What is segmentation?

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Team Storyly
May 22, 2023
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What Is Segmentation?

Segmentation is the practice of dividing the audience for a brand or product into affinity groups or segments based on common qualities in order to tailor marketing efforts to that group. 

Why Is Segmentation Important?

Segmentation is important because it helps brands learn more about their audience in order to connect with them better and create more effective campaigns. By segmenting one’s audience, marketers can better identify and pursue their ideal customer base, while saving efforts on irrelevant segments. 

What Is Segmentation In Marketing?

Segmentation in marketing refers to the process of dividing a broad consumer or business market into sub-groups of consumers or segments. Segmentation is essentially the identification of subsets of buyers within a market who share similar needs and demonstrate similar buyer behavior. The world is made up of billions of buyers with their own sets of needs and behavior. Segmentation aims to match groups of purchasers with the same set of needs and buyer behaviors. Such a group is known as a 'segment'.

What Is Market Segmentation?

Market segmentation is the process of dividing a large, heterogeneous market into smaller, more homogeneous groups based on certain characteristics or behaviors. The objective is to identify high-yield segments—groups of consumers who are more likely to respond positively to a particular marketing strategy than others. By understanding these segments, businesses can tailor their products, services, and marketing messages to meet the specific needs of these groups.

Why Market Segmentation Is Important

  1. Focused Marketing: Instead of trying to market to everyone, businesses can focus their resources on the most promising segments.
  2. Efficient Resource Use: Segmentation helps in allocating marketing resources more efficiently, ensuring a higher return on investment.
  3. Customer Satisfaction: Tailoring products and services to specific segments often leads to higher customer satisfaction and loyalty.
  4. Competitive Advantage: Understanding market segments allows a company to identify underserved segments and target them effectively, gaining an edge over competitors.

Types of Market Segmentation

There are many ways to segment an audience, and each company must decide which is most valuable and relevant to their efforts but most segmentation falls into one of the four categories below. 

  • Demographic: Demographic segmentation is usually the first type that comes to mind when considering how to divide an audience into appropriate market segments. This category of segmentation includes user properties such as age, gender, marital status, household income, presence of pets or children, education, etc. 
  • Psychological: Psychological segmentation can be a bit more difficult because it requires a more nuanced understanding of why customers make the purchases and choices that they do. This data is often collected through qualitative feedback and may include market categories such as early tech adopters, sustainability-minded buyers, outdoor enthusiasts, cosplayers, frequent travelers, etc. 
  • Behavioral: Behavioral segmentation is often tied to the brand relationship of customers and is based on actions they have taken towards the brands’ offerings. In short, behavioral segmentation is based on what customers do while interacting with a company. Some common examples include the audience of an email or SMS list, first-time purchasers, repeat buyers, subscribers, lapsed subscribers, and those with abandoned carts. 
  • Geographic: Although occasionally included under demographic segmentation, geographic location can be of particular relevance to digital marketers, especially for companies with a national or international presence. Geographic user data can help optimize the user experience through language, currency, holidays, proximity to brick-and-mortar stores, and more. 

Aside from the four main categories of segmentation, there are other ways that the evolving digital landscape can create and track market divisions. Some emerging methods of audience segmentation include:

  • Technological: Customizing a user's experience for mobile vs. desktop is smart segmentation.
  • Level of Engagement: The user journey isn’t nearly as linear as it once was, and brand/consumer interactions happen across many platforms and methods of communication. One way to support an omnichannel approach is to segment users by engagement to reward your most active clients or to encourage others to join the conversation. 
  • Point of Discovery: This method of segmentation is based on how customers find your brand and products. Some examples include differentiation based on which ad was clicked, where the ad was placed, or which acquisition channel brought them to your website. 

Criteria for Effective Market Segmentation

For market segmentation to be effective, the segments must be:

  1. Measurable: The size and purchasing power of the segment should be identifiable.
  2. Accessible: The segment should be reachable through existing marketing channels.
  3. Substantial: The segment should be large enough to justify the resources required to target it.
  4. Differentiable: The segment should respond differently to various marketing strategies, indicating it is distinct from other segments.
  5. Actionable: It should be possible to develop effective marketing programs for the segment.

What are the levels of segmentation?

The process of effectively segmenting a brand’s audience is an ongoing one. It can take years for a growing company to find and define its audience(s) and even for established brands, appropriate segmentation can change based on any number of factors including social, political, and economic shifts and trends. There are, however, four levels of segmentation that describe the nuance of a brand’s understanding of its audience, and smart marketing teams are always working to create more effective segmentation.  

