Market segmentation is the process of dividing a broad market into smaller, clearly defined groups of consumers who share similar characteristics. Whether based on demographics, location, behavior, or lifestyle, segmentation enables brands to deliver more targeted and effective marketing, product development, and customer experiences.
What Is Market Segmentation?
Market segmentation helps businesses break down a heterogeneous audience into subgroups that are more likely to respond similarly to marketing campaigns or product offerings. These segments are easier to understand, more cost-effective to target, and ultimately more likely to convert.
According to HubSpot, companies that use segmented campaigns see as much as a 760% increase in revenue compared to non-segmented campaigns.
Types of Market Segmentation
Market segmentation can take several forms depending on the product, market, and business goals. The most common types include:
1. Demographic Segmentation
This is based on quantifiable characteristics such as age, gender, income, education, and family size. For example, a brand selling budget travel insurance may target younger, price-conscious audiences.
2. Geographic Segmentation
This approach divides markets based on location—country, city, or climate. A clothing brand may market lightweight fabrics in tropical regions and insulated gear in colder areas.
3. Psychographic Segmentation
This digs deeper into consumers’ lifestyles, values, beliefs, and social status. A sustainability-driven brand may target consumers who prioritise environmental values over cost.
4. Behavioral Segmentation
Based on user behaviour such as product usage, brand interactions, and loyalty. For instance, streaming platforms segment users based on watch habits to recommend personalised content.
Real-World Case Studies in Market Segmentation
To see segmentation in action, let’s look at a few standout examples.
Jean&Len’s Email Segmentation Strategy
Jean&Len, a German wellness brand, used advanced segmentation to increase their email open rates by 185%. They segmented users based on browsing behavior and purchasing patterns.
Source: Jean&Len Email Segmentation Case Study – Klaviyo
BT Plc’s Segmentation for Telecom Services
BT Plc, one of the UK’s leading telecom providers, implemented a segmentation and targeting model to address business and consumer audiences separately. This improved the relevance of their service plans and communication.
Source: Smart Insights - STP Model
Illuminas + Orange Europe
Orange collaborated with Illuminas to segment its European customer base by digital behaviours and preferences. This segmentation directly influenced successful campaign launches like the Animal Tariffs in the UK.
Steps to Conduct Market Segmentation Analysis
Step 1: Define Your Target Market
Clarify the market you want to address. This could be based on existing customers or a broader industry opportunity.
Step 2: Choose Segmentation Criteria
Select factors like age, region, or purchase behavior that align with your goals and offerings.
Step 3: Gather & Analyse Data
Use a combination of CRM data, analytics tools, surveys, and third-party research to map patterns.
Step 4: Identify Meaningful Segments
Ensure your segments are measurable, substantial, accessible, actionable, and differentiable.
Step 5: Evaluate Profitability
Not all segments are worth pursuing. Focus on those with strong commercial potential and market fit.
Step 6: Build Targeted Strategies
Tailor messaging, channels, and offers to resonate with each group’s specific motivators. For example, aligning your messaging with user feedback, as discussed in our guide to customer-driven product development, can enhance product-market fit.
Step 7: Track, Test, and Refine
Segmentation is not static. Customer behavior evolves, and so should your segments.
Benefits of Market Segmentation
Better Personalisation: Speak directly to what matters most to each audience.
Improved ROI: Reduce wasted ad spend by targeting only the most valuable prospects.
Informed Product Development: Build for what customers actually need.
Scalable Campaigns: Modular strategies allow easy testing and expansion.
Segmentation also supports early-stage businesses in identifying viable funding strategies and revenue channels. For an overview of different paths to secure capital, explore our SME funding options guide.
Conclusion
Market segmentation helps businesses work smarter—not harder. Instead of broadcasting a one-size-fits-all message, you focus efforts on the most promising audiences with precision. Whether you’re building your next product, planning a marketing campaign, or exploring new revenue streams, segmentation is your roadmap to relevance, growth, and lasting engagement.
