Market segmentation benefits
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Marketing to the wrong segment can feel like barking up the wrong tree, or more specifically, barking up tens of thousands of wrong trees. That’s where effective marketing segmentation can bring in some serious value for your business.
Market segmentation helps you target smarter by dividing your audience into distinct groups—like by behavior, location, or values—so you can tailor messaging and offers that convert better.
Using a mix of segmentation types (demographic, psychographic, behavioral, geographic) allows B2B teams to build more relevant campaigns, allocate resources efficiently, and improve customer engagement.
The STP framework (Segmentation, Targeting, Positioning) is key to turning segmentation into action: identify the right segments, choose which to focus on, and deliver value propositions that speak directly to their needs.
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Nearly everybody in sales has, at one point or another, heard someone reasoning that simply adding more people to the funnel will improve their sales numbers while preserving their conversion rate.
If you’re a sales rep making 30 calls a day, you might reasonably extrapolate that making 60 calls a day would double your closed deals. Unfortunately, it’s not that straightforward.
Building a sales process can be complicated. What one audience might find valuable might just be noise for another.
Different demographics respond differently to marketing campaigns, and finding the right market segment for your products or services can help you tailor your marketing strategies to be the most impactful they can be.
This guide to marketing segmentation will help you find your target audience and choose the best market segmentation strategies.
Market segmentation is the process of qualifying companies (or people) into groups that respond similarly to specific marketing strategies. This is the first critical step in creating a marketing and sales process tailored to differentiate your business in the market and resonate across multiple demographics.
Market segmentation divides customers into segments based on shared characteristics, behaviors, or other attributes, so you can create marketing strategies that appeal to entire groups. Your marketing segmentation strategy will be mainly influenced by what your product is and which types of companies are already buying it.
Wendell R. Smith first coined the expression “market segmentation” in his 1956 publication Product Differentiation and Market Segmentation as Alternative Marketing Strategies. Smith wrote that modern marketing appeals to selective rather than primary buying motives.
In other words, consumers actively contrast products against one another rather than simply purchasing a product to satisfy an immediate need. This realization was the inception of the modern market segmentation we practice today.
Before 1956, there wasn’t a huge market variety, and general stores tended to carry only one or two brands’ versions of the same product. As time passed, more and more emerging brands began offering similar products and thus needed to differentiate themselves through branding and targeting different markets.
It wasn’t enough to just manufacture ketchup. You had to identify your brand as America’s ketchup, kids’ ketchup, or fancy ketchup.
This 1970s Virginia Slims advertisement is marketing cigarettes to women. Thankfully, we’ve come a long way (baby) from terrible advertising.
Market segmentation provides several benefits to small teams and enterprises alike, including:
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Market segmentation helps savvy marketers categorize their target customers based on shared characteristics to keep their efforts focused and effective. Below are the most common types of market segmentation.
Demographic market segmentation is the most commonly used form of market segmentation and entails categorizing your market based on age, gender, income, profession, race, religion, education, location, family situation, etc.
More specific characteristics are categorized under the umbrella of psychographic segmentation. Less tangible than demographic segmentation, this classification method includes details like lifestyle, personality, beliefs, values, and social class.
This evaluation is essential because two individuals can possess identical demographic information but make purchasing decisions completely differently, thus requiring different marketing.
Another example of market segmentation is behavioral segmentation. At its core, behavioral segmentation is the act of categorizing prospects based on their actions, usually within your marketing funnel. For instance, prospects who visited a landing page for an upcoming event might benefit from receiving a personalized invitation.
Segmenting your market based on behaviors is typically done by marketers within their marketing automation software. Still, any company with a mailing list has already performed behavioral segmentation simply by tracking prospects who have signed up to receive emails.
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Geographic market segmentation takes into account prospects’ locations to help determine marketing strategies. Although SaaS sales are relatively unaffected, a salesperson of gigantic coats knows to avoid pitching to Arizona residents.
Let’s explore a few more marketing segmentation techniques ever marketer should be aware of.
Price segmentation alters the price of similar products and services sold to different consumer groups. If you ever forced your kids to pretend to be under a certain age to qualify for the “kids eat free” special, then you understand the power and utility of price segmentation.
