research topics about market segmentation

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Market Segmentation

What is market segmentation?

The benefits of market segmentation, the basics of segmentation in marketing, types of market segmentation, how to get started with segmentation, market segmentation strategy, market segmentation use case examples, ensuring effective segments, common segmentation errors, qualtrics solutions for market segmentation, see how qualtrics strategic brand works, market segmentation: definition, types, benefits, & best practices.

21 min read Market segmentation helps you send the right message, every time, by efficiently targeting specific groups of consumers. Here’s how it works.

By understanding your market segments, you can leverage this targeting in product, sales, and marketing strategies . Market segments can power your product development cycles by informing how you create product offerings for different segments like men vs. women or high income vs. low income.

Read on to understand why segmentation is important for growth and the types of market segmentation to use to maximize the benefits for your business.

Free eBook: How to drive profits with customer segmentation

Companies who properly segment their market enjoy significant advantages. According to a study by Bain & Company , 81% of executives found that segmentation was crucial for growing profits. Bain also found that organizations with great market segmentation strategies enjoyed a 10% higher profit than companies whose segmentation wasn’t as effective over a 5-year period.

Other benefits include:

• Stronger marketing messages : You no longer have to be generic and vague – you can speak directly to a specific group of people in ways they can relate to, because you understand their characteristics, wants, and needs.
• Targeted digital advertising : Market segmentation helps you understand and define your audience’s characteristics, so you can direct your online marketing efforts to specific ages, locations, buying habits, interests etc.
• Developing effective marketing strategies : Knowing your target audience gives you a head start about what methods, tactics and solutions they will be most responsive to.
• Better response rates and lower acquisition costs : will result from creating your marketing communications both in ad messaging and advanced targeting on digital platforms like Facebook and Google using your segmentation.
• Attracting the right customers : targeted, clear, and direct messaging attracts the people you want to buy from you.
• Increasing brand loyalty : when customers feel understood, uniquely well served, and trusting, they are more likely to stick with your brand .
• Differentiating your brand from the competition : More specific, personal messaging makes your brand stand out .
• Identifying niche markets : segmentation can uncover not only underserved markets, but also new ways of serving existing markets – opportunities which can be used to grow your brand.
• Staying on message : As segmentation is so linear, it’s easy to stay on track with your marketing strategies, and not get distracted into less effective areas.
• Driving growth : You can encourage customers to buy from you again , or trade up from a lower-priced product or service.
• Enhanced profits : Different customers have different disposable incomes; prices can be set according to how much they are willing to spend . Knowing this can ensure you don’t oversell (or undersell) yourself.
• Product development : You’ll be able to design new products and services with the needs of your customers top of mind, and develop different products that cater to your different customer base areas.

Companies like American Express , Mercedes Benz , and Best Buy have all used segmentation strategies to increase sales, build better products, and engage better with their prospects and customers.

Understanding segmentation starts with learning about the various ways you can segment your market as well as different types of market segmentation. There are four primary categories of segmentation, illustrated below.

With segmentation and targeting, you want to understand how your market will respond in a given situation, like what causes people to purchase your products. In many cases, a predictive model may be incorporated into the study so that you can group individuals within identified segments based on specific answers to survey questions .

Demographic segmentation

Demographic segmentation sorts a market by elements such as age, education, household income, marital status, family size, race, gender, occupation, and nationality. The demographic approach is one of the simplest and most commonly used types of market segmentation because the products and services we buy, how we use those products, and how much we are willing to spend on them is most often based on demographic factors. It’s also seen as a simple method of predicting future behavior, because target audiences with similar characteristics often behave in similar ways.

How to start demographic segmentation

Demographic segmentation is often the easiest because the information is the most readily available. You can send surveys directly to customers to determine their demographic data, or use readily available third party data such as government census data to gather further information.

Geographic segmentation

Geographic segmentation can be a subset of demographic segmentation, although it can also be a unique type of market segmentation in its own right. As its name suggests, it creates different target customer groups based on geographical boundaries. Because potential customers have needs, preferences, and interests that differ according to their geographies, understanding the climates and geographic regions of customer groups can help determine where to sell and advertise, as well as where to expand your business.

How to start geographic segmentation

Geographic segmentation data again can be solicited from customers through surveys or available third party market research data, or can be sourced from operational data such as IP addresses for website visitors.

Firmographic segmentation

Firmographic segmentation is similar to demographic segmentation, except that demographics look at individuals while firmographics look at organizations. Firmographic segmentation would consider things like company size, number of employees and would illustrate how addressing a small business would differ from addressing an enterprise corporation.

How to start firmographic segmentation

Firmographic segmentation data can be found in public listings for companies and information that the business makes available, as well as trade publications. Again, surveying existing and potential customers can help to build out this data.

Behavioral segmentation

Behavioral Segmentation divides markets by behaviors and decision-making patterns such as purchase, consumption, lifestyle, and usage. For instance, younger buyers may tend to purchase bottled body wash, while older consumer groups may lean towards soap bars. Segmenting markets based on purchase behaviors enables marketers to develop a more targeted approach, because you can focus on what you know they are looking for, and are therefore more likely to buy.

How to start behavioral segmentation

Of all the types of market segmentation, behavioral segmentation is likely best started with the information you have on an existing customer base. Though it can be bolstered by third party market research data, the information you already have on customer purchase and usage behavior will be the best predictor of future behavior.

Psychographic segmentation

Psychographic segmentation considers the psychological aspects of consumer behavior by dividing markets according to lifestyle, personality traits, values, opinions, and interests of consumers. Large markets like the fitness market use psychographic segmentation when they sort their customers into categories of people who care about healthy living and exercise.

How to start psychographic segmentation

Pychographic segmentation relies on data provided by the consumers themselves. Though market research might provide insights on what particular segments are most likely to believe or prefer, psychographic segmentation is best completed with information direct from the source. You can use survey questions with a qualitative focus to help draw out insights in the customers’ own voice.

