marketing segmentation term paper

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6 Market Segmentation and Targeting

• Published: June 2004
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This chapter examines market segmentation, one the basic ideas on which much of modern marketing is built. For most organizations, market segmentation is a primary way to search for and exploit market opportunities. Part A of this chapter describes three broad types of segmentation — corporate, product-market, and tactical. Part B examines product-market segmentation and strategic market selection. One of the key issues here is the issue of how many segments should organizations compete in. Part C examines tactical segmentation and targeting. The emphasis is to ‘get close to customers’ by developing an understanding of their needs, wants, and how they go about buying products and services.

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What Is Market Segmentation?

• How It Works
• Determining Your Market Segment
• Limitations
• Market Segmentation FAQs

The Bottom Line

• Marketing Essentials

Market Segmentation: Definition, Example, Types, Benefits

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors in order to better understand and market to them.

Key Takeaways

• Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
• Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
• Market segmentation can also increase a company's demographic reach and may help the company discover products or services they hadn't previously considered.

Investopedia / Matthew Collins

Understanding Market Segmentation

Companies can generally use three criteria to identify different market segments:

• Homogeneity , or common needs within a segment
• Distinction , or being unique from other groups
• Reaction , or a similar response to the market

For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market  and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Market segmentation allows a company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment. Therefore, below are five common types of market segmentation.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.

Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.

Firmographic Segmentation

Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .

Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed fee, more simple product.

Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.

Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.

Behavioral Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.

Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This may be more difficult to achieve, as these traits (1) may change easily and (2) may not have readily available objective data. However, this approach may yield strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points.

Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.

Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits (i.e. how innovative or risk-favorable a customer is).

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine your market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.

Phase I: Setting Expectations/Objectives

• What is the purpose or goal of performing market segmentation?
• What does the company hope to find out by performing marketing segmentation?
• Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• Which of the five types of market segments do we want to segment by?

Phase 3: Evaluate Potential Segments

• What risks are there that our data is not representative of the true market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment over another?
• What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?

Phase 4: Develop Segment Strategy

• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

• Who are key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they can be overcome?
• How should the launch of the marketing campaign be communicated internally?

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include;

• Increased resource efficiency. Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad reach approach.
• Stronger brand image. Marketing segment forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, a company's branding and messaging is more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
• Greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that you land the right client that fits your product line and demographic.
• Stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they way to convey to the market and to competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
• Better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort towards specific ages, locations, or habits via social media.

Market segmentation exists outside of business. There has been extensive research using market segmentation strategies to promote overcoming COVID-19 vaccination hesitancy and other health initiatives.

Limitations of Market Segmentation

The benefits above can't be achieved with some potential downsides. Here are some disadvantages to consider when considering implementing market segmentation strategies.

• Higher upfront marketing expenses. Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.
• Increased product line complexity. Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This has the downside risk of creating an overly complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.
• Greater risk of misassumptions. Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations within individuals of a given population.
• Higher reliance on reliable data. Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends and when market segments may have shifted from prior studies.

Examples of Market Segmentation

Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.

Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.

A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.

Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.

Why Is Market Segmentation Important?

Market segmentation realizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.

What Are the Types of Market Segmentation?

Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how the particular group stands apart from others, and reaction, or how certain groups respond to the market.

What Are Some Market Segmentation Strategies?

Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.

What Is an Example of Market Segmentation?

Upon analysis of its target audience and desired brand image, Crypto.com entered into an agreement with Matt Damon to promote their platform and cryptocurrency investing. With backdrops of space exploration and historical feats of innovation, Crypto.com's market segmentation targeted younger, bolder, more risk-accepting individuals.

Market segmentation is a process companies use to break their potential customers into different sections. This allows the company to allocate the appropriate resource to each individual segment which allows for more accurate targeting across a variety of marketing campaigns.

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Market Segmentation

What is market segmentation?

