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Guide to building a segmentation strategy

Discover niche markets and drive company growth with a strong customer segmentation strategy.

You’ve worked to create an amazing marketing campaign that you hope will engage your target market. How can you be sure that your perfect message will resonate with the right people? Build an effective segmentation strategy, and your target customers will respond.

Market segmentation is a marketing strategy that is used to divide your target market into smaller groups that share similar characteristics. The purpose is to be able to optimize and personalize your marketing message for each group or segment.

  • Specific, strong marketing: because your marketing messages are tailored to smaller groups that share characteristics, your messaging can be very specific and relatable to the group and their needs.
  • Identify new niche markets: market segmentation can uncover new niche customer segments as well as new ways to serve existing markets.
  • Improve customer retention: your personalized customer journey will provide an excellent brand experience, which will bring customers back for more.
  • Differentiation: your brand will stand out from the competition and be remembered by potential customers.
  • Targeted advertising and marketing: you can use segmentation data to create buyer personas. Use these personas to create messages based on demographics and other characteristics.
  • Inspire brand loyalty: personalized messaging makes customers feel like you know them, and that inspires trust and loyalty.
  • Create specific and effective marketing strategies: knowing your target segment helps you decide what types of messaging you should use and where you can best reach those customers.
  • Drive growth: in-depth knowledge of your customer segments puts your brand in the unique position for encouraging repeat purchases, upsells, and trade-ups.
  • Transform product development: customize products and features to the needs of your different market segments.

There are several types of market segmentation. You’ll choose your segment types based on your business objectives.

Five main types of market segmentation

DemographicGeographicPsychographicBehavioralFirmographic 
Division by basic population traits is useful in segmentation.Where your customers are located can affect values, climate-specific needs, and other traits.Based on personality characteristics to decode the emotional aspect of buying.Based on how customers interact with your product or service. It can help determine your positioning.Primarily used by B2B businesses, this reveals shared company or organization attributes.
AgeGenderIncomeOccupationMarital statusSocial classReligionEducationFamily sizeEthnicityState CountyCountryDistrictCollegeCommunityPostal codeInterestsAttitudesOpinionsValuesLifestyleBeliefsHobbiesLife goalsSpending habitsPurchasing habitsBrowsing habitsInteractions with brandLoyalty to brandPurchase frequencyPrice sensitivityIndustryCompany sizeCompany locationNumber of employeesPerformanceExecutive titleSales cycles

Your target customers can be segmented by other characteristics (such as social media use) or by a combination of characteristics that fit with your brand’s needs.

We’ve covered what market segmentation is, the benefits of using it, and the segmentation types. Now, let’s move on to strategy. Market segmentation is considered a strategy because it’s not a one-and-done task. You should revisit your strategy to ensure that it is still relevant and accurate, reassessing your market segmentation strategy:

In times of rapid change

The best example of this would be the way in which the COVID-19 pandemic affected businesses and how they reached their customers who were either quarantined, sheltering in place, or simply staying home to avoid exposure. Retailers who did not sell online had to investigate ecommerce solutions. Restaurants had to figure out how to take orders online and deliver efficient curbside service. The pandemic was a perfect time to reevaluate your market segmentation to learn how to serve your customers' needs during an unusual time. Evaluating the new circumstances of their market segments is how some businesses managed to thrive.

Many businesses lost customers, but some gained new ones by offering their services in convenient ways during the turbulent days of the pandemic. 

Annually

As time passes, your customers’ lives change. They move to new locations, perhaps outside of your delivery area. They get married. They have children. They have more or less disposable income. Your customers may have new needs and wants from your business as compared to last year. Take a look each year to make sure your customer segmentation data is still accurate and if you are still meeting their needs. 

Periodically

In addition to an annual review, there may be circumstances that affect your customers throughout the year. Holidays can influence customers’ buying habits in a big way. They’ll probably buy more, spend more, and might even travel during the holiday season. Will your business be affected? Don’t guess. Find out and reassess your strategy for the season.

Take another look at your segments and see if a particular event or time of the year may affect their buying decisions and your business by extension. Once you know what your customers are planning, you can predict what’s coming and prepare your business.

In addition to monitoring your market segmentation throughout the year, you should remain aware of industry trends and changes. SurveyMonkey has a market research solution that can help. Our Industry Tracker keeps you in the know about your industry with insights from consumers and decision-makers.

It’s essential to consider which type of market segmentation strategy you want to employ. There are two main types of strategies:

Smaller or new businesses often choose the concentrated strategy. This involves choosing one market segment to focus on with all of your time, money, and resources. The strategy works when the target group is small because it has to appeal to the entire segment to be successful. 

When using a concentrated strategy, growth opportunities are severely limited. Once you are established and are experiencing success with your market, you may choose to move to a differentiated strategy. 

A differentiated strategy focuses on two or more market segments. This strategy is generally used by companies that have customers in several different segments. It allows them to create personalized messaging to present their products to each segment in a way that resonates with them.

This option takes more effort, but it typically yields higher rates of success because revenue is coming in from multiple segments.

Once you’ve decided whether you’re using a concentrated or differentiated strategy, it’s time to choose the right approach for your market segmentation strategy based on the needs of your business by following these steps:

What problem does your product solve? The primary need for your product is something your customers have in common. Within that group of customers, there are different market segments that have various qualities and experiences in common. Take a moment to consider who you think would find your product useful and then think about ways that group could be sorted into different categories.

This is the point that market research enters the process. Use surveys, focus groups, polls, and interviews to learn more about your customers. When you analyze this database, you’ll see trends, learn how much customers spend, their shopping habits, and other data to help you identify your main segments.

The data you’ve collected will allow you to identify smaller segments that have needs you aren’t currently addressing with your products. These niche markets may have new uses for your products that offer new opportunities for growth.

Analyze behavior data to understand how different segments make buying decisions. This will help you to identify the types of customers who are likely to buy your products, and how to frame your advertising and marketing efforts so that each segment views them favorably.

We mentioned the creation of buyer personas as a benefit to market segmentation. Buyer personas are fictional individuals that your company creates to better visualize your ideal customers. Comprehensive personas include demographics, challenges, interests, how your product helps them meet a need, how you can help them meet their overarching goals, and even an image to help you visualize the buyer. 

Personas are incredibly helpful in segmentation and in your overall marketing plans. By using personas, every member of every team is visualizing the same customer for your product—from your development team to your packaging designer. These personas will feature heavily in your segmentation strategy.

Market positioning is the process of establishing a brand image that stands out from the competition. You may position your product in different contexts depending on your segmentation strategy. When thinking about positioning, ask yourself if you could market your product to each group of customers in your segmentation strategy. If you can’t appeal to and engage a specific segment, you may need to reconsider including it in your plan.

As is the case in many marketing strategies, you need to know what your chief competitors are doing. How do they use segmentation? How do they appeal to their segments? By studying the competition, you can find ways to differentiate yourself as the more appealing option for customers.

Once you’ve looked at all the elements that play a part in market segmentation, it’s time to create a list of criteria to explain each segment you’re targeting. Write statements that clearly explain who is qualified for inclusion in each segment. Give each segment a descriptive name for ease of identification, tracking, and discussion.

When your strategy has been implemented, measure its effectiveness, and track it over time. Connect with your segments through various means—social media, surveys—to see how effective your strategy is and whether it needs to change to remain relevant. Use