On-demand webinar: How to drive product design and profits with customer segmentation

There are five primary steps to all marketing segmentation strategies:

• Define your target market : Is there a need for your products and services? Is the market large or small? Where does your brand sit in the current marketplace compared to your competitors?
• Segment your market : Decide which of the five criteria you want to use to segment your market: demographic, firmographic, psychographic, geographic, or behavioral. You don’t need to stick to just one – in fact, most brands use a combination – so experiment with each one to figure out which combination works best for your needs.
• Understand your market : You do this by conducting preliminary research surveys, focus groups, polls , etc. Ask questions that relate to the segments you have chosen, and use a combination of quantitative (tickable/selectable boxes) and qualitative (open-ended for open text responses) questions.
• Create your customer segments : Analyze the responses from your research to highlight which customer segments are most relevant to your brand.
• Test your marketing strategy : Once you have interpreted your responses, test your findings by creating targeted marketing, advertising campaigns and more for your target market, using conversion tracking to see how effective it is. And keep testing. If uptake is disappointing, relook at your segments or your research methods and make appropriate changes.

Why should market segmentation be considered a strategy? A strategy is a considered plan that takes you from point A to point B in an effective and useful way. The market segmentation process is similar, as there will be times you need to revisit your market segments, such as:

In times of rapid change: A great example is how the Covid-19 pandemic forced a lot of businesses to rethink how they sell to customers. Businesses with physical stores looked at online ordering, while restaurant owners considered using food delivery services.

If your customers change, your market segmentation should as well, so you can understand clearly what your new customers need and want from you.

On a yearly basis: Market segments can change year over year as customers are affected by external factors that could alter their behavior and responses.

For example, natural disasters caused by global warming may impact whether a family chooses to stay living in an area prone to more of these events. On a larger scale, if your target customer segment moves away from one of your sales regions, you may want to consider re-focussing your sales activities in more populated areas.

At periodic times during the year: If you’ve explored your market and created market segments at one time of the year, the same market segments may have different characteristics in a different season. Seasonal segmentation may be necessary for better targeting.

For example, winter has several holidays, with Christmas being a huge influence on families. This holiday impacts your market segments’ buying habits, how they’ll behave (spending more than normal at this time than any other) and where they will travel (back home for the holidays). Knowing this information can help you predict and prepare for this period.

When considering updating your market segmentation strategy, consider these three areas:

• Acknowledge what has changed: Find out what has happened between one time period and another, and what have been the driving forces for that change. By understanding the reasons why your market is different, you can make key decisions on whether you want to change your approach or stay the course.
• Don’t wait to start planning: Businesses are always adapting to long-te r m trends , so refreshing market segmentation research puts you in a proactive place to tackle these changes head-on. Once you have your market segments, a good idea is to consider the long-term complications or risks associated with each segment, and forward-plan some time to discuss problem-solving if those issues arise.
• Go from “what” to “why” : Why did those driving forces come about? Why are there risks with your target market? At Qualtrics, we partner with companies to understand the different aspects of target markets that drive or slow success. You’ll have the internal data to understand what’s happening; we help unleash insight into why with advanced modeling techniques. This helps you get smart market segmentation that is predictive and actionable, making it easier for future research and long-term segment reporting.

Where can you use market segmentation in your business? We’ve collected some use case scenarios to help you see how market segmentation can be built out across several departments and activities:

Market and opportunity assessments

When your business wants to enter into a new market or look for growth opportunities, market segmentation can help you understand the sales potential. It can assist in breaking down your research, by aligning your findings to your target audience groups.

For example, When you’ve identified the threats and opportunities within a new market, you can apply your customer segment knowledge to the information to understand how target customers might respond to new ideas, products, or services.

Segmentation and targeting

If you have your entire market separated into different customer segments,  then you have defined them by set criteria, like demographics, needs, priorities, common interests, or behavioral preferences .

With this information, you can target your products and services toward these market segments, making marketing messages and collateral that will resonate with that particular segment’s criteria.

Customer needs research

When you know a lot about your customers, you can understand where your business is connecting well with them and where there can be improvements.

Market segmentation can help with customer needs research (also known as habits and practices research) to deliver information about customer needs, preferences, and product or service usage. This helps you identify and understand gaps in your offerings that can be scheduled for development or follow-up.

Product development

If the product or service you’ve developed doesn’t solve a stated problem of your target audience or isn’t useful, then that product will have difficulty selling. When you know what each of your market segments cares about an/d how they live their lives, it’s easier to know what products will enrich or enhance their day-to-day activities.

Use market segmentation to understand your customers clearly , so that you can save time and money developing products and services that your customers will want to purchase.

Campaign optimization

Marketing and content teams will value having detailed information for each customer segment, as this allows them to personalize their campaigns and strategies at scale. This may lead to variations in messaging that they know will connect better with specific audiences, making their campaign results more effective.

When their marketing campaigns are combined with strong calls to action targeted to the specific segment, they will be a powerful tool that drives your target market segments towards your sales channels.

After you determine your segments, you want to ensure they’ll be useful. A good segmentation analysis should pass the following tests:

• Measurable : Measurable means that your segmentation variables are directly related to purchasing a product. You should be able to calculate or estimate how much your segment will spend on your product. For example, one of your segments may be made up of people who are more likely to shop during a promotion or sale.
• Accessible : Understanding your customers and being able to reach them are two different things. Your segments’ characteristics and behaviors should help you identify the best way to meet them. For example, you may find that a key segment is resistant to technology and relies on newspaper or radio ads to hear about store promotions, while another segment is best reached on your mobile app. One of your segments might be a male retiree who is less likely to use a mobile app or read email, but responds well to printed ads.
• Substantial : The market segment must have the ability to purchase. For example, if you are a high-end retailer, your store visitors may want to purchase your goods but realistically can’t afford them. Make sure an identified segment is not just interested in you, but can be expected to purchase from you. In this instance, your market might include environmental enthusiasts who are willing to pay a premium for eco-friendly products, leisurely retirees who can afford your goods, and successful entrepreneurs who want to show off their wealth.
• Actionable : The market segment must produce the differential response when exposed to the market offering. This means that each of your segments must be different and unique from each other. Let’s say that your segmentation reveals that people who love their pets and people who care about the environment have the same purchasing habits. Rather than having two separate segments, you should consider grouping both together in a single segment.

Market segmentation is not an exact science. As you go through the process, you may realize that segmenting based on behaviors doesn’t give you actionable segments, but behavioral segmentation does. You’ll want to iterate on your findings to ensure you’ve found the best fit for the needs of your marketing, sales and product organizations.

We’ve outlined the do’s , so here are some of the dont’s :

• Avoid making your segments too small or specialized : Small segments may not be quantifiable or accurate, and can be distracting rather than insightful
• Don’t just focus on the segment rather than the money : Your strategy may have identified a large segment, but unless it has the buying power and wants or needs your product, it won’t deliver a return on investment
• Don’t be inflexible : Customers and circumstances change, so don’t let your segments become too entrenched – be prepared to let them evolve.

