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Segmentation definition in marketing: Why is it a key concept?

May 12th 2022


By Dominic Carelse

Marketing Manager


When you are building a marketing plan for your product, it’s critical to understand that the market is not homogenous – even within small subsets. For instance, a pink leather shoulder bag and knee-high kid boots may be the dream ensemble for some women, but many others would run screaming into the night at the thought of being seen in that combo. And a souped-up red sports car isn’t necessarily every man’s vision of his fantasy ride. That’s where market segmentation comes into play. 

Using a combination of external market research and your company’s internal customer data, market segmentation analysis divides your target market into subsets — and even subsets of the subsets — based on a combination of factors, including: 

  1. Demographic information such as age, gender, income, education, and family size.
  2. Geographic information such as country, state, city, region, or neighborhood.
  3. Psychographics such as lifestyle, values, attitudes, and personality traits.
  4. Consumer behaviors, such as purchasing habits, browsing behavior, carted items, and product preference.
  5. Firmographics, which include information about their company size, number of employees, industry, company location, financial performance, and the technology they use.
  6. Media preference data such as preferred browser, social platform, online forum, or search engine.

Once you’ve identified each segment and their associated purchasing habits, you can tailor your marketing strategies, products, and experiences to boost relevance, engagement, and conversion rates, thereby enhancing satisfaction and growing revenue. 

Understanding market segmentation

Market segmentation is more than just a marketing strategy; it’s a way for you to represent and engage with the diversity in your market. Market segmentation allows you to differentiate your products or services to match specific customer needs. By doing so, you can target your marketing efforts more accurately and allocate resources more efficiently, enhancing customer satisfaction and loyalty, and ultimately increasing profits. 

Types of market segmentation

There are several types of market segmentation, each with its unique focus and approach. The most common types are demographic, geographic, firmographic, psychographic, media preference, and behavioral segmentation. 

Demographic segmentation

Demographic segmentation is probably the most straightforward and commonly used form of market segmentation. This method divides the market into groups based on variables such as age, gender, family size, income, occupation, education, religion, race, and nationality. It’s based on the assumption that the characteristics of a person can indicate their buying behavior. For instance, the assumption is that products targeted at high-income groups would differ significantly from those targeted at low-income groups. 

Geographic segmentation

Geographic segmentation divides the market based on geographical boundaries. This could be as broad as dividing by country or as specific as a neighborhood. It considers factors such as climate, region, population density, and urban or rural setting. The fundamental belief here is that people’s preferences and needs vary according to their where they live. For example, the clothing needs of someone living in a cold climate will differ from those living in a tropical climate. 

Firmographic segmentation

Firmographic segmentation is similar to demographic segmentation but is used for segmenting business markets instead of consumer markets. It includes segments based on company size, number of employees, type of industry, location, financial performance, and technology they use. This form of segmentation is particularly important in B2B marketing, where understanding the nature of the business you are selling to can significantly impact your marketing strategy and sales approach. 

Behavioral segmentation

Behavioral segmentation divides consumers into groups based on their knowledge of, attitude towards, use of, or response to a product, service, or brand. This type of segmentation is based on actual consumer buying behavior and includes factors like brand loyalty, usage rate, user status (first-time, regular, or occasional), readiness to buy, and benefits sought. Behavioral segmentation is powerful because it directly ties into the consumer’s experience with the product or service. 

Media preference segmentation

Media preference focuses on a consumer’s preferred channels for receiving information and advertisements, including social media, television, print, or online platforms. This segmentation recognizes that different groups of people have distinct media consumption habits and behaviors. Tailoring your marketing strategies to each segment’s preferred media ensures a higher engagement rate, as those consumers are more likely to notice and interact with content on their favored platforms. 

Psychographic segmentation

Psychographic segmentation categorizes consumers based on their personality, values, opinions, interests, and lifestyle. This approach delves into the psychological aspects influencing buying behaviors, such as their attitude toward health or their environmental concerns. It’s valuable for tailoring marketing messages that resonate deeply with the consumer’s motivations, making the product or service more appealing on a personal level. 

How to collect the data you need

Effective data capture tactics include onsite popovers; triggered messages, such as a cart and browse recovery email series, price drop, and back-in-stock emails; and dynamic coupons, navigation bars, and banners. These tactics are excellent for collecting zero- and first-party data. First-party data includes customer behaviors, actions, and interests collected on your proprietary domains. Use this data to make your communications and interactions more relevant and personal. 

Demographic, geographic, firmographic, and media preference data can be collected directly from the customer using surveys, registration forms, or via a loyalty program. This type of zero-party data is usually quite accurate because it is freely given by your customer, but it’s important to only ask for data you’ll use — 21% of consumers said it frustrates them when retailers don’t use the information they share in the preference center. 

Much of the data you need for personalization can also be purchased or acquired from second- or third-party data sources. Second-party data is gathered by your business partners from consumers who have freely given specific contractual consent for their data to be shared. Third-party data is aggregated from multiple sources, then packaged and sold via a data exchange. 

This method can pose quality and exclusivity issues – anyone can buy the same data. Worse, it can be difficult to know whether third-party data was collected in a compliant manner, so it’s risky or simply not permitted under data protection regulations such as the GDPR and CCPA. 

Second-and third-party data allows you to enlarge your pool of zero- and first-party data, but it can be expensive to collect, maintain the contractual agreements, and ensure legal compliance. 

Five benefits to data collection

  1. Growing your email and BAU newsletter subscriber lists
  2. Improving conversions of cart and browse recovery messages through better personalization
  3. Driving sales with other triggered messages such as price drop, replenishment, and back-in-stock emails and SMS
  4. Improving engagement on-site and in other communications and interactions through improved relevancy
  5. Increasing AOV using personalized product recommendations

How market segmentation studies can inform your strategy

Market segmentation studies are an integral part of strategic marketing. They provide insights that can inform various aspects of a marketing strategy. Understanding different market segments allows businesses to tailor their products, services, and marketing messages to meet the specific needs and preferences of each segment. This targeted approach makes marketing efforts more efficient and effective, leading to increased customer satisfaction and loyalty. 

Segmentation studies can also reveal which segments are most profitable or have the most growth potential. This allows businesses to allocate resources strategically to maximize returns. Additionally, segmentation can identify underserved or niche markets, offering opportunities for innovation and expansion. 

How to determine your market segmentation

Determining your market segmentation involves several steps: 

  • Step one: Collect data on your existing and potential customers. This can include demographic information, purchasing behavior, preferences, and other relevant data.
  • Step two: Analyze the collected data to identify patterns and similarities among customers.
  • Step three: Based on the analysis, identify distinct groups within the market that share common characteristics.
  • Step four: Evaluate the potential of each segment in terms of size, profitability, accessibility, potential for growth, and alignment with business objectives.
  • Step five: Select the most viable segments to target based on your evaluation.
  • Step six: Develop tailored marketing strategies for each selected segment. Keep in mind that not all segments will work for your business.


Segmentation is a critical marketing concept for targeting your audience more precisely and effectively. By understanding and implementing market segmentation, you can improve customer satisfaction, increase loyalty, and gain a competitive edge.


By Dominic Carelse

Marketing Manager