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5 types of market segmentation to improve your reach

Team meeting about market segmentation

Key takeaways

  • Market segmentation allows you to target niche groups with more personalized marketing messages instead of running generic mass marketing campaigns
  • Segmentation variables include consumer behavior, age ranges, hobbies, ZIP codes, and more
  • Different segmentation strategies, such as psychographic or geographic segmentation, can give you different insights about potential customers in your area

Your business isn’t one-size-fits-all. Imagine a dog daycare marketing to cat owners or a roofing business marketing to teens. Trying to make your business appeal to everyone will lead to wasted time and money. 

Instead, the key to getting more from your resources is marketing segmentation—separating your target audience into groups that are easier to target by their interests, traits, and more. Learn why marketing segmentation works and how market segments can help you improve your targeting.

What is market segmentation?

Market segmentation is the practice of dividing up a broad market—for example, all consumers within your state—into smaller groups of people with similar characteristics. These subgroups may share the same habits, interests, ethnicities, and other distinct traits.

As you start to segment your audience, you’ll start to see how the needs of potential customers differ between subgroups. For example, if you own a childcare business, you may learn that clients with larger family sizes seek affordable services, while parents without 9-to-5 jobs (like nurses) prioritize daycares with flexible pick-up times.

Your market segmentation analysis will help you find the best target audience to focus on. Instead of assuming you can solve everyone’s needs, you’ll know which members of your local market you can effectively serve. As a result, you can build a more informed marketing strategy.

Benefits of market segmentation

Market segmentation: Team using sticky notes

Marketing segmentation challenges you to view the potential customers in your market as a diverse group rather than as a uniform whole. When you start to understand the makeup of your market, you can improve your decision-making and get better results from your marketing efforts. Here are three ways that market segmentation can help your business thrive.

1. Gain clarity on your target market

Getting to know how customer needs differ across your audience or industry will help you identify the niche markets your business is best suited to serve. Instead of trying to lead a broad market—which can be incredibly difficult for a small business—you can gain the competitive advantage within specific market segments.

Once you clarify your target market, you can develop stronger marketing messages that are more appealing to your audience. This way, you can achieve better return on investment on your marketing campaigns.

2. Discover new marketing opportunities

As you go through the market segmentation process, you’ll list all of the subgroups in your market, including those who your competitors are targeting. Identifying which niche markets are underserved allows you to proactively target those high-potential groups and become their preferred brand.

Researching and segmenting your market at least once a year can also help you spot trends and market changes. For instance, if you’re starting a nail salon business, you could benefit from knowing that more high-income consumers are moving into your area and might be interested in luxury services.

3. Increase brand loyalty

As you hone in on your target audience, you can also increase your brand loyalty. Whether you’re developing new products or running a promotion, you’ll know exactly which market segments to target in your campaign. Giving clients a customer experience that feels tailor-made for them will keep them returning again and again.

Since 65% of an average company’s revenue comes from existing customers, loyalty is essential for helping your business thrive.

Types of market segmentation

Before you can divide your market into subgroups, you need to choose a market segmentation strategy. The most common strategies use unique segmentation variables or types of traits: demographic, psychographic, geographic, behavioral, and firmographic segmentation.

Once you know your strategy, you can start to analyze existing customers through the lens of the segmentation variable you choose. Resources like government data and market research tools like Attest and SightX can help you identify who’s in your market, so you can start breaking it into subgroups that share common characteristics.

Choosing a strategy will help you ask the right questions as you conduct market research, whether you’re creating surveys or gathering census data about your neighborhood.

Demographic segmentation

Group of people with their hands stacked together

Demographic segmentation divides your market based on personal attributes, such as age, gender, education level, race, marital status, and religion.

Using demographic information is one of the simplest ways to segment your market. Your questions—for instance, “What is your age?”—will be easy for your respondents to answer and for you to measure. 

Demographic segmentation is a great strategy if you want to compare the sizes of subgroups in your area to see if they’re worth pursuing. It can also help you track which segments are currently buying from you or engaging with your ads.

Psychographic segmentation

Unlike demographic segmentation, psychographic segmentation focuses on qualitative insights, such as values, personality traits, and lifestyles. When you use this strategy, you can ask questions about hobbies, political views, pain points, and similar traits.

This type of segmentation will help you learn about what motivates each segment of your market. It’s a great strategy to use when you want to meet buyers’ needs or enhance your marketing messages.

Geographic segmentation

Geographic segmentation creates subgroups of people who live or spend money in the same ZIP code, city, or county. This strategy can help you find the best areas to operate in and identify underserved customers by mapping out your existing audience.

You can even divide your market based on the climate they live in or their proximity to a competitor or type of retailer. For example, a food truck business might be interested in people’s proximity to grocery stores.


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Behavioral segmentation

Behavioral segmentation creates subgroups based on how people behave. For instance, you can focus on day-to-day activities like app usage or purchasing habits like shopping frequency. Behavioral information is a great way to determine the best marketing channels to reach each subgroup or learn why people are buying products like yours.

Firmographic segmentation

If your customer base is mainly composed of other businesses, firmographic segmentation is essential. Instead of focusing on a person’s attributes, you can focus on a company’s traits. For instance, you may divide your audience based on company size, revenue, or industry.

Using a firmographic segmentation strategy offers many of the same perks as using a demographic approach. The data you collect will be easy to measure, making it easy to identify your best opportunities and track your results.

Identify your customer segments

Marketing segmentation is a practice that can help you better understand the unique opportunities within your broad market. No matter which segmentation strategy you choose, you’ll learn more about the subgroups within your market and how their needs differ. Ultimately, you’ll be able to figure out which niche markets your business is best suited to help.

As you start to target a niche market instead of a broad one, you’ll be able to create actionable campaigns with more personalized marketing messages. You’ll also be able to provide a customer experience tailored to your niche markets—generating loyalty that keeps customers coming back. To continue building on the success of these marketing campaigns, check out these tips for small business branding.

The information above is provided for educational and informational purposes only. It is not intended to be a substitute for professional advice and may not be suitable for your circumstances. Unless stated otherwise, references to third-party links, services, or products do not constitute endorsement by Yelp.