The benefits of market segmentation, the basics of segmentation in marketing, types of market segmentation, how to get started with segmentation, market segmentation strategy, market segmentation use case examples, ensuring effective segments, common segmentation errors, qualtrics solutions for market segmentation, see how qualtrics strategic brand works, market segmentation: definition, types, benefits, & best practices.

21 min read Market segmentation helps you send the right message, every time, by efficiently targeting specific groups of consumers. Here’s how it works.

By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies . Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income.

Read on to understand why segmentation is important for growth and the types of market segmentation to use to maximize the benefits for your business.

Free eBook: How to drive profits with customer segmentation

Companies who properly segment their market enjoy significant advantages. According to a study by Bain & Company , 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period.

Other benefits include:

• Stronger marketing messages : You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
• Targeted digital advertising : Market segmentation helps you understand and define your audience’s characteristics, so you can direct your online marketing efforts to specific ages, locations, buying habits, interests etc.
• Developing effective marketing strategies : Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
• Better response rates and lower acquisition costs : will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
• Attracting the right customers : targeted, clear, and direct messaging attracts the people you want to buy from you.
• Increasing brand loyalty : when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand .
• Differentiating your brand from the competition : More specific, personal messaging makes your brand stand out .
• Identifying niche markets : segmentation can uncover not only underserved markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
• Staying on message : As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
• Driving growth : You can encourage customers to buy from you again , or trade up from a lower-priced product or service.
• Enhanced profits : Different customers have different disposable incomes; prices can be set according to how much they are willing to spend . Knowing this can ensure you don’t oversell (or undersell) yourself.
• Product development : You’ll be able to design new products and services with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.

Companies like American Express , Mercedes Benz , and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers.

Understanding segmentation starts with learning about the various ways you can segment your market as well as different types of market segmentation. There are four primary categories of segmentation, illustrated below.

With segmentation and targeting, you want to understand how your market will respond in a given situation, like what causes people to purchase your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions .

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, household income, marital status, family size, race, gender, occupation, and nationality. The demographic approach is one of the simplest and most commonly used types of market segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. It’s also seen as a simple method of predicting future behavior, because target audiences with similar characteristics often behave in similar ways.

How to start demographic segmentation

Demographic segmentation is often the easiest because the information is the most readily available. You can send surveys directly to customers to determine their demographic data, or use readily available third party data such as government census data to gather further information.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be a unique type of market segmentation in its own right. As its name suggests, it creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.

How to start geographic segmentation

Geographic segmentation data again can be solicited from customers through surveys or available third party market research data, or can be sourced from operational data such as IP addresses for website visitors.

Firmographic segmentation

Firmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.

How to start firmographic segmentation

Firmographic segmentation data can be found in public listings for companies and information that the business makes available, as well as trade publications. Again, surveying existing and potential customers can help to build out this data.

Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach, because you can focus on what you know they are looking for, and are therefore more likely to buy.

How to start behavioral segmentation

Of all the types of market segmentation, behavioral segmentation is likely best started with the information you have on an existing customer base. Though it can be bolstered by third party market research data, the information you already have on customer purchase and usage behavior will be the best predictor of future behavior.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.

How to start psychographic segmentation

Pychographic segmentation relies on data provided by the consumers themselves. Though market research might provide insights on what particular segments are most likely to believe or prefer, psychographic segmentation is best completed with information direct from the source. You can use survey questions with a qualitative focus to help draw out insights in the customers’ own voice.

On-demand webinar: How to drive product design and profits with customer segmentation

There are five primary steps to all marketing segmentation strategies:

• Define your target market : Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace compared to your competitors?
• Segment your market : Decide which of the five criteria you want to use to segment your market: demographic, firmographic, psychographic, geographic, or behavioral. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one to figure out which combination works best for your needs.
• Understand your market : You do this by conducting preliminary research surveys, focus groups, polls , etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
• Create your customer segments : Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
• Test your marketing strategy : Once you have interpreted your responses, test your findings by creating targeted marketing, advertising campaigns and more for your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, relook at your segments or your research methods and make appropriate changes.