Market segmentation doesn’t need to be complicated to be effective. We would advise, though, to  get automated from the beginning . Forget spreadsheets – choose  market segmentation software  to measure and streamline your marketing strategy; as you grow, the technology will scale with you.

Innovative features such as Experience iD allow you to build your own customer segments and start personalizing experiences at scale based on the rich insights into your critical customer groups.

If you want to get a feel for your market segmentation upfront, before taking a step towards a streamlined and integrated system, trust us to take you through the research with our Market Segmentation Research service .

Related resources

Market fragmentation 9 min read, behavioral segmentation 20 min read, psychographic segmentation 11 min read, geographic segmentation 14 min read, demographic segmentation 14 min read.

Brand Perception

Brand Sentiment 18 min read

Brand intelligence 12 min read, request demo.

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103 Market Segmentation Essay Topic Ideas & Examples

Inside This Article

Market segmentation is a crucial aspect of marketing that involves dividing a target market into smaller, more defined segments based on various factors such as demographics, psychographics, behavior, and geographic location. By understanding the unique needs and preferences of different market segments, businesses can tailor their marketing strategies and offerings to better appeal to their target audience.

If you're tasked with writing an essay on market segmentation, coming up with a compelling topic can be a daunting task. To help you get started, here are 103 market segmentation essay topic ideas and examples:

• The importance of market segmentation in marketing strategy
• How demographic segmentation can help businesses target specific age groups
• Exploring the role of psychographics in market segmentation
• The impact of geographic segmentation on product distribution
• Behavioral segmentation: How consumer behavior influences marketing decisions
• The benefits of segmenting a market based on income levels
• Gender segmentation: Is it still relevant in today's marketing landscape?
• How lifestyle segmentation can help businesses better understand their target audience
• The role of generational segmentation in marketing to different age groups
• Exploring the use of segmentation variables in market research
• Targeting niche markets: Strategies for success
• The challenges of segmenting global markets
• The impact of cultural differences on market segmentation
• How technology has changed the way businesses segment their target markets
• The role of social media in segmenting online markets
• Exploring the concept of microsegmentation in marketing
• The benefits of segmenting markets based on buying behavior
• How market segmentation can help businesses create more targeted advertising campaigns
• The role of market segmentation in new product development
• Exploring the use of segmentation analysis in market research
• The impact of market segmentation on pricing strategies
• The benefits of using segmentation to identify new market opportunities
• The challenges of segmenting markets in the digital age
• How market segmentation can help businesses improve customer loyalty
• The role of segmentation in creating personalized marketing strategies
• Exploring the use of segmentation in international marketing
• The benefits of segmenting markets based on lifestyle preferences
• How market segmentation can help businesses create more effective marketing messages
• The impact of segmentation on product positioning
• The role of market segmentation in branding strategies
• Exploring the use of segmentation in market forecasting
• The benefits of using segmentation to target specific customer needs
• The challenges of segmenting markets in highly competitive industries
• How market segmentation can help businesses increase market share
• The role of segmentation in market expansion strategies
• Exploring the use of segmentation in customer retention
• The benefits of segmenting markets based on customer satisfaction
• How market segmentation can help businesses identify emerging trends
• The impact of segmentation on market research methodologies
• The role of segmentation in marketing mix strategies
• Exploring the use of segmentation in product differentiation
• The benefits of using segmentation to create targeted promotions
• The challenges of segmenting markets in rapidly changing industries
• How market segmentation can help businesses adapt to changing consumer preferences
• The role of segmentation in market penetration strategies
• Exploring the use of segmentation in market segmentation
• The benefits of segmenting markets based on customer lifetime value
• How market segmentation can help businesses improve customer satisfaction
• The impact of segmentation on customer acquisition strategies
• The role of segmentation in customer relationship management
• The benefits of using segmentation to create personalized customer experiences
• The challenges of segmenting markets based on changing demographics
• How market segmentation can help businesses target specific customer segments
• The role of segmentation in market segmentation
• The benefits of segmenting markets based on customer loyalty
• How market segmentation can help businesses identify new market opportunities
• The impact of segmentation on product development strategies
• The benefits of using segmentation to create targeted advertising campaigns
• The challenges of segmenting markets based on changing consumer behavior
• How market segmentation can help businesses improve brand loyalty
• The benefits of segmenting markets based on customer preferences
• How market segmentation can help businesses identify new market trends
• The impact of segmentation on product positioning strategies
• The benefits of using segmentation to create personalized marketing messages
• The challenges of segmenting markets based on changing market conditions
• The benefits of segmenting markets based on customer needs
• How market segmentation can help businesses improve customer retention
• The impact of segmentation on product development
• The challenges of segmenting markets based on changing consumer preferences
• How market segmentation can help businesses adapt to changing market conditions
• The impact of segmentation on customer relationship management

These topics should provide you with a good starting point for your market segmentation essay. Whether you choose to focus on a specific type of segmentation or explore the broader implications of market segmentation in marketing, there are plenty of interesting angles to consider. Good luck with your essay!

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market Segmentation Research: a comprehensive guide

Kat Figatner

Senior Vice President, In-Person Qualitative Research

Chief Executive Officer

Robbin Jaklin

Former President

Your prospects and customers are not all the same—segmentation research helps guide your targeting and messaging strategies.

Market segmentation in consumer research is essential for effective marketing, as it recognizes that products and services cannot appeal to everyone universally. By identifying specific groups with varying attitudes, needs, and motivations, segmentation research enables companies to develop a targeted portfolio of brands and tailor marketing communications to distinct consumer segments.

Segmentation should be purpose-built and customized for each product category, involving an investigative and often multi-modal phased design and analysis process.

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Defining segmentation.

Customer segmentation refers to the process of dividing a customer base into groups of individuals that are similar in specific ways relevant to marketing, such as age, gender, interests, spending habits, and so on. It enables businesses to target these groups effectively and allocate marketing resources to the best possible effect.

Segmentations vary in complexity and analytical depth:

• Simple segmentations use straightforward criteria like generation or ethnicity, relying on cross-tabulated data.
• Intermediate segmentations apply basic advanced analytics, such as cluster analysis on Attitude & Usage study data.
• Complex segmentations are in-depth, often the main focus of the study, requiring iterative and/or multi-modal processes with extensive use of advanced analytics.

When do you need a segmentation study?

