What Is Market Segmentation? The Four Types

Market segmentation means dividing a broad market into smaller groups of customers who share characteristics or needs. A business can then choose which groups to target and adapt its marketing to appeal to them.

Four ways to segment a market

• Demographic: Group customers by characteristics such as age, income, occupation or life stage. A retailer might offer different clothing ranges for teenagers and working adults.
• Geographic: Group customers by where they live, such as country, region or urban and rural areas. A business might promote raincoats more heavily in wetter regions.
• Psychographic: Group customers by lifestyle, values, interests or personality. A sportswear brand might appeal to people who value outdoor adventure.
• Behavioural: Group customers by what they do as buyers, such as how often they purchase, how they use a product or whether they are loyal to a brand. A coffee shop might offer rewards to frequent customers.

Why does it matter?

Customers in the same segment are more likely to respond to a similar offer. By understanding a segment, a business can make better decisions about its product, price, promotion and where it sells. For example, a sportswear brand targeting regular runners might develop durable running shoes and advertise through running clubs. Segmentation can help a business use its marketing resources more effectively, although researching customers and creating different offers can cost money.

A segment also needs enough potential customers to justify serving it, and the business needs a practical way to reach them. For a small business, tailoring separate offers to several groups may cost more than the additional sales bring in.

Exam mistake to avoid: Segmentation is the process of dividing the market; targeting is choosing which segment or segments to serve. A customer can also fit more than one description: a regular runner might be grouped by age, location, lifestyle and buying behaviour.