Why should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. The market segmentation process is similar, as there will be times you need to revisit your market segments, such as:

In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of businesses to rethink how they sell to customers. Businesses with physical stores looked at online ordering, while restaurant owners considered using food delivery services.

If your customers change, your market segmentation should as well, so you can understand clearly what your new customers need and want from you.

On a yearly basis: Market segments can change year over year as customers are affected by external factors that could alter their behavior and responses.

For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.

At periodic times during the year: If you’ve explored your market and created market segments at one time of the year, the same market segments may have different characteristics in a different season. Seasonal segmentation may be necessary for better targeting.

For example, winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel (back home for the holidays). Knowing this information can help you predict and prepare for this period.

When considering updating your market segmentation strategy, consider these three areas:

• Acknowledge what has changed: Find out what has happened between one time period and another, and what have been the driving forces for that change. By understanding the reasons why your market is different, you can make key decisions on whether you want to change your approach or stay the course.
• Don’t wait to start planning: Businesses are always adapting to long-te r m trends , so refreshing market segmentation research puts you in a proactive place to tackle these changes head-on. Once you have your market segments, a good idea is to consider the long-term complications or risks associated with each segment, and forward-plan some time to discuss problem-solving if those issues arise.
• Go from “what” to “why” : Why did those driving forces come about? Why are there risks with your target market? At Qualtrics, we partner with companies to understand the different aspects of target markets that drive or slow success. You’ll have the internal data to understand what’s happening; we help unleash insight into why with advanced modeling techniques. This helps you get smart market segmentation that is predictive and actionable, making it easier for future research and long-term segment reporting.

Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built out across several departments and activities:

Market and opportunity assessments

When your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups.

For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services.

Segmentation and targeting

If you have your entire market separated into different customer segments,  then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavioral preferences .

With this information, you can target your products and services toward these market segments, making marketing messages and collateral that will resonate with that particular segment’s criteria.

Customer needs research

When you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements.

Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up.

Product development

If the product or service you’ve developed doesn’t solve a stated problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about an/d how they live their lives, it’s easier to know what products will enrich or enhance their day-to-day activities.

Use market segmentation to understand your customers clearly , so that you can save time and money developing products and services that your customers will want to purchase.

Campaign optimization

Marketing and content teams will value having detailed information for each customer segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect better with specific audiences, making their campaign results more effective.

When their marketing campaigns are combined with strong calls to action targeted to the specific segment, they will be a powerful tool that drives your target market segments towards your sales channels.

After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:

• Measurable : Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments may be made up of people who are more likely to shop during a promotion or sale.
• Accessible : Understanding your customers and being able to reach them are two different things. Your segments’ characteristics and behaviors should help you identify the best way to meet them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio ads to hear about store promotions, while another segment is best reached on your mobile app. One of your segments might be a male retiree who is less likely to use a mobile app or read email, but responds well to printed ads.
• Substantial : The market segment must have the ability to purchase. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but realistically can’t afford them. Make sure an identified segment is not just interested in you, but can be expected to purchase from you. In this instance, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, leisurely retirees who can afford your goods, and successful entrepreneurs who want to show off their wealth.
• Actionable : The market segment must produce the differential response when exposed to the market offering. This means that each of your segments must be different and unique from each other. Let’s say that your segmentation reveals that people who love their pets and people who care about the environment have the same purchasing habits. Rather than having two separate segments, you should consider grouping both together in a single segment.

Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavioral segmentation does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations.

We’ve outlined the do’s , so here are some of the dont’s :

• Avoid making your segments too small or specialized : Small segments may not be quantifiable or accurate, and can be distracting rather than insightful
• Don’t just focus on the segment rather than the money : Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment
• Don’t be inflexible : Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.

Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to  get automated from the beginning . Forget spreadsheets – choose  market segmentation software  to measure and streamline your marketing strategy; as you grow, the technology will scale with you.

Innovative features such as Experience iD allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups.

If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service .

Related resources

Market fragmentation 9 min read, behavioral segmentation 20 min read, psychographic segmentation 11 min read, geographic segmentation 14 min read, demographic segmentation 14 min read.

Brand Perception

Brand Sentiment 18 min read

Brand intelligence 12 min read, request demo.

Ready to learn more about Qualtrics?

market Segmentation Research: a comprehensive guide

Kat Figatner

Senior Vice President, In-Person Qualitative Research

Chief Executive Officer

Robbin Jaklin

Former President

Your prospects and customers are not all the same—segmentation research helps guide your targeting and messaging strategies.

Market segmentation in consumer research is essential for effective marketing, as it recognizes that products and services cannot appeal to everyone universally. By identifying specific groups with varying attitudes, needs, and motivations, segmentation research enables companies to develop a targeted portfolio of brands and tailor marketing communications to distinct consumer segments.

Segmentation should be purpose-built and customized for each product category, involving an investigative and often multi-modal phased design and analysis process.

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Defining segmentation.

Customer segmentation refers to the process of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. It enables businesses to target these groups effectively and allocate marketing resources to the best possible effect.

Segmentations vary in complexity and analytical depth:

• Simple segmentations use straightforward criteria like generation or ethnicity, relying on cross-tabulated data.
• Intermediate segmentations apply basic advanced analytics, such as cluster analysis on Attitude & Usage study data.
• Complex segmentations are in-depth, often the main focus of the study, requiring iterative and/or multi-modal processes with extensive use of advanced analytics.

When do you need a segmentation study?

Typically segmentations are done to:

• Uncover new growth opportunities through tailored, industry-specific segmentation research.
• Understand the array of consumer experiences and needs.
• Develop engaging personas and creative presentations for segmentation results.
• Help refine and expand a brand’s target market share more effectively.
• Deliver actionable, “living” segmentations for effective organizational implementation.

Exploring types of segmentation

There are an endless number of ways you can segment. These are a few of the common methods C+R employs:

• Shopper Segmentation: Shopper  – groups people based on their needs, attitudes, and behaviors when shopping for a product or service. Our proprietary  Shopper Segmentation  can easily be incorporated into your research initiatives.
• Attitudinal Segmentation: (also known as Psychographic Segmentation) Groups people with similar attitudes, then profiles them using demographics, behaviors, brand perceptions, media habits, etc., for targeted strategies.
• Occasion-Based Segmentation: Focuses on product/service use in different situations, identifying diverse consumer needs and opportunities for growth.
• Behavioral Segmentation: includes key aspects of purchase behavior, usage rates, and benefits sought from a product or service. It is particularly useful in tailoring marketing messages and promotions to fit specific consumer habits, enhancing customer engagement and retention.
• Marrying Behavior with Attitudes: Combines transactional and attitudinal data to form unique segments.
• Geographic Segmentation: This type of segmentation divides the market based on geographic boundaries or characteristics. This can refer to regional or location-based, climate or cultural preferences impacted by geography.
• Needs-based: Categorizes consumers based on their specific needs and desires regarding products or services. It focuses on identifying what drives customer purchases, ranging from functional requirements to emotional or psychological desires.

Read a segmentation case study

Learn how we partnered with an alcoholic beverage client to develop a comprehensive occasion-based segmentation, including how we worked to bring segments to life.

Getting started: what’s the right segmentation to use?

As with other custom research, one size does not fit all, and the segmentation should be designed based on what you are looking to accomplish. For example, each of our client situations is unique, so our recommended solution is really based on getting to know their business intimately and understanding how they intend to use the segmentation.

This process entails the following four phases, addressed in further detail in our segmentation eBook .

The methodology of segmentation in marketing

Phase 1: sharing, planning and aligning.