Typically segmentations are done to:

• Uncover new growth opportunities through tailored, industry-specific segmentation research.
• Understand the array of consumer experiences and needs.
• Develop engaging personas and creative presentations for segmentation results.
• Help refine and expand a brand’s target market share more effectively.
• Deliver actionable, “living” segmentations for effective organizational implementation.

Exploring types of segmentation

There are an endless number of ways you can segment. These are a few of the common methods C+R employs:

• Shopper Segmentation: Shopper  – groups people based on their needs, attitudes, and behaviors when shopping for a product or service. Our proprietary  Shopper Segmentation  can easily be incorporated into your research initiatives.
• Attitudinal Segmentation: (also known as Psychographic Segmentation) Groups people with similar attitudes, then profiles them using demographics, behaviors, brand perceptions, media habits, etc., for targeted strategies.
• Occasion-Based Segmentation: Focuses on product/service use in different situations, identifying diverse consumer needs and opportunities for growth.
• Behavioral Segmentation: includes key aspects of purchase behavior, usage rates, and benefits sought from a product or service. It is particularly useful in tailoring marketing messages and promotions to fit specific consumer habits, enhancing customer engagement and retention.
• Marrying Behavior with Attitudes: Combines transactional and attitudinal data to form unique segments.
• Geographic Segmentation: This type of segmentation divides the market based on geographic boundaries or characteristics. This can refer to regional or location-based, climate or cultural preferences impacted by geography.
• Needs-based: Categorizes consumers based on their specific needs and desires regarding products or services. It focuses on identifying what drives customer purchases, ranging from functional requirements to emotional or psychological desires.

Read a segmentation case study

Learn how we partnered with an alcoholic beverage client to develop a comprehensive occasion-based segmentation, including how we worked to bring segments to life.

Getting started: what’s the right segmentation to use?

As with other custom research, one size does not fit all, and the segmentation should be designed based on what you are looking to accomplish. For example, each of our client situations is unique, so our recommended solution is really based on getting to know their business intimately and understanding how they intend to use the segmentation.

This process entails the following four phases, addressed in further detail in our segmentation eBook .

The methodology of segmentation in marketing

Phase 1: sharing, planning and aligning.

Stakeholder Engagement and Kickoff Meeting

This initial phase is critical for the success of segmentation studies, involving considerable client investment and diverse stakeholder input. It starts with in-depth, individual interviews with key internal stakeholders to gather insights about the current market, future directions, and each stakeholder’s vision of success. These insights are crucial for shaping the research and garnering stakeholder buy-in. The findings from these interviews lay the groundwork for the kickoff meeting, a structured group discussion to further share knowledge, align objectives, and address any additional information relevant to the study, such as market trends, specific demographic insights, or the impact of external factors.

Phase 2: Building Empathetic Insights Through Qualitative Research

Understanding Consumers and Their Point of View on the Category

• Explore target consumers’ values, lifestyles, and how they perceive the category, including the fit of different products/brands.

Identify Motivations, Jobs, and Perceptions

• Analyze needs and behaviors in various contexts.
• Identify roles fulfilled by specific products/brands in the category.
• Investigate the decision-making process and brand perceptions to reveal factors influencing client’s brand and competitors.

Develop Hypotheses and Update Language

• Use qualitative insights to create language reflecting consumer perceptions and motivations.
• Involve Cohort Experts for multicultural consumer insights.
• Form an initial framework for validation in the quantitative phase.

Process and Techniques

• Overview of methodologies utilized in market segmentation.

Phase 3: Evaluating Need States and Survey Execution

This is the most involved stage. It includes everything from designing the sample, developing the questionnaire, and creating segmentation models. After gathering qualitative insights and formulating hypotheses , the questionnaire is developed , typically over 20 minutes, with the sample size adapted to the diversity of the target audience.

Pilot studies are employed to refine the survey, focusing on differentiating attributes through factor analysis. Once the data is collected, the segmentation process involves data preparation , such as removing poor quality responses and doing advanced analytics controlling for scale-use bias, and selecting appropriate segmentation analytics like ensemble clustering, latent class, or K-means based on data types. The final steps include segmentation validation techniques , ensuring stable and accurate segment classification.

Phase 4: Evaluating Need States and Survey Execution

The final stage of the segmentation study is to make the information digestible for your stakeholders.

An iterative approach with work sessions helps integrate the learning into the organization. It’s important to present data in a visually appealing and engaging way to maintain interest. Techniques to bring segments to life are also employed for clearer understanding.

The process culminates in a final presentation involving a cross-functional client team, where strategies and tactics for key segments are developed and activated.

custom segmentation research case studies and examples

• Applied Case Study: Reference to the Kid Retail Strategy Case Study for practical application.
• Effective Segmentation of Moms Case Study .
• Targeting Donors Case Study
• For a more off the shelf solution, explore C+R’s SmartMarket Segmentation blog .

Tools and analytics for segmentation

Data Preparation involves removing poor quality data: respondents who answer with low-variability or inconsistent answers. We also control for scale-use bias: Because respondents use scales differently, it’s essential to take steps to control for that bias so that data is standardized across cases. Solutions involve either normalizing scale data or using scale measurements that avoid scale bias, such as Max-Diff utilities.

Segmentation analytics are chosen based on the type(s) of data used in the segmentation: categorical, binary, scaled, ranked, choice-based utilities, metric (such as counts or spend), or a mix of measures. Some examples include:

• Ensemble clustering : which uses several different algorithms to run hundreds of solutions, then aggregate the results into the most reproducible segments.
• Latent class : appropriate for clustering with variables of many different data types.
• K-means : a basic clustering method used on variables with equal variance.
• Hierarchical : applied to market structure studies to build taxonomies of products.
• Segmentation Validation is a step to ensure that the analytic solutions provide stable and accurate classification into segments.
• Information criteria : Akaike and Bayesian Information Criterion allows for direct model comparison to maximize likelihood while minimizing the overlapping that might occur with many segments.
• Split-half validation : Predict half of the cases out of sample using solution on the other half.
• Reproducibility : Test the ability of the solution to classify future cases into the existing model.

The segmentation solution is final: time to tell the story and develop personas

Once the segmentation solution is finalized, each segment will be profiled, sized, and prioritized for meeting the brand’s objectives for growth. Personas are created so that segments are presented in a quick and easily digestible way for the stakeholders to understand everything about the segments. Following are some examples:

Bringing the segments to life

We always encourage our clients to add one of the following methods for bringing the segments to life. Many times, we will involve C+R’s Storyologists to connect our clients to the segments to build understanding and empathy.