Mass Marketing: No segmentation. The message and product is essentially the same for everyone who encounters it. This is most often effective either for younger brands that are discovering their audience, or universally appealing brands that are so firmly established they do not need to segment their audiences, such as Coca-Cola, or Q-tip brand cotton swabs. 

Segment Marketing: There is a broad understanding of different audience segments in this style of marketing and the messages can be tailored to various customer personas. An example of segment marketing would be a clothing brand advertising their maternity collection in parenting outlets and promoting travel gear in outdoor adventure outlets. 

Niche Marketing: For many brands, niche marketing is the goal of audience segmentation. When a brand has found a niche, it can often lead to a high level of success among a loyal customer base that feels a high affinity for the brand and products. Aside from high customer loyalty, another advantage of niche marketing is the ability to control a market share within a well-defined segment. An example of highly successful niche marketing would be Subaru’s American campaign geared towards lesbians in the 1990s. By successfully identifying a segment of their existing audience and purposefully dedicating marketing efforts toward similar potential customers, Subaru enjoyed financial and cultural success. 

Micro Marketing: This level of segmentation is neither attainable nor ideal for all brands, so while it may be the most nuanced level of segmentation, it is not an appropriate goal for all campaigns. Micro marketing functions at a granular level with products and messaging targeted to hyper-specific customer types or even individual buyers. A small-scale example of micro-marketing would be a designer that creates custom wedding dresses, while a large-scale example would be Starbucks’ location-specific drinkware. 

How to determine segments

Determining the segments of one's audience can be a time-consuming and labor-intensive project, but CoSchedule market research has found that segment-based campaigns can be up to three times more effective than mass marketing. To determine your market segments, follow these steps: 

  1. Review Existing Customer Data: It’s likely that you already have a significant amount of information from your customer base, from shipping addresses to the frequency of purchases, ratings and reviews, interactions on social media– all of these can be data points that help to paint a picture of who your customers are and their relationship to your brand and offerings. By taking the time to analyze this data, especially if you can do so with the help of a CRM or analytics tools, you can start to define audience segments. 
  1. Fill in the Gaps: Once you have a clear understanding of what your existing data is telling you, it’s time to go after what it’s not telling you. What questions do you have about your audience? What insights would be valuable? Which of your past campaigns have soared and which have flopped and why? When gathering audience insights, try to go as close to the source as possible, ideally collecting zero-party data directly from your customer base. Be sure to include both quantitative and qualitative questions in your research so that you can work from measurable statistics as well as more nuanced insights. P.S. Don’t forget to thank your audience for their insight! 
  1. Define and Refine Segments: As data comes in and is analyzed, audience segments will hopefully start to emerge. In order to determine if an identified segment is valuable for marketing purposes, consider if it has all of the following five qualities:
  • Measurable: A meaningful audience segment should be data supported in terms of demographical data, lifetime customer value, and purchasing patterns, etc. 
  • Substantial: An identified segment should represent either a significant percentage of your audience or a significant percentage of potential revenue in order to be worthwhile.
  • Differentiable: If the same marketing campaigns or ad strategies would work for multiple segments, those segments are not different enough to be successful audience segments. 
  • Actionable: Identifying an audience’s needs means also identifying how your brand can meet those needs. How can you solve each segment’s problems? (And again, if the same solution exists for multiple segments, it might be necessary to reevaluate your segmentation. 
  • Accessible: Is the identified segment reachable? How will you communicate with them? If a market segment cannot be reached with existing tools, either a new strategy must be created to connect with them, or it’s best to put your energies elsewhere
  1. Humanize Your Audience: Once you have created audience segments that hold up to the scrutiny described above, it’s time to create personas and profiles for them. Best practices advise marketing teams to choose images, create names, and define personalities for their segments. The more real these personas feel to the marketing team, the more effective and motivating they can be for designing effective campaign strategies. 

What is segmentation strategy?

Segmentation strategy is just another way to say audience segmentation or market segmentation for the purpose of customizing a brand’s messaging to appeal to that segment. 

The strategy behind customer segmentation is to be able to present prospective and current clients with marketing efforts that are relevant to their lives, values, and desires, thereby increasing the efficacy of those efforts.  

What are some examples of market segments?

Marketing segments can be divided many ways, but the idea behind all is the create a set of accurate customer personas that help focus marketing efforts toward those segments. Some market segments include parents of young children, dog owners who enjoy camping/hiking with their dogs, season ticket holders of a sports team who missed a year of subscription, military families, retirees, and eco-shoppers.


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