Market Segmentation
The process of dividing a broad market into distinct subgroups based on shared characteristics or needs.
Definition
Market segmentation is the strategic process of dividing a total addressable market into smaller, more homogeneous groups that share common characteristics, needs, or behaviors. Segments can be defined by demographics (age, income), psychographics (values, lifestyle), geography, behavior (purchase frequency, brand loyalty), or firmographics (company size, industry) for B2B markets.
Effective segmentation identifies groups that are measurable, accessible, substantial enough to be profitable, and differentiated enough to respond differently to marketing approaches.
Why It Matters
Segmentation is the foundation of targeted marketing. Trying to appeal to everyone results in messaging that resonates with no one. By identifying distinct segments and their unique needs, businesses create more relevant communications, products, and experiences that outperform generic approaches.
Data-driven segmentation also improves marketing efficiency. Rather than spreading budget across an entire market, businesses can concentrate resources on the segments with the highest potential return, dramatically improving marketing ROI.
Examples in Practice
A fitness brand segments their market by motivation — weight loss, muscle building, and general wellness — creating separate product lines, content tracks, and advertising campaigns for each segment, increasing overall conversion by 60%.
A financial services company identifies three behavioral segments among their customers: hands-off investors, active traders, and retirement planners. Each receives personalized communications that increase engagement and reduce churn.
A B2B software company segments by company size and discovers that mid-market companies have the highest lifetime value and lowest acquisition cost, redirecting 70% of their marketing budget to that segment.