Video Clips that represent people from different segments—can be collected via online discussions, webcam interviews, or video platforms such as VoxPopMe.

Video Sizzle Reels — can be created using video clips to capture key insights in a compelling way—either more artistically stylized or more ethnographic documentary style.

Look Books — a tangible “book” to give to your stakeholders to use as a segment reference “bible.”

Animated Videos — these highlight the journeys/ consumer stories in a memorable way for staying power in your organization.

Social Media Profiles — segments are presented similar to a social media profile.

Introducing Real Consumers to Represent Segments — there are several ways to connect your stakeholders with “real consumers” for a deeper understanding of the segments:

Panel discussion — consumers sit on a panel and stakeholders ask questions.

Speed Dating — this is where stakeholders and people from key segments meet one on one and do a quick question and answer session; stakeholders rotate from person to person, each representing a different segment.

Walk in Segment’s Shoes — this is where we take clients into the life of each segment such as in-homes where people prepare meals and the clients join the family for dinner or go on dine-alongs, etc.

Remember, segmentation methods continue to evolve, along with innovative and powerful ways of conducting and analyzing segmentation data. Segmentation research offers a wealth of insights, and addresses many strategies to grow your business, including:

• To drive sales by decreasing acquisition and retention costs, along with improving conversion
• To support opportunity identification and prioritization
• To provide marketing and sales with a clear and concise playbook by segment
• To identify the segments’ needs and preferences, which can be communicated in advertising and positioning messaging
• To support and build consideration of and loyalty to your brand
• To reduce or eliminate barriers to the brand
• To create opportunities against high-value customers and likely-to-convert segments

Hopefully, this primer educated and inspired you on the “how to’s” and benefits of segmentation research.

Next time you are thinking about conducting segmentation research, reach out and let’s chat about the best way to design the research to ensure you get the most actionable results out of your segmentation investment.

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• What is market segmentation?

Last updated

18 March 2023

Reviewed by

Learn all about market segmentation, what it is, how to do it, and the benefits of a properly implemented market segmentation.

It involves sectioning the total addressable market into discrete, smaller groups. This marketing technique is used to group or ‘segment’ buyers with common characteristics to tailor their needs. 

Each group shares common characteristics that enable the firm or business to create targeted experiences or products for them. A group may have customers with the same income, personality traits, age, religion, or interests. 

• Why is market segmentation important?

Market segmentation allows for the customization of brand messages or products for different customers. Using customization, customers will feel more valued and appreciated since the brand caters directly to their needs and wants. It is also essential in determining different consumer groups’ purchasing habits. For a brand, it helps identify social, cultural, or economic factors influencing different customer groups’  purchasing behaviors. 

Furthermore, market segmentation allows businesses to identify the most promising customer groups to focus their marketing efforts on. With a well-segmented market, brands have better alignment with their goals and have a sharper focus on their different customer groups, thus delivering better business results. 

• Five types of market segmentation

The types of market segmentation used today include:

1. Demographic segmentation

This is the most common type of market segmentation. It refers to sectioning the market using different variables such as nationality, education, gender, age, income, or personality. You can use demographic surveys to reveal these characteristics of the target market. 

2. Firmographic segmentation

This type of segmentation is common in business-to-business marketing. It relies on the characteristics of business customer groups, such as the number of customers, size of the firm, profits, ownership, location, or annual revenue, to identify groups of businesses most likely to benefit from another business's services or products. 

3. Geographic segmentation

This involves sectioning the target market based on geographical location. For example, geographical segmentation allows businesses to section customers depending on where they live or work. Under this type of segmentation, geographical boundaries such as states, countries, regions, and towns/cities determine how to tailor the product or service to customers in that location. 

4. Behavioral segmentation

This refers to sectioning the market depending on customer behavior. Behavioral segmentation allows businesses to segment the target audience by their decision-making patterns and behaviors. It involves knowing both the customer's attitudes and perspectives towards your brand and how this plays out in their actions and behavior. 

5. Psychographic segmentation

This groups the target audience based on their lifestyle, beliefs, values, interests, and attitudes. Psychographic segmentation provides a framework for understanding the psychological factors behind customers' purchasing decisions. This type of segmentation allows a brand to understand the motivations behind why customers make certain choices, i.e., the attitudes and beliefs driving behavior. 

• Benefits of market segmentation

A segmentation driven marketing strategy offer several business benefits. The following describes some of the key ones:

1. Improves campaign performance

Market segmentation allows companies to know their target audience and tailor the perfect message that appeals most to them. When a business identifies and understands its key audience, it can appropriately communicate brand values and benefits of the products or services they are offering to its customers. 

2. Informs product development

It also encourages the development of new products that will cater to the customers' needs. Once a brand focuses on its target audience, it can learn what they need and identify product gaps in the market. Through market segmentation, companies can develop new products with the right features that specific audiences will likely buy. 

3. Reveals areas to expand

With segmentation, a brand can uncover new information on its target audiences. Segmentation can reveal untapped areas with potential customers into which your brand can expand. 

4. Improves business focus

Business focus is among the most important benefits of market segmentation. When a company concentrates on target customers, its focus improves. A brand can focus on targeted segments with the right products or services. In addition, a business has clear objectives which automatically enhance the firm's business focus. 

5. Informs other business decisions

With valuable insights gathered from identifying the target audience, a business can unearth helpful information that can help them make better-informed business decisions. Market segmentation allows companies to consider other decisions like pricing and distribution strategies. A company will consider the customer's price sensitivity and how to boost sales while satisfying their target audiences. 

6. Build customer loyalty

Market segmentation is also an excellent way to retain customers. When you tailor products or services to meet customers' needs, customers overall can be maintained and improved. Customer retention rate increases and they become more loyal to the brand. 

7. Reach new markets

With the use of geographic segmentation, reaching new markets is possible. Through market segmentation, businesses can identify hidden and underserved markets. Once identified, businesses can develop products and strategies to serve customers in these markets. 

8. Reduce customer acquisition costs

Also, by tailoring market campaigns, businesses can make a more cost-effective use of marketing resources and save on costs required for customer onboarding. Market segmentation is cost-effective since it allows a business to focus on specific resources that attract their target audience while spending less time on non-core audiences. 

9. Build better products

When a company narrows down to a specific target market, it can focus on customers' pain points concerning certain products. With the newly acquired information, companies can develop better products that meet their customer's needs and address their challenges.