However, price segmentation can get much more granular. This type of segmentation can be used to identify customers willing to pay more for a particular product or service that they perceive to be more valuable.
Done correctly, price segmentation can capture the maximum revenue for each transaction.
Instead of categorizing consumers based on age, location, income, etc., firmographic segmentation categorizes companies based on industry, annual revenue, job function, company size, location, status, performance, etc.
For B2B marketers, utilizing firmographic segmentation is non-negotiable to a high-performing marketing strategy.
Just as the demographic segmentation variables can help you form a buyer persona at the consumer level, firmographic segmentation can help you develop a buyer persona at the company level.
Generational segmentation is almost comparable to the “age” variable in demographic segmentation. However, generational market segmentation goes beyond age by considering a particular generation’s preferences, habits, lifestyles, and attitudes.
It’s self-evident that the generations are vastly different. Someone born in the 1960s will likely have experienced a different culture than someone born in the 2000s.
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Life stage market segmentation is the process of dividing your market based on the life stage of your target audience. For example, someone married with five kids may respond well to an emotional advertisement about convertibles during their midlife crisis.
Seasonal segmentation targets people based on their purchasing habits during certain periods of the year. It can include actual seasons (spring, summer, fall, winter), events (Coachella, Super Bowl), and holidays (Christmas, Mother’s Day).
Much like firmographic market segmentation, technographic segmentation only applies to B2B audiences. It’s used to target companies based on the types of technology they’re using.
Whether it’s a customer relationship management (CRM) platform, a website CMS, or a niche-specific software tool, utilizing technographic segmentation can help enhance sales and marketing efforts.
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The needs-based segmentation method focuses on the underlying needs and motivations of the target audience. This technique requires drilling down below the psychographic, demographic, and behavioral surface to uncover the “why” behind the customer’s actions.
With a needs-based analysis and market segmentation approach, marketers can deliver messaging that resonates with their audience on a much deeper level. When done correctly, needs-based segmentation often results in higher audience engagement, conversions, and customer retention.
Once marketing teams have determined a customer’s financial worth to the company, they can employ a value-based market segmentation strategy to define their target market. Knowing how much your customers contribute to your bottom line separates the high-value customers from the others for optimized revenue growth campaigns.
At the heart of this market segmentation technique is the customer lifetime value (CLV), which is an estimate of the total revenue expected from the customer during their relationship with the company. Marketers must consider factors such as purchase history, average order value, and retention rate to determine the CLV.
An airline might divide its target audience into two primary value-based segments: High-value and low-value segments.
The high-value segment could include frequent flyers, possibly those who travel frequently for business and purchase more expensive seats and upgrades. Its low-value segment might consist of price-sensitive travelers who travel occasionally and usually opt for discounted options.
These are the marketing strategies the airline might implement for each:
In usage rate market segmentation, marketers group their target audience according to two variables: The degree and frequency with which they interact with the company’s products and services. With this segmentation technique, marketers can create marketing strategies hyper-focused on a particular subset of customer needs and behaviors.
This is another segmentation approach that requires serious data analysis. It delves deep into when and how customers engage with your products and services. Some important metrics to consider are purchase frequency, feature usage, and website engagement.
Micro-segmentation involves dividing a customer base into even more precise target groups in line with various factors. These factors can include any one or more of the segmentation techniques mentioned above. But, these micro-groups can also be determined through predictive analytics.
Marketers opt for micro-segmentation when they plan to run highly targeted campaigns to ensure they resonate with everyone in the target group. This type of segmentation calls for in-depth data analysis to pinpoint ideal candidates for the target audience.
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Every market segmentation strategy is different, but most of them follow one of two fundamental outlines.
The concentration market segmentation strategy is when a company determines that its efforts are best focused solely on a single market segment. This strategy is particularly great for small, growing businesses with a viable use case within a specific market. Focusing on one segment will allow the company to invest more time, energy, and resources into one specific market, which minimizes advertising spend and potentially mitigates wasting efforts across multiple segments.
Concentration strategy is like putting all your cards on the table—if it doesn’t work out, it can end badly. If the market segment hasn’t been properly vetted and turns out to be a bust, all your marketing efforts could be wasted. Be sure to carefully plan and execute thorough market testing before committing your business to a single market segment.