Stakeholder Engagement and Kickoff Meeting

This initial phase is critical for the success of segmentation studies, involving considerable client investment and diverse stakeholder input. It starts with in-depth, individual interviews with key internal stakeholders to gather insights about the current market, future directions, and each stakeholder’s vision of success. These insights are crucial for shaping the research and garnering stakeholder buy-in. The findings from these interviews lay the groundwork for the kickoff meeting, a structured group discussion to further share knowledge, align objectives, and address any additional information relevant to the study, such as market trends, specific demographic insights, or the impact of external factors.

Phase 2: Building Empathetic Insights Through Qualitative Research

Understanding Consumers and Their Point of View on the Category

• Explore target consumers’ values, lifestyles, and how they perceive the category, including the fit of different products/brands.

Identify Motivations, Jobs, and Perceptions

• Analyze needs and behaviors in various contexts.
• Identify roles fulfilled by specific products/brands in the category.
• Investigate the decision-making process and brand perceptions to reveal factors influencing client’s brand and competitors.

Develop Hypotheses and Update Language

• Use qualitative insights to create language reflecting consumer perceptions and motivations.
• Involve Cohort Experts for multicultural consumer insights.
• Form an initial framework for validation in the quantitative phase.

Process and Techniques

• Overview of methodologies utilized in market segmentation.

Phase 3: Evaluating Need States and Survey Execution

This is the most involved stage. It includes everything from designing the sample, developing the questionnaire, and creating segmentation models. After gathering qualitative insights and formulating hypotheses , the questionnaire is developed , typically over 20 minutes, with the sample size adapted to the diversity of the target audience.

Pilot studies are employed to refine the survey, focusing on differentiating attributes through factor analysis. Once the data is collected, the segmentation process involves data preparation , such as removing poor quality responses and doing advanced analytics controlling for scale-use bias, and selecting appropriate segmentation analytics like ensemble clustering, latent class, or K-means based on data types. The final steps include segmentation validation techniques , ensuring stable and accurate segment classification.

Phase 4: Evaluating Need States and Survey Execution

The final stage of the segmentation study is to make the information digestible for your stakeholders.

An iterative approach with work sessions helps integrate the learning into the organization. It’s important to present data in a visually appealing and engaging way to maintain interest. Techniques to bring segments to life are also employed for clearer understanding.

The process culminates in a final presentation involving a cross-functional client team, where strategies and tactics for key segments are developed and activated.

custom segmentation research case studies and examples

• Applied Case Study: Reference to the Kid Retail Strategy Case Study for practical application.
• Effective Segmentation of Moms Case Study .
• Targeting Donors Case Study
• For a more off the shelf solution, explore C+R’s SmartMarket Segmentation blog .

Tools and analytics for segmentation

Data Preparation involves removing poor quality data: respondents who answer with low-variability or inconsistent answers. We also control for scale-use bias: Because respondents use scales differently, it’s essential to take steps to control for that bias so that data is standardized across cases. Solutions involve either normalizing scale data or using scale measurements that avoid scale bias, such as Max-Diff utilities.

Segmentation analytics are chosen based on the type(s) of data used in the segmentation: categorical, binary, scaled, ranked, choice-based utilities, metric (such as counts or spend), or a mix of measures. Some examples include:

• Ensemble clustering : which uses several different algorithms to run hundreds of solutions, then aggregate the results into the most reproducible segments.
• Latent class : appropriate for clustering with variables of many different data types.
• K-means : a basic clustering method used on variables with equal variance.
• Hierarchical : applied to market structure studies to build taxonomies of products.
• Segmentation Validation is a step to ensure that the analytic solutions provide stable and accurate classification into segments.
• Information criteria : Akaike and Bayesian Information Criterion allows for direct model comparison to maximize likelihood while minimizing the overlapping that might occur with many segments.
• Split-half validation : Predict half of the cases out of sample using solution on the other half.
• Reproducibility : Test the ability of the solution to classify future cases into the existing model.