• How to determine your market segment

Although there is no single way to determine your market segment, the following steps can be helpful.

Step 1: Set clear objectives

The first step in determining your market segment is to set clear objectives. This includes clarifying the goals and expectations of performing a market segmentation. 

Step 2: Collect data through market research

Market research goes beyond understanding your customers to have a macro level view of the marketplace as a whole. You can do this through online focus groups, in-person interviews, research surveys, or polls. Also, use analytic tools like Alexa and Quantcast to give you an overview of your customers. The US Census Bureau site is also helpful in gathering demographic information such as income, education, gender, and age. 

Step 3: Create buyer personas

Buyer personals are semi-fictional representations of the target audiences. To help you create buyer personas, use the following approaches:

Use research from third parties combined with your own insights

Gather feedback from your sales team

Send out customer surveys

Once you have collected the information, organize groups based on the various buyer personas. 

Step 4: Build marketing strategies

Based on the collected responses, identify the market segments that are most relevant to your brand. Many firms use a combination of segmentation strategies to build a marketing strategy. However, choose one that fits naturally with the identified target market. Some of the marketing strategies to use include:

Expansion opportunities

Niche markets

Step 5: Test a marketing strategy that works

Once the segments are in place, test the findings and review the customer segments while making appropriate changes where needed. Then, create segmented marketing campaigns which communicate directly to the customer persona. For instance, consider communicating around unique values or beliefs that resonate best with them. 

• What are some market segmentation strategies?

The four market segmentation strategies used by firms to segment their target population are:

Undifferentiated strategy

This involves using a mass marketing approach to sell products to customers. Under this strategy, the entire market is targeted instead of a small segment. An example is generic consumables such as salt or sugar. You can advertise products using this approach, as many consumers have the same needs for the products. 

Companies that use the strategy include Coca-Cola and Colgate, who have overwhelming market share and mass market appeal. They sell products that do not require customer segmentation, as they target all consumers within a population. 

Concentrated strategy

This is where a business chooses only one market segment to focus its resources on. The market segmentation strategy is common among smaller businesses starting out in the marketplace. The advantage is that it allows companies to analyze the needs of only one segment and design product and communication strategies to match. 

  Differentiated strategy

This is where the business focuses on two or more market segments. Under this strategy, the firm develops a distinct marketing mix for each segment. The advantage of a differentiated marketing strategy is an increase in total sales, as it targets a larger proportion of the addressable market versus a concentrated strategy. However, its drawback is the higher costs of developing multiple marketing and product development programs. 

Hyper-segmentation

This is a strategy that allows for customization for each particular individual. It focuses on creating unique and targeted experiences tailored for each customer. Hyper-segmentation strategy utilizes data analytics, artificial intelligence, and automation to personalize products and services. For instance, Amazon may provide suggestions based on previous purchases unique to an individual customer based on specific individual customer data. 

• Examples of market segmentation

You can see market segmentation in everyday advertising campaigns. Some examples include:

A clothing store may segment its target consumers based on the location of where these customers live. The brand may advertise its products to accommodate customers based on these locations. Also, based on the location, the firm may sell seasonal products like winter or summer clothing based on its geographic segmentation. For instance, in a region that is cold most of the year, the business may want to promote the sale of warm and cozy outfits.

Streaming services like Netflix segment the target market based on the age of their target audience—for instance, child versus adult content. They may also section their market based on the tech-savviness of their users. Spotify, for example, may target younger adults, especially Gen Z and millennials, rather than older adults. 

A sports brand like Nike sections its target market based on customers' interests. For instance, it will tailor products for athletes, gym lovers, sportswomen, and sportsmen. The sportswear manufacturer may modify their products and communications to cater to the needs that appeal to each distinct group. 

• Limitations of market segmentation

Although market segmentation offers many benefits, the technique also has limitations that include the following:

It needs extensive research and therefore can be expensive

Brands often spend significant resources gathering data and researching their broad customer bases. In addition, companies may need to create customized marketing strategies for the different segments of customers (if they aim to cater to multiple segments). Brands may also have to spend an increased amount on production costs to satisfy the different segments, again, if they choose to target multiple ones. 

Has a higher reliance on up-to-date data

Market segments evolve; thus, keeping up to date with them can be expensive and time consuming. Segmentation requires businesses to be mindful of the changing trends to tailor services and products that cater to their customers' needs. 

It is expensive and time consuming to cater to small numbers of individuals

Producing products for every individual is not feasible for most brands. Tailoring specific products for many different market segments is more expensive than mass production, and mass marketing to all potential customers. Also, being very specific with your targeting risks alienating potential customers who may fall outside your segments. 

It increases the risk of inappropriate targeting

Market segmentation increases the risk of inappropriately marketing products to the wrong audience. In addition, since you base market segmentation on the idea that similar demographics have the same values and share similar traits, there is a risk the company may lump together the needs and preferences of people within that segment and not capture important individual nuances.

• Three common segmentation errors

Here are the common mistakes that businesses make when sectioning their target markets:

1. Segments becoming obsolete

By not updating your market segments frequently, you risk losing customer relevance and loyalty. Customer trends change fast. Thus, it is crucial that you perform quarterly or yearly surveys to ensure you capture the target audience's changing needs. 

2. Creating segments that are too small

When you choose and focus on a market segment that is too small, there will be less potential for revenue and turnover, which in turn affects the profitability of the business.

3. Not focusing on the return on investment

Market segments do not always guarantee profits. For instance, a larger customer segment may not have the purchasing power for your product or services compared to a smaller but more affluent segment, which may lead to lower overall profitability or negative returns.

Learn more about market research platforms

What are the five essentials of effective market segmentation.

An effective market segment should be measurable, actionable, accessible, substantial, and identifiable.

Which companies use market segmentation?

Many companies use market segmentation to target various categories of their customer base—for example, Proctor and Gamble, Netflix, Apple, and Unilever.

Does Amazon rely on market segmentation?

Amazon has segmented its market to include potential new customers as well as frequent shoppers. In addition, it uses behavioral segmentation to understand its target audience. 

What is Nike's market segmentation?

Nike incorporates four types of market segmentation (geographic, demographic, behavioral, and psychographic) to create personalized products for its customer base.

What is McDonald's segmentation?

McDonald's marketing segmentation focuses primarily on demographic segmentation. Their products mainly target families, children, and students interested in fast and convenient foods.

