Market and customer segmentation: definition and when to use each analysis

Learn how to use market and customer segmentation to improve your business.

If you want to learn about market and customer segmentation, you should start with the segmentation definition. According to the Merriam-Webster dictionary, segmentation is the process of dividing something into segments or parts. 

In marketing, segmentation is the process of separating markets or customers into smaller, more manageable groups based on shared characteristics. By using segmentation, you can customize and tailor your marketing and sales efforts for each group, yielding better results.

But what’s the difference between market and customer segmentation? What are they used for? We’ve put together some information about segmentation that should answer these questions and more.

What are the benefits of market and customer segmentation?

Segmentation is an important component of your marketing and sales strategies. By segmenting, you can target your messages to a specific group, which is more efficient and effective than generic marketing.

  1. Increased brand loyalty 

Brand loyalty occurs when a customer prefers your brand over your competitors. This plays a major role in your organization’s revenue and profitability. Loyal customers will purchase from you again and again, regardless of price.

Customer segmentation allows you to tailor your marketing to your loyal customers. Loyalty is deeply connected to perception, so when you present information in a way that resonates with your customers, you’ll establish a connection and build trust with them.

  1. Attracting qualified customers 

When you’ve segmented your customers, you can directly target your marketing and sales efforts toward those who are most likely to purchase your product or service. This will help you convert higher-quality leads. This is an example of market segmentation. 

  1. More direct brand messaging 

Using market segmentation allows you to tailor your brand message to connect with each segment’s unique needs. Rather than vague messaging without a specific direction, you can create marketing and sales content that relates directly to each segment’s needs. This messaging will appeal to new customers as they identify with your brand.

  1. Improved customer service 

Each year, companies lose billions of dollars due to poor customer service. Customers need to feel an emotional, positive, personalized connection while receiving customer service that makes them feel appreciated. 

With customer segmentation, you can prepare your customer service staff for the challenges they may encounter and the best way to provide high-level customer service in context to a particular group. This will help keep your customer service customer-focused. 

  1. Find opportunities for new products or services 

Each of your segments has specific needs that require solutions that fit them. Reaching out to your desired customer segments will provide you with a rich resource for feedback. This market segmentation provides information on future products, features, and services.

What is market segmentation?

Market segmentation is the process of dividing your entire target market into smaller groups based on a common trait or characteristic. These traits may be demographic, behavioral, or psychographic in nature. 

Types of market segmentation

There are four main types of market segmentation: demographic, behavioral, psychographic, and geographic.

Demographic

Segmenting your market by demographics is a commonly used method because these factors play large roles in our purchasing decisions. Demographics include variables like age, gender, education, income, family size, and occupation.

Examples: 

Automobile manufacturers often segment their audience by income. Then, they market their vehicles to the segments that are most suited to them.

Cosmetics companies target a predominantly female demographic, though men’s lines are appearing. Some of these brands will need to restructure their segments if they want to appeal to new groups of people.

Behavioral

Behavioral segmentation is used to divide your market by behavioral characteristics. This includes purchasing habits, consumption, and decision-making processes. When you understand purchasing behavior, you can develop a marketing strategy with a specific focus.

Example:

Members of your target market visit your online business but fail to make purchases. You examine website analytics to gain an understanding of how users interact with your site, how long they remain on a page, and what they click on.

Psychographic

With psychographic segmentation, we consider personality traits, opinions, interests, and lifestyles. Larger markets use these characteristics to divide the population into manageable sections.

Psychographic segments provide insights into why or why not customers purchase your product. 

Example:

Your clothing company has a market segment consisting of people in the age range of 25–45 with a household income of more than $75,000. A portion of your market is converting and making purchases, but another portion is not. By adding psychographic data into the mix, you find that your target market is very concerned about the environment. You use this information to stress the importance and role of sustainability in your business.

Geographic

The needs and preferences of a market are greatly influenced by geographical boundaries. Potential customers have needs based on the climate and other factors in their regions—warmer clothes for cooler climates, for example. 

Example:

Your global company has market segments in a wide array of countries. By using geographic segmentation, you ensure that each segment sees marketing that is in their language, respectful of their culture, and relevant to their needs.

Revisit your market segmentation

Market segmentation is not a one-and-done plan. Be prepared to revisit and revise your market segments on an annual basis to see if any changes are needed in response to external factors. 

If your products are seasonal, you’ll want to explore your market segmentation seasonally, as the segments may have different needs you can fulfill. 

You may have to revise your segmentation quickly in response to a rapid change. During the early days of the COVID-19 pandemic, many physical stores had to move online to meet the market demand.

The bottom line? Your customers and their environments will change over time, and your segmentation will need to evolve with them for your business to remain relevant.

What is customer segmentation?

While market segmentation divides the entire target market into smaller subsets, customer segmentation takes your existing customer base and divides it into sections based on similar needs and behaviors.

Keep in mind that customers will fit into more than one segment, depending on the segmentation variables you choose.

Customer segmentation is particularly useful in creating buyer personas to showcase a detailed view of your ideal customer. Personas are valuable for use in creating marketing and sales messaging that are tailored to your specific segments.

Customer segments may be based on a combination of traits from models such as demographics, geographics, psychographics, technographics, behaviors, and more. 

Business-to-business (B2B) customer segments may be based on industry, company size, or revenue level.

How do I choose between market and customer segmentation?

Market segmentation is used to look at your target market as a whole. It’s used to connect with new customers through brand awareness, the creation of new products that meet a market need, or the development of new features on an existing product.

Customer segmentation helps you better understand your existing customers. One of its main uses is to create buyer personas to help you improve your advertising and marketing to a  specific group.

In other words, market segmentation is more general. It takes the entire marketplace into consideration. Customer segmentation is just about your part of that market.

Market vs customer segmentation example

For example, a business that makes athletic clothing and footwear is likely to perform market segmentation by sport so that one segment is golf, and another is basketball, and so on. Each market segment has specific characteristics and needs, so the business responds by creating marketing approaches and messaging nuances that appeal to each individual segment in an attempt to gain new customers. 

The same company segments its existing customers by age, sport of interest, income, buying power, and gender. It uses these segments to personalize its marketing efforts based on what it knows its customers want and need. 

Both types of segmentation are relevant to your business’s success in the market and with your customers.

Get started with segmentation

Market and customer segmentation are important parts of your business toolkit. Both are useful in your marketing and sales efforts by helping you hone in on specific traits of the market and your customers. 

If you have questions about customer segmentation, we’re always here to help. And if you’re in need of any other market research solutions, SurveyMonkey has exactly what you need!

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