STRATEGY | 4 minute read

How to effectively segment your market and target the right customers

Discover how we can help your business create impactful digital marketing campaigns.

SHARE THIS ARTICLE

Market segmentation is a research process that helps businesses understand how to divide their broader customer base into smaller, more manageable groups, based on shared characteristics, behaviors, preferences, or needs. This division allows companies to gain deeper insights into the unique demands and motivations of their customers, ultimately enhancing marketing strategies, product development, and customer service.

The primary goal of segmentation is to eliminate the concept of the “average” customer, a generalized and often misleading archetype that doesn’t truly represent any one specific group. By focusing on distinct segments, companies can more accurately target their marketing efforts and tailor their offerings to better meet the needs of real customers. Rather than viewing the market as a broad, undifferentiated mass, segmentation breaks it down into smaller submarkets that share common traits.

The benefits of market segmentation

Segmentation is often misunderstood or misused in marketing, which is unfortunate given its crucial role in crafting effective marketing strategies. When done right, market segmentation is a powerful tool that allows businesses to target their efforts more precisely and maximize their impact.

The primary benefit of segmenting a market is that it provides a deep understanding of what different customer groups actually want from your products or services. It sheds light on their shopping behaviors, what they prioritize when making purchasing decisions, and how they prefer to engage with brands. By knowing these preferences, brands can tailor their marketing approaches to each segment, delivering the right message to the right audience at the right time.

Segmentation also helps businesses identify and focus on the most profitable customer groups. Not all customers are created equal, and segmentation allows you to pinpoint the segments that are most likely to bring in revenue, while avoiding those that may not be as valuable. This focus on profitability enables more efficient use of resources, driving greater returns on marketing investments.

It’s essential to remember that segmentation is not about focusing on what the company wants or needs, but about understanding and addressing the needs of the customers. When done effectively, segmentation should reflect the diverse ways customers perceive value, not the brand’s perspective. In theory, all brands within the same category should have similar segmentation maps, as they are all competing for the same pool of potential customers. What differentiates brands is how well they understand these segments and how effectively they can meet their unique needs.

Idenfifying the most valuable variables for your business

The most effective type of market segmentation is one that is tailored specifically to your company’s unique needs, rather than relying on generic or broad categories. The goal is to create a segmentation strategy that is directly aligned with your business’s objectives and customer behaviors, ensuring that your marketing efforts are more impactful and relevant.

We want to avoid is segmenting based on generic demographic or geographic variables like age group, gender, income, location or broad generational categories like Boomers or Millennials. These traditional definitions often fail to reveal meaningful insights into customer behavior. 

Instead, we’ll use a strategic framework which focuses on identifying the most relevant variables for your business. This method looks beyond generic variables to uncover factors that truly impact how customers interact with your brand, products, and services. 

How to segment your market

Now that you understand what market segmentation is, we will walk you through the process of market segmentation using a fictional company. This framework applies to all market categories and if used right, the results will always be unique to your specific category and business needs.

1. Define your business

Happy Paws is a new Swedish startup making high quality dry dog food. They plan to sell their products exclusively online across Sweden to reduce distribution and wholesale costs, and pass on the savings to their customers.

2. Define your product

Their first product is Bark Bites, a large bag of dried dog food made from organic ingredients for healthy bowel movements. Each bag provides three weeks of dog meals, and sells for 600 SEK with free shipping anywhere in Sweden. Most organic dog food costs 750 SEK, so they have a good price advantage over the competition.

3. Research your market

To better understand your market, start by gathering data on market size, category trends, customer behaviors, and purchasing patterns. In this example:

  • 735 000 households in Sweden have at least one dog

  • 92% purchase dog food in stores

  • 8% purchase dog food online

  • 30% say they would pay more for healthier dog food

  • Average cost of healthy dog food per year = 9 000 SEK

  • Average cost of regular dog food per year = 7 000 SEK

  • Total market value of dog food in Sweden = 5.8 billion SEK per year

4. Define relevant variables in your category

To segment your market, make a list of all relevant variables in your category. Write down everything you can think of. Give each variable a score from 1-10 based on how meaningful it is to your company, and how actionable it is. Multiply the two numbers together to get your final score. 

A meaningful variable to a dog food brand would be identifying if someone owns a dog (10 – very meaningful). A less meaningful variable for a dog food brand is how many cars dog owners typically have (1 – not meaningful). Actionable refers to how able you are to reach consumers of a particular variable – easy (10) or difficult (1). 

5. Segment your market

The 4-5 variables with the highest score are what you want segment your market on. Arrange them on a 2 x 2 axis, and draw a map. Name each segment based on their purchasing behaviour, and use your research data to fill in the total number of people in each segment, and their total value in buying power per year.

You have now segmented your market using actual consumer data that is relevant to your category and business. This gives you a solid foundation to build an effective marketing strategy.

5. Integrate your segments into your digital marketing strategy

Now that you have defined your most valuable segments, it’s time to ask some strategic questions that will help guide your business moving forward:

  • Is a Swedish organic dog food brand a profitable idea?

  • What market segments should Happy Paws consider targeting?

  • What position should Happy Paws take if targeting Digital owners?

  • Should that positioning be different for other segments?

Conclusion

Marketing segmentation provides a deep understanding of what different customer groups actually want from your products or services. By breaking down the broader market into smaller, more manageable groups, businesses can identify unique needs and behaviors, moving away from the outdated concept of the “average” customer. 

Not all customers are created equal, and segmentation allows you to pinpoint the segments that are most likely to bring in revenue. When done right, market segmentation is a strategic tool that allows your business to increase sales and improve the efficiency of marketing investments.

Maja Sandberg

SENIOR STRATEGIST

Maja is a Senior Strategist with years of experience in marketing, project management and digital strategy.

INSIGHTS

Explore related articles.