Marketing Center

Understanding market segmentation analysis

Go beyond basic market research to help you create a clearer picture of your customers.

Published: July 19, 2017

When you begin using research to understand your customers’ needs and wants, you may start with a general analysis of your business’s market. The broad knowledge you gain in that analysis can help you better target current customers and identify new ones.

 Once you’ve completed your general analysis, you may look for ways to segment your market for a deeper dive. Different customer groups may use your product or service in various ways, and some customers may be more price-sensitive than others. By defining audience segments, you can target your marketing resources more effectively.

 Determine how you’ll segment your market

 Businesses typically segment their markets using three primary characteristics:

  • Demographic: This segmentation examines customers’ socioeconomic status and life circumstances. Common demographic categories include age, gender, location, education, and income. Marketers also recognize that customer needs can vary based on their life stage – for instance, a young professional will have different needs from a retired couple. So, you may find it helpful to gather information about customers’ marital status and family size.

  • Psychographic: Your customers’ beliefs, values, interests, and attitudes are the focus of this segmentation. Unlike demographic research, which typically relies on numerical data, psychographic research collects qualitative feedback around the topics current or potential customers care about most. Businesses rely on in-person or online interviews to hear directly from their audience.

  • Behavioral: A third consideration may be your customers’ purchasing or usage behavior. Understanding how they interact with your product or service – and those of your competitors – may help you identify unmet needs or an advantage that you hold in your market.

The importance of each characteristic varies by industry and type of business, so researching your market and your competitors can help you pinpoint what matters most for your business.

 In market segmentation, your goal is to find high-yield segments — portions of your market that are especially profitable or offer the most growth potential.

Start your segmented analysis

To get started, assess the size of the potential group that could benefit from your product or service. You can use U.S. Census Data and other government statistics to help with this analysis and help determine the extent of the overall market for your business.

Next, analyze information from your customer databases, purchase records, survey results, and focus-group feedback to determine whether your customers have different needs among segments, including how and why they use your product or service. Identify distinct patterns that separate the segments.

Once you have established segments, consider what percentage of each segment is likely to purchase your offering. You may identify a large potential segment, but it may already be crowded with competitors. Rather, it may be beneficial to focus your efforts on opportunities others have missed.

 Improve your business mission

Market segmentation can help you better understand who your customers are and what they are passionate about. In some cases, you may discover that all market segments have universal responses to your business offering. When you recognize patterns, you can tailor your marketing approach to align with customer preferences.

You may also find that customers in some market segments would be interested in your product with a few changes: perhaps a less expensive version, or one with more features. By acknowledging these differences, you can help solve customers’ problems and improve their lives.

Want to know how your business stacks up against the competition? Learn more about competitive analysis to help grow your business.