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7 Steps in Market Segmentation: How to Get it Right Every Time

Knowing the right steps in market segmentation saves time and helps you reach vital insights faster.

The process of market segmentation involves three phases:

• Implementation

This article will help you create segments that make sense for your business, complement your research strategy, and drive insights that have the power to impact your bottom line.

How to do market segmentation: challenges and opportunities

Choosing the right criteria for market segmentation is not as simple as it seems. Segmentation builds on data, and you need robust data analytics to keep your segments precise. You’ll see why shortly.

How do you segment your market? By dividing your potential customers into smaller, more specific groups, or customer segments. It involves intensive research and a deep understanding of the total addressable market and your target audience . Splitting the market into sub-groups makes it more approachable and helps you create more targeted and curated marketing materials for different audiences.

How can markets be segmented? While still relevant, markets aren’t just defined by audience geography or demographics . You may want to add behavioral segmentation to identify target markets more accurately or consider psychographic criteria to determine your audience’s interests and values. You’ll need to correlate the segmentation types to create targeted campaigns.

Don’t forget some prospects belong to more than one segment. By creating these audience sub-groups, you could find opportunities to combine different types of segmentation .

Market segmentation may start small with personalized email sequences or segment-specific banners. But, eventually, it will affect your business on a larger scale. Oh, and there are plenty more reasons to learn the steps in market segmentation.

Take a look ⬇️ ⬇️ ⬇️

7 steps in market segmentation

Success in a digital environment often depends on the quality of your insights. Your strategy is only as good as the data it uses. Let’s see what information you need to segment the market and how to put it to use.

Step 1 – Define your market

Start by defining your market and collect information about your customer base through market research . Dig into the data of your closest competitors to understand their market position and where you can win back traffic share . Take it further by benchmarking against industry standards and conducting a SWOT analysis to fully understand your strengths, weaknesses, opportunities, and threats.

SWOT Analysis Templates

Get started with your competitive analysis

Step 2 – Analyze existing customers

The process of market segmentation involves a structured audience analysis . The more comprehensive your data, the better you can identify groups and address their needs, so we recommend using various research techniques and types .

Learn about demographics, behavior, preferences, and trends. Again, benchmark against the competition. You may stumble upon market segments or niches you didn’t consider.

Step 3 – Create buyer persona(s)

If you already have a buyer persona , skip this step. But it’s always good to double-check and review. Markets are dynamic, and you need to be aware of changes. Forming several buyer personas can help you clearly define and address different segments.

Step 4 – Compare and identify gaps, groups, and opportunities

Comparing the data from the first three steps helps you identify gaps in the market. You can define an audience you previously didn’t cover or discover groups with common interests or behaviors that you can target collectively. Map the audience to identify market segmentation opportunities. Here are possible questions to ask:

• What group of prospects stands out or is particularly active or profitable?
• Which customer characteristics or qualities do they have in common?
• What type of customer is not converting? What characterizes them?
• Do different types of customers take a different consumer journey ?
• Which group of customers is your competition reaching that you aren’t? What do they have in common?
• How strong is my brand loyalty ?

Step 5 – Define and name segments

Based on what the different groups have in common, define your market segments. Set data-based criteria that let you allocate prospects to segments and track performance. Make sure each target segment is clearly defined so anyone on your team knows exactly what niche you are referring to.

Step 6 – Research segments separately

That’s it. You’ve segmented your market and can start creating funnels, campaigns, and messages accordingly. Before you jump into any creative activity, use your market research tool again, but this time for each segment individually. Follow these steps:

• Do a separate conversion analysis to discover divergence and where your funnel may leak.
• Evaluate engagement metrics for each segment to help refine your segmented marketing strategy based on audience preference or specific needs. One group might be more active on certain marketing channels than others.
• Conduct competitive analysis for each segment. Not all competitors are equally strong in each target group. This will help you focus on segments with the highest potential or discover strategies that might work well for other companies.
• Use a benchmarking tool to get a granular view of your site’s performance across different marketing channels, over time, and within your market. You can see if your performance differs per segment or is relatively stable. The better the results, the stronger that market segment is.

Step 7 – Test and optimize

Monitor the results of your new segmentation strategy. Test different approaches and keep evaluating for continuous improvement.

What are the pros and cons of market segmentation?

• Tailor marketing and advertising efforts.
• Better understand a target market and identify opportunities.
• Tailor products and services to meet the specific needs of a target market .
• Improve customer experience by delivering tailored offers.
• Reduce marketing costs by targeting specific markets.
• Better assess the competitive environment.
• Can be costly and time-consuming to properly segment a market (unless you use Similarweb)
• It can be difficult to accurately predict market trends and changes.
• A challenge to accurately segment a market, unless using real-time analytics (like Similarweb)

Discover your market

Market segmentation will only yield significant results if coupled with data-driven insights. Even in a niche market , you can still segment your audience to create more personalized marketing efforts and enhanced user experience.

Similarweb gives you the tools you need for the in-depth research and market analysis behind every successful strategy.

What are the 4 main types of market segmentation?

Demographic, psychographic, behavioral, and geographic segmentation are the four main market segmentation types.

What are the steps of market segmentation?

The steps of market segmentation can be consolidated into three phases: research, analysis, and implementation.

Is market segmentation useful?

Yes. Market segmentation allows businesses to identify and target customers based on their specific needs and interests. It enables organizations to tailor products and services to appeal to different customer segments and increase their chances of success. It also helps businesses save money by focusing their resources on the most lucrative segments.

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Segmentation research: What is it and how to make it actionable

Segmentation research helps companies find target segments that can propel their growth and profitability. This article establishes what segmentation research is and how companies effectively implement it.

Segmentation in marketing research

Editor’s note: Michaela Mora is the CEO of Relevant Insights. This is an edited version of an article that originally appeared under the title “ How to Make Segmentation Research Actionable. ”

Segmentation research helps companies identify groups of current and potential customers or users with the highest profitability potential. This, along with product positioning and target marketing, is one of the pillars of strategic marketing and product development.

This is broadly called “market segmentation”   in marketing and   market research because we effectively study current and potential buyers and users of products and services. Buyer and user behaviors may differ depending on the roles they adopt at different points in the user experience journey. For example, in video game purchases for minors, in specific segments of the gaming population, the parents are more likely to play the role of buyers as they are the authority figures. At the same time, their kids are most likely to be product users, but they also influence the purchase decision, often by nagging their parents to grant permission or give them money. Depending on the business goals, we may focus on segmenting customers on their buying or user behaviors or a combination of both.

