and spend less on marketing activities that don't reach your target audience. Market segmentation helps marketing budgets be spent efficiently with improved messaging.

There are many reasons to segment your market. It helps you see through the clutter of marketing data and develop real, actionable insights. A few benefits include the following:

Understand your target market better.

Market segmentation gives a more complete picture of who your customers are. Developing a clear understanding of your customers is essential because it allows you to adjust your products, services, or content to their needs.

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

Focus on products and content.

When you know your customers, you can focus on creating products or content that meets their needs. This allows you to offer more specific products and services.

Save money.

With market segmentation, you can spend money on promoting products to people who may be interested. You can focus on those 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 dominated by teenagers.

Become more competitive in your niche.

Having market segmentations may build brand awareness among a subset of customers and become a leader in that specific market niche.

What is market segmentation analysis?

Market segmentation analysis involves research to divide a market into relatively similar, identifiable, usable segments or groups. It is an integral part of the marketing research process and seeks to find different ways to identify and define consumer segments to understand how potential customers think, behave, and engage with products.

Useful criteria to segment markets.

To have effective segmentations there are four criterias that need to be met to gain valuable insight into potential customers.

1. Measurability: The size of the segment and its potential can be measured.

2. Accessibility: The segment can be effectively reached and served.

3. Substantiality: The size and purchasing power of the segment are sufficient to sustain your business.

4. Differentiability: Ensure that target markets with differences all respond positively.

5. Actionability: You have the resources to serve the segment and can deliver a suitable marketing mix.

What types of market segmentation can your business do?

You can segment your market in many ways. As a marketer, you’ll need to decide which marketing strategy best fits the product or service. Here are four broad segmentation strategies that appear consistently in marketing.

Behavioral segmentation

Behavioral segmentation groups consumers based on their knowledge, attitude, 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 segmented by those who use online banking versus those who use physical branches. Online banking products may then be more successful when marketed to a receptive group of online banking users.

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.

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

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 in different areas to maximize the effectiveness of their marketing efforts.

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

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 the initial step in marketing, where the market is split into segments and then applied to marketing strategies to target the particular segments. 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, for example, geographic area, age, gender, and 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.

This involves splitting up the market into groups that share common characteristics. Divide your potential customers into groups based on the segmentation strategies you have chosen.

3. Research your market to understand it.

You need to develop a good understanding of each segment. They 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 product or marketing strategy.

Once you have defined and researched each segment, you can develop the products and marketing strategies to best target 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. Real-world feedback from consumers is important for a product’s sucess.

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.

Segmented market strategies and their benefits

Marketing 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.

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-related 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 February 2023*

Product manager

Average annual base salary (US): $102,221 [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

Segment marketing manager

Average annual base salary (US): $89,664 [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): $67,689 [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): $73,454 [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): $52,380 [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): $62,224 [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

Marketing degrees

The strategy to landing a marketing segmentation role is to consider the marketing coursework in a degree. You must have relevant skills that will make you stand out. A market segmentation analyst's main responsibilities include:

• Collecting data about the target audience

• Analyzing that data to identify trends and insights that will help the company better understand its customers

• Using these insights to create campaigns to increase customer sales, retention, and loyalty

A marketing degree with a focus on data analysis can be particularly useful to learn more about market segmentation. The marketing degree you choose should cover the following:

Marketing communications

Marketing communications is the process of communicating information about products, services, and brands to customers. Marketing communication requires various methods to inform consumers about products, including advertising, PR, sales, and promotion. As a marketing student, you’ll learn how to create marketing messages intended for specific audiences and then deliver those messages through various media.

Marketing management

In marketing management, you’ll learn to develop strategies for products or services. You’ll cover coursework about how to advertise, manage a marketing team, and sell to desired customer segments.

Data analysis

Marketing is all about data. Marketers collect as much data as possible about their target audience to sell their products or services better. In your marketing degree program, you should learn how to gather and analyze different types of data to help you make smarter product development and marketing decisions. You’ll need to interpret this data and use it to increase sales and profits.

Optional: MBA

The MBA is not specifically tailored to any career path, but rather designed to allow you to learn and apply a set of business management strategies that are applicable across many different fields. An MBA, combined with market segmentation professional certificates, can be an excellent route to a well-paid job.

Read more: Master's in Marketing: A Guide

Next steps

Professional certificates are a great way for you to learn about the latest marketing trends without committing to a full degree program. To learn more about digital marketing, consider the Digital Marketing Specialization offered by the University of Illinois or the Meta Marketing Analytics Professional Certificate offered by Meta.