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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.

What is market segmentation?

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.

Benefits of market segmentation

  • 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.

Types of market segmentation

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.

Market segmentation strategy

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.

Types of market segmentation strategies

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

Concentrated strategy

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. 

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.

How to choose a market segmentation strategy

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:

Identify the primary need for your product 

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.

Gather customer data 

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.

Research new opportunities and audience behaviors 

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.

Create personas 

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.

Consider positioning 

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.

Study the competition

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.

Define criteria 

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.

Test 

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 Brand Tracking studies to understand brand perception over time and in comparison to competitors. 

Tips for creating or updating a market segmentation strategy

Here are a few of our favorite tips for use in creating or updating your market segmentation strategy:

Acknowledge what has changed

What has caused the changes in the market? Is it something temporary or permanent? Should you change your segmentation strategy or continue on the same trajectory based on the changes? 

Plan early

Be proactive. Consider what long-term complications could arise with each segment, and discuss what kind of problem-solving plans you will need to implement should these issues arise.

Understand the why

Why did the changes happen? Why are there potential complications with your segments? SurveyMonkey market research and industry tracking tools will make collecting, analyzing, and understanding data simple. Our solutions help you to understand your marketing segmentation, develop actionable insights, and enable you to track the progress of your segmentation strategy in the long term.

Segment your market

Keep an accurate record of your segmentation strategy and implementation. This is the key information that should be included in your strategy: 

  1. Summary of your segmentation strategy. Describe your overall strategy at a high level.
  2. Define your market segmentation criteria. List the factors you used to define your segments.
  3. Describe your first segment. Include the proportion of the total audience in this segment, relationship to the product, financial details of the segment, key characteristics of how they interact with the company, and your proposed methods for appealing to the segment.
  4. Repeat with the second segment, third segment, etc.
Example of segmentation strategy

Market segmentation strategy summary: Based on market research, Ocean’s Bay Condos in Florida identified one core segment that describes a majority of potential customers: retirees looking to downsize to a warmer climate. We will also work on developing a niche segment of fully-remote workers looking to relocate that we discovered are underserved in our market. To position our business as the most accessible option to our segments, we plan to focus on middle-class and upper-middle-class consumers in the US.

Market segmentation criteria: 

  • Employment status
  • No children (condos are small)
  • Financial status/income
  • Age

Segment 1: the retired couple

Share of potential customers: 75%

Relationship to the product: has rented accommodations in warmer climates for vacations

Children: none at home

Age: 55+

Key characteristics:

  • Visited our website
  • Requested information about the area
  • Browses online magazines for retirement living/communities
  • Financially able to afford our units

Implementation plan: Invest in both digital advertising and mailers that emphasize downsizing, warm climate, financial accessibility, and ideal location. Consider partnering with local businesses for networking opportunities.

Segment 2: the remote workers

Share of potential customers: 10% 

Relationship to the product: has vacationed in warmer climates in our condos

Children: none

Age: 35+ 

Key characteristics:

  • Income: $100,000+ per year
  • Eligible for financing (good credit)
  • Work is fully remote
  • Looking for a change of scenery

Implementation plan: thinking outside the box, this is a very new, niche market and we are just exploring if it is actually viable for us. Our plan includes all digital marketing avenues: email, social media, and web banner ads to keep our costs low until we see if the segment responds. For this segment, we want to promote our condos as an alternative for work-from-home employees. We will emphasize the proximity to the city, nightlife, and activities, in addition to how our condos are conducive to work-from-home conditions.

Set project goals

What is the goal for your market segmentation strategy? Set a goal that is specific, measurable, achievable, relevant, and time-bound (SMART). Setting a SMART goal will direct your overall strategy.

Assess market viability

To assess market viability, you need to evaluate three key components:

  1. The market size. Is the market big enough to accommodate your product as well as your competitors’ product? Is there room for the market to grow?
  2. Your target market customers. Do they have a need for your product? Are they willing to pay for it? Will they repurchase? Will they recommend your product to others?
  3. Your competition.  Who are they? What do they offer? What makes them different? What is your plan to gain their market share?

Build an effective market segment strategy

Dive into your market research with segmentation in mind. Market segmentation surveys will help you understand more about your potential customers and how to reach them. A great place to get fast answers for your surveys is by using SurveyMonkey Audience to gather responses from around the world in hours, not weeks. Once you segment your market, you can deliver the right message about the right product with the right positioning for success.

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