How to Accurately Segment Your Market


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One of the biggest mistakes business owners and startup founders make is failing to conduct a 360-degree analysis of the company’s marketing potential. No matter how “revolutionary” and valuable you think your product or service is—or how great your marketing strategy looks—you must define your customer segments and target them accordingly.

Ninety-five percent of all the new consumer products launched in the United States fail because they couldn’t effectively segment their market. Many business owners are completely unaware that there are hidden segments in their market. Armed with a holistic understanding of each market segment, you’ll be in a much better position to reach a larger share of your target market.

Understanding Market Segmentation

At some point in your business, you may have classified or divided your employees into teams or departments to help achieve different goals. Market segmentation works similarly, as it involves grouping a broad target audience into smaller, more defined consumer segments based on shared characteristics and shared interests or needs.

The overarching goal is to understand your specific customer base in more meaningful ways. Whole Foods Market is an excellent example of a retailer that was able to segment their market successfully. They positioned themselves as a leader in the natural and organic food retail business. They primarily target health-and-fitness-conscious individuals who make more money (mid to high-income levels) and don’t have a problem paying more for natural and organic foods.

They’ve clearly defined their market segment, aligned their messaging strategy, and developed an effective way to market to their customer base. Their market segments include:

  • People who want to eat healthy, organic food.
  • People who care about animal welfare.
  • People who have dietary and health complications.
  • People who champion sustainable practices.
  • People who are willing to spend more on higher-quality products

Should You Be Concerned About Market Segmentation?

By segmenting your market, you’ll be able to focus your company resources on areas where you’re likely to succeed. In the aforementioned example, Wholes Food markets its organic products to health-and-fitness-conscious individuals, rather than the entire American population. This has given them a competitive advantage and allowed them to customize their message to target only consumers interested or in need of what they offer.

Market segmentation, therefore, makes it possible to craft stronger marketing messages, develop effective marketing tactics, identify niche markets, and establish a brand identity. As a result, you get to realize better response rates, boost customer acquisition, increase brand loyalty, and keep costs lower. Plus, it becomes easier to identify areas to expand. You can use a marketing plan template to outline and define your customer segments.

The Basics of Segmentation

Segmenting a customer base isn’t as complicated as you might think. Here are the four basic levels of segmentation you should know:

  • Behavioral segmentation involves classifying consumers based on their interaction with your product. This includes the actions consumers take on your site, their online shopping habits, usage rate, and loyalty to your brand.
  • Psychographic segmentation involves classifying consumers based on their values, personality traits, beliefs, hobbies, motives, preferences, lifestyles, aspirations, and attitudes.
  • Demographic segmentation involves classifying consumers based on observable non-character qualities such as level of education, nationality, age, level of income, marital status, sex, religion, etc.
  • Geographic segmentation involves classifying consumers based on a specific area, city, region, or country they reside in.

Because market segments are so crucial for businesses, it’s essential to determine exactly how you can start segmenting. Proper segmentation research will provide you with insights on consumer experience, customer behavior, and the best product development approaches. Here are the various stages involved in market segmentation research:

1. Objective Setting

Chances are you already have an idea about the kind of market you want to target. But it’s likely you’re still trying to figure out where and how your brand will fit within that market. You can’t achieve this without setting clear objectives for your segmentation process. With the help of your team, come up with market models and variables that will guide the entire process and use your findings to create a hypothesis.

2. Determine and Classify Your Customer Segments

Keep in mind that you can segment your customer base using a combination of the market segmentation techniques mentioned above. However, it’s important that you develop a research plan and take the time to collect market data and information that helps you properly identify market segments. At this point, your team will be able to evaluate the research methodology used to determine its dependability and validity.

3. Assess the Specific Customer Segment You Want to Target

You’ve now identified dynamic customer segments that your brand can serve based on market research (either through publicly available market data or by hiring a market research firm). Next, you want to devote your time and resources only to the most viable market segment based on the consumers’ buying power. After all, your current customers can provide valuable insight into how your market segment can be broken up. And there’s no better way to understand your customer base than through polls, focus groups, and customer surveys.

4. Come up with a Segmentation Strategy

Narrow down your focus to the specific subset of consumers that are unique and most relevant to your brand. It’s important that you think about the implications of choosing a particular segment even as you project your goals and start making moves.

Come up with a highly targeted strategy that resonates with the specific customer segment you’ve chosen. A good place to start with is your email list. Start sending out targeted emails to your customers to increase click-through rates, open rates, and conversions. Accurate email segmentation can increase open rates and click-through rates by 26 percent and 100.95 percent respectively. Plus, your revenue can increase by as much as 760 percent.

5. Identify Launch Plan

Once you’ve tested you’ve developed your segmentation strategy, the next and final step is to bring all the key stakeholders together and agree on how you’ll launch the project targeting the specific customer segment you’ve identified.

Take a step back and look at the results you’ve gathered from your research and surveys. Use conversion tracking and marketing automation tools to determine just how effective each segment of your market responds to your marketing initiatives. This is a long-term game; you’ll need to keep split testing and A/B testing to see what works.


How you segment your market can make a major difference to your bottom line. A good segmentation analysis should be measurable and actionable. If executed correctly, your segmented campaigns will benefit from stronger, targeted messages, lower your customer acquisition costs, result in better response rates, and help you attract the right customers.

Dave Lavinsky
Dave Lavinsky is an internationally renowned expert in the fields of business planning, capital raising, and new venture development. He is the co-founder of Growthink, a firm that has helped over 1 million companies develop business plans to start and grow their companies and raise billions in growth capital.


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