The segmentation solution is final: time to tell the story and develop personas

Once the segmentation solution is finalized, each segment will be profiled, sized, and prioritized for meeting the brand’s objectives for growth. Personas are created so that segments are presented in a quick and easily digestible way for the stakeholders to understand everything about the segments. Following are some examples:

Bringing the segments to life

We always encourage our clients to add one of the following methods for bringing the segments to life. Many times, we will involve C+R’s Storyologists to connect our clients to the segments to build understanding and empathy.

Video Clips that represent people from different segments—can be collected via online discussions, webcam interviews, or video platforms such as VoxPopMe.

Video Sizzle Reels — can be created using video clips to capture key insights in a compelling way—either more artistically stylized or more ethnographic documentary style.

Look Books — a tangible “book” to give to your stakeholders to use as a segment reference “bible.”

Animated Videos — these highlight the journeys/ consumer stories in a memorable way for staying power in your organization.

Social Media Profiles — segments are presented similar to a social media profile.

Introducing Real Consumers to Represent Segments — there are several ways to connect your stakeholders with “real consumers” for a deeper understanding of the segments:

Panel discussion — consumers sit on a panel and stakeholders ask questions.

Speed Dating — this is where stakeholders and people from key segments meet one on one and do a quick question and answer session; stakeholders rotate from person to person, each representing a different segment.

Walk in Segment’s Shoes — this is where we take clients into the life of each segment such as in-homes where people prepare meals and the clients join the family for dinner or go on dine-alongs, etc.

Remember, segmentation methods continue to evolve, along with innovative and powerful ways of conducting and analyzing segmentation data. Segmentation research offers a wealth of insights, and addresses many strategies to grow your business, including:

• To drive sales by decreasing acquisition and retention costs, along with improving conversion
• To support opportunity identification and prioritization
• To provide marketing and sales with a clear and concise playbook by segment
• To identify the segments’ needs and preferences, which can be communicated in advertising and positioning messaging
• To support and build consideration of and loyalty to your brand
• To reduce or eliminate barriers to the brand
• To create opportunities against high-value customers and likely-to-convert segments

Hopefully, this primer educated and inspired you on the “how to’s” and benefits of segmentation research.

Next time you are thinking about conducting segmentation research, reach out and let’s chat about the best way to design the research to ensure you get the most actionable results out of your segmentation investment.

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Green Segmentation, Targeting, and Strategic Positioning

• First Online: 06 February 2024

Cite this chapter

• Arne Nygaard 2  

228 Accesses

Market segmentation is a pivotal strategy in fostering the green transition within businesses. This approach allows companies to strategically target specific consumer segments, tailor messaging, optimize resource allocation, and identify latent market prospects. By leveraging market segmentation, companies can direct their efforts toward consumer groups most inclined to embrace sustainability, thereby enhancing the acceptance and integration of eco-friendly products and services. Despite the significant potential for improved performance and competitive advantage through segmentation, the present study reveals a limited implementation of sustainability initiatives among businesses. Therefore, it is imperative for companies to personalize communication strategies, aligning them with distinct consumer motivations and concerns. Continuous adaptation of communication tactics to evolving consumer preferences is crucial in navigating potential counteractive responses and fostering a sustainable market environment. Vigilant monitoring of consumer behavior within green segments is necessary to ensure the efficacy of communication strategies and encourage a positive shift toward environmentally responsible practices.

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School of Communication, Leadership and Marketing, Kristiania University College, PB 1190 Sentrum, 0107 Oslo, Kirkegata 24-26, 0153 Oslo, Oslo, Norway

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Nygaard, A. (2024). Green Segmentation, Targeting, and Strategic Positioning. In: Green Marketing and Entrepreneurship. Springer, Cham. https://doi.org/10.1007/978-3-031-50333-7_8

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Published : 06 February 2024

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