What is Market Segmentation: Meaning, examples, and tips

When you want to reach customers with your marketing message, you need to make sure it’s optimized for a specific market. Otherwise, if you aim too broadly, you’ll reach a lot of people not interested in your solution. This is where market segmentation comes into play.

What is market segmentation?

Market segmentation stands for the act of dividing your target audience, clients, or users into subgroups based on their similarities. These can include demographics, behavior, needs, pain points, interests, industry, paying capacity, and other metrics. It’s essential for companies of all sizes as it helps business-owners build more targeted campaigns.

Segmentation is an ongoing process as you need to constantly review customers’ actions and characteristics and divide them into smaller groups or transfer them from one group to another.

What is a market segment?

In its turn, a market segment is a subgroup of users or clients who share one or more common characteristics. Each market segment is unique and should be approached differently, taking into consideration their lifestyles, needs, and personalities.

Importance of market segmentation

Segmentation is a way to personalize your approach. Though it’s a time-consuming task, the perks of it are immediately seen in the results through both KPIs and, more importantly, ROI.

When you understand pain points and problems of your target audience and segment it into smaller lists, catering to each group individually, your sales and marketing teams can:

Find out which leads bring the most revenue:
By segmenting groups and monitoring them, you will learn which ones have the highest values and which underperform. This will let you know in which way you should approach this or that market segment of leads or clients.
Organize more effective spot-on targeting:
Market segmentation lets you realize highly personalized targeting: leads who are looking to buy a new laptop won’t get an offer to buy a new chair.
Offer better solutions to leads’ problems:
Having a bright idea of what kind of leads are searching for what, you can offer your solution to them. If it’s exciting and affordable, it will soon become a lead’s frontrunner solution to their problem.
Nurture better and maximize conversions:
Segmentation lets you create and share relevant content with your segments, both educational and promotional, depending on their stage in the buyer’s journey. In its turn, such precise nurturing lets you improve your conversion rate.
Improve your product:
Communicating with different segments of your customer base, you will know what can be improved to turn your clients into dedicated fans and even brand ambassadors.
Decrease churn rate:
When you approach every lead in a unique way, reflecting their interests and desires in your offer, they feel special. This increases your chances to lower your churn rate.

All the above-mentioned points lead to what you as a professional are seeking most of all – better sales, higher revenue, and improved ROI. Here’s a handy infographic on market segmentation:

Types of segmentation

The more you segment, the more targeted your campaigns will be. You can segment leads and clients however you deem best. However, there are five main market segmentation examples, and you can use them as the basis to start your segmentation process.

Demographic segmentation

This type of market segmentation is the most popular and can be used as the basic one. To segment clients according to their demographics, you need to know the following:

age
gender
ethnicity
job position
education
marital status, etc.

Geographic segmentation

This market segmentation example is based on your lead’s physical location. This will help you avoid any cultural faux pas, use country-specific peculiarities in your favor, create campaigns that address location-specific needs, and send them on time. Here’s the data you’ll need:

country
region
city
area type (urban, suburban, rural)
time zone, etc.

Behavioral segmentation

Analyze the way your customers interact with your brand. This will help carry the lead to purchase easier, as well as reduce the churn rate. Many characteristics can count as behavioral, here are some of the most popular:

purchasing barriers
past purchases
purchasing frequency
cart abandonment rate
favorited items
product characteristics sought
price range
usage
brand dedication
time the user is most likely to purchase
customer satisfaction
type (B2B, B2C)
special status (e.g., white whale, long-time brand fans, critics, etc.)

Psychographic segmentation

This type presupposes categorizing customers and audiences by their personality traits and characteristics. Here are some psychographic market segmentation examples:

lifestyles
values
interests
opinions
attitudes
beliefs
priorities
motivations, etc.

Customer journey-based segmentation

Divide all leads and clients into smaller groups based on the stage of the buyer’s journey they are at now and their status for your company overall:

user status (lead, first-time buyer, regular, defector)
stage of the customer journey, etc.

Market segmentation tips

The best way to figure out what leads and customers want and how to segment them is to take a good look at your current clients. The answers to the questions below will help you.

Who are they?
What problems do your customers have?
What are their pain points?
Can you help them and how?
What do your customers need from you?
What are their buying concerns?
What motivates them to make a purchase?
What influences their decisions?

Once the answers are given, split all the clients and customers you have into groups. These tips will help you in market segmentation:

Create advanced signup forms. Use as many fields with relevant questions as you can; the data you collect will later help you segment subscribers and clients into groups.
Pay attention to the stage of the customer’s journey the prospects are at because each of them is characterized by specifics unique to that stage.
Use time zones. If you want to be at the top of, let’s say, the recipients’ inboxes, you need to know the best time for sending emails and your lead’s location. This information will help you schedule your email sequences for maximum conversions.
Take the recipients’ interaction with your emails into consideration. Set triggers in your email sequences and then divide all the recipients into groups: those who ignore the emails, open them, click the links, reply, etc.
Do not add one person to multiple groups. This is highly likely to cause a lot of misunderstandings. Create groups that won’t overlap.
Avoid creating tiny groups (less than 1% of the overall number of your clients). Such groups are economically irrational. Combine those people with some other groups instead. If you absolutely need to address a specific type of important clients (e.g. your “white whales”), address them individually.
Pay most of your attention to segmentation based on previous purchases and experience. Purchase history, subscriptions, what they are searching for on your website, etc., gives you the most important answer – which group brings in the most revenue for your business.

Through market segmentation to better sales

Segmentation is a major part of your sales and marketing and no successful business can ignore it. You can segment leads, prospects, clients, and users depending on any information you have on them: this can be demographics, geographical or behavioral data, their stage in the buyer’s journey, their previous experience or their interaction with your emails, and so much more. Segmenting your audiences can increase your ROI by up to 450% and clear up the picture of your target market.