5 types of market segmentation and how to use them (with examples)

Think of your customers like a vibrant mosaic, each one unique yet with threads of similarity weaving through them. Marketing segmentation is the art of recognizing these patterns, grouping customers based on their shared traits, and crafting strategies that resonate with their collective needs and desires.

After establishing groups with marketing segmentation, businesses can more effectively advertise to these segments. Each segment may have certain preferences that set them apart. As businesses focus on what each group wants to see, they can enhance engagement, boost interaction, and drive sales.

Market segmentation is the process of dividing a broad population into subgroups according to certain shared factors. These groups may have common demographics (age, gender, etc.), geographic location, attitudes, behaviors, or a combination of similar characteristics.

Creating smaller groups based on common factors allows us to better target our audience.

Market segmentation allows a business to develop detailed profiles of each market segment. Once these segments are clearly defined, marketers can create strategies for segments with the highest potential of buying their products and services.

To achieve that goal, marketers go through a three-step process that clarifies who people are and why they buy products.

Once marketers isolate their target audience, they must define what’s different about their product. Is it better, faster, cheaper, or more advanced than competitive products? To answer these questions, marketers should understand their target audience's problems and how they can creatively solve those problems.

Companies create a competitive advantage for themselves through product differentiation, helping their products and services stand out as solutions for buyers’ issues.

By identifying a target market, isolating their problems, and creating a product that solves those problems, marketers have a higher probability of success over their competitors.

Market segmentation is the first step for successful product marketing. Whether companies are marketing to consumers or businesses, market segments help companies better understand their customers’ problems and solve them.

Not every company segments its customers in the same way. There are several different approaches that businesses can use.

Here are three common examples of marketing segmentation.

Companies use mass marketing to sell their products to everyone, using an undifferentiated strategy. For example, commodities like salt or generic items with many substitutes may not spend much effort segmenting their market.

Firms may use one or more narrowly defined target markets to create a highly focused niche market for specialized products. Example: exclusive high fashion apparel, handmade art, or customized machinery parts.

Known as hyper-segmentation, marketers can customize a one-to-one marketing approach for each customer to develop a long-term relationship. For example, personalized services like hair salons and online retailers like Amazon offer personalized recommendations based on purchase history.

Whether you want to form a handful of segments or thousands, your business should understand the five different types of market segmentation.

Let’s break down demographic, psychographic, behavioral, geographic, and firmographic segmentation, what each involves, and how to use each type.

Demographic segmentation assumes that people with common characteristics will have similar lifestyle patterns, tastes, and interests that will influence their purchasing habits. Demographics are often combined with other segmentation approaches to develop target markets with the greatest likelihood of buying their products.

Demographics include factors like age, gender, occupation, income, and education. 

The advantage of demographic segmentation is that it is easy to collect. Government sources, including the Bureau of Labor Standards, provide household, income, education, and health data for marketing strategy and business goals.

After using demographics for market segmentation, marketers can use this same information for customer segmentation. Using demographics and behaviors, they can identify:

When combined with behavior traits and other variables, demographic segmentation provides valuable insights into understanding which specific customers within their target market will buy products and better understand how to reach them with the right marketing messages.

Psychographic segmentation divides people into groups based on their personality, lifestyle, social status, activities, interests, opinions, and attitudes. Psychographics are an excellent complement to demographics because they identify the motivations behind why people make particular choices.

Psychographic segmentation is a powerful way of understanding your customers’ problems, behaviors, and attitudes.

Companies use psychographics for market segmentation to understand:

Behavioral market segmentation describes specific steps in their ideal customer’s buying process. This form of segmentation includes what ideal customers want, why they want it, the benefits sought, and how they go about getting their needs met.

Businesses can use behavioral segmentation to study B2C and B2B market segments. When companies understand why people buy, they can better target their marketing messaging. Behaviors can include:

When marketers know why consumers or businesses are buying their products, they can make it part of their segmentation strategy to address those behaviors.

Geographic segmentation allows marketers to group people based on where they live, work, or travel. 

Location has a significant influence on buying habits that marketers can use to develop their marketing messages. Marketers use various geographic segmentation variables that include the country, region, state, province, town, climate zone, or zip code. 

Culture and population density (urban or rural) are also crucial variables to include in their market research. These location variables will influence what problems people have in that region and how marketers can solve them.

Where a person lives can influence everything from their food choices to the car they drive. Businesses can use geographic segmentation to determine the best products to sell to their customers. 

An example of geographic segmentation is marketing plants based on the climate zone. Geraniums will be best for hot and sunny locations and blue spruce for places with a harsh winter. Knowing