A multi-segment market, or differentiated market, segmentation strategy is when a company’s marketing strategies are designed to advertise one product to more than one market segment.
Although apparently “safer” than the concentration strategy, multi-segment marketing is a much larger tax on a company’s marketing spend, as it requires completely different campaigns for each market segment.
However, if a particular segment is highly receptive and converts well, it’s easy to tailor your strategy to market more directly to that segment.
Ready to complete market segmentation for your company? Here are three phases to follow during the process that will help you ensure you’re analyzing your markets effectively.
Collect the data you need to determine your key market segments.
Group your contacts in a way that makes sense for your marketing and business goals.
Use your preferred marketing channels to reach your audience.
First things first—it’s time to gather data so you can use it to form your market segments. There are many ways to go about it—some people like to buy pre-made lead lists, and others prefer to do their own research.
Two helpful methods of researching prospects are web forms and surveys. You can place high-quality data behind web forms that require site visitors to submit their name, email address, and other information to access the content. Surveys can get specific information from potential buyers in exchange for tangible rewards, like a gift card or special offer.
If you’re doing your own research, you can frame your searches along the following categories:
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There are many ways to sort data. Most involve expensive analysts, marketers, and lots and lots of time. Although the DIY route is faster, it is no substitute for a comprehensive market segmentation strategy.
Assuming time and money are an obstacle—You can approximate your own market segmentation by compiling your data into one single source and running filters on it to group your prospects and companies manually by segment.
Remember, ask yourself the following:
Now that your segments have been firmly established, it’s time to connect the dots and breathe life into your marketing. This means establishing a plan for each of your marketing tools and channels and coming up with real ways to reach your segments with them.
You’ll be attributing different marketing and sales tactics to each stage of your pipeline and determining what sticks. The good news is that your market segments are clearly defined, and you’ll be able to speak to them clearly.
The real challenge is continuously improving your efforts with trial and error to get the best possible conversion rates.
There’s a good, old-fashioned way to map this out quickly and easily:
Repeat this exercise for each market segment to help establish a concise and repeatable process for marketing to your various audiences. You can fully flesh out your segmented marketing strategy by configuring your sales software and email automation around the outline you’ve created, then make tweaks as needed.
To this end, some CRMs offer reporting and performance tracking, as well as custom reporting, to help you figure out what’s working and what needs to change.
Now, you’ve clearly segmented your demographics, figured out your market segmentation strategy and procedure, and mapped your sales processes tightly to your market segments.
Because of this, you should clearly understand how to talk to your prospects and differentiate your outreach efforts based on the market segment.
The challenges that lie ahead are rooted in constantly adjusting your marketing. That means testing your messages and tactics and measuring your audiences’ responses.
If you’re ready to put your sales and marketing automation into action, get started with a free trial of Nutshell today!
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Focus on these five key metrics: engagement rate (clicks, opens per segment), conversion rate (revenue generated per segment), customer acquisition cost (CAC), customer lifetime value (CLV), and churn rate. Track segment-level performance against your baseline to identify which segments are most profitable. Create a segmentation scorecard that compares each segment’s performance and adjust your strategy based on results.
Common pitfalls include: over-segmentation (creating too many segments), using stale data, ignoring behavioral insights, relying solely on demographics, and not testing segment performance. Avoid these by keeping 2-5 key segments, regularly updating data, incorporating behavioral and psychographic data, and continuously testing and optimizing. Use a CRM to track segment performance and automation tools to keep segments dynamic.
The biggest pitfalls? Going too broad or too narrow. Cast a wide net and you’ll waste budget on irrelevant audiences. Too narrow, and you’re chasing segments too small to matter. The other trap: assuming segments stay static. Customer needs evolve, so revisit your segments regularly to keep your spending sharp and revenue flowing.
Ask yourself five questions: Is the segment measurable? Big enough to be profitable? Stable long-term? Reachable with your marketing? Will they respond similarly to your messaging? If you can say yes to all five, you’ve got a solid segment worth pursuing.
Start by spotting patterns—are certain customer types drifting away? Listen to what current and former customers actually tell you about your offerings. Then expand your reach across new channels: content marketing, email, SEO, paid ads. Fresh channels often unlock fresh audiences.
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