The division (or merging) of roles between buyers, decision-makers, decision influencers and users can be found in many product categories. It is a mistake to assume that only users play a particular role. The roles change based on many factors including demographics, psychographics, market trends and purchase and usage scenarios.

Addressing the myriad roles a customer can take requires different marketing tactics and product positioning to reach the intended market. On the product development side, it may require the development of features to satisfy different needs.

The key concepts

Markets are not homogeneous. They are comprised of individual consumers/users with unique needs and desires. This is why   segmentation research is a powerful tool for creating better user experiences and leveraging competitive advantage.   This applies to both B2C and B2B markets.

A market segment is a portion of a market whose needs differ from the larger market and potentially from other segments.   When we do segmentation research, we need to consider the current and potential organizational capabilities. Capabilities include existing products and services, technologies, brand reputation, innovation pipeline, etc.

The first step is to identify   the need sets   the organization can meet. It is not pertinent to segment needs that lack the required skillset or resources.  

We talk about need sets because most products satisfy more than one need. Customer needs are not restricted to those satisfied by product features or user interactions. Their needs also include those that happen at different points in the journey of becoming a customer connected to:

• Types and sources of information about the product.
• Channels where the product is available.
• Product price.
• Services associated with the product.
• Perceptions and image of the product or brand.
• Where and how the product is produced or developed.
• User’s life stages and lifestyle.

Identifying relevant need sets that the organization’s current and potential products may satisfy requires qualitative and quantitative research.

Product features vs. benefits

Customers buy need satisfaction, not product features or attributes. Behind a preference for a feature or attribute there is a need searching for satisfaction and driving behavior. A consumer may buy cosmetics to satisfy the need to feel beautiful or transformed. Another will buy a drill for a DIY project, giving them a sense of accomplishment. A product manager may buy software to save time and better manage her job’s daily tasks. Segmentation studies based on product features tend to be less actionable than those based on needs.

The role demographic variables play

Users’ needs don’t exist in a vacuum. They are often associated with demographic variables such as gender, age, ethnicity, marital status, family composition, education, social class, occupation and geographic location. A segmentation solution may start by grouping users with similar product need sets despite different demographics. However, it is essential to understand these demographic differences to design effective marketing programs to reach them through different channels and messages.

Demographic information provides insights into the context in which products are purchased and used, how they think about the products beyond its features and the language they use to describe their user experience. For example, while singles, young families with children and middle-aged couples may want the same features in a mobile app, website or car display, they likely differ in how they perceive different aspects of product design, messages, channels we use to communicate with each group and the points of friction in product interactions.

Excluding demographic information leads to a lack of diversity, unintended discrimination and missed product development opportunities. For specific product categories, demographic variables can be used as segmentation criteria if they identify segments with distinctive needs and behaviors. In other categories, demographic information may not be as discriminating but still can be used to profile the segments and understand the context in which products are purchased and used.

Key demographics that can affect product use

Research has shown that age shapes the products we buy, how we use them, where we shop, how we use technology and media and how we think and feel about marketing activities.  

Many products are created with a gender in mind however sometimes gender-specific products can be based on obsolete ideas of what each gender may need or prefer. There are also product designs that intentionally or unintentionally ignore the needs of the other gender.

Race and ethnic origin are connected to ethnic subcultures in which members share unique behaviors based on a common racial, language or cultural background. It is important to remember that all subcultures are diverse and general descriptions don’t apply to every member. It is important to remain vigilant about unconscious biases that can lead to stereotypes.

Nonetheless, shared cultural traditions, values, language and behaviors within those subcultures are rooted in their histories that influence how some of their members see their needs represented in the products they buy and use. The cultures we identify with influence how we use language, how we interpret visual design elements and what mental models we have about how a product should work based on personal experiences connected to that culture.

Household cycle stages  

As social species, we usually grow up in families and go through different stages in life, each with specific needs. As we age, we may get married, have children, become empty nesters or be caregivers of older parents. Our family may shrink or expand over time depending on the paths we take and the relationships we develop. The needs for products and services in each stage will change and influence what we buy and how we use products.

Income and education  

Education often determines occupation and income and often influences our opportunities and purchasing abilities. Education also influences how we think, make decisions and relate to others.

Intersectionality

We don’t just identify with a gender, race or a particular age. We are all those things together all the time. This means research must consider the intersectionality of many of these variables at the segment level. The experiences of young Black American men in America are very different from that of young white American men. They will share preferences and use certain products in similar ways. Still, they could differ in perceived barriers to product use, depending on design elements and messaging about the product connected to their identity groups.

Firmographics

In B2B markets we use “firmographics” as equivalents to demographic information in B2C. Variables such as company size in terms of employees and revenue, industry, product category, structure, decision-making chain and processes and geographic location often correlate with the products and services they buy and how they are used internally.  

These are just some of the demographics or firmographic variables that may be relevant for your product category. Qualitative and secondary research from internal data systems or prior primary research can shed light on which variables may influence product use in your case.

Segment profiling

The selection of a segmentation solution is often based on a combination of technical know-how and judgment calls that consider the consistency and viability of the segments. In exploratory segmentation research, in which we don’t know what the segments are a priori, we use multivariate statistical techniques to identify segments with similar needs sets, behaviors, attitudes, perceptions, demographics and other relevant variables. We also need to describe the segments across all the measured variables and check if their profiles make sense.

The smaller the segments, the more likely the product will meet the segment’s needs. Smaller segments tend to have dominant and specific needs and behaviors that separate them from the rest but servicing a small segment can be very costly. A segment must be large enough to be worth investing in to be viable.  

Segment profiles, also called   personas, should highlight the most prominent common traits within the segments that act as differentiators against other segments. These could be behaviors, use occasions, buyer and user roles, attitudes, barriers and pains, motivators, demographics, etc.

Segments are probabilistic constructs, which means they summarize needs sets, behaviors, attitudes, etc., that are more likely to be shared by a group of people (or companies in B2B). This doesn’t mean that each individual classified in a segment will perfectly fit the segment. We are all individuals with unique needs, yet we share commonalities with the different groups we belong to. Segment profiles help understand a group’s core needs and distinctive user behaviors so the company can develop products that satisfy those needs.  

Making segmentation research actionable  

Despite significant investment in segmentation studies, these may have little impact on organizational decision making unless some conditions are in place for insight implementation.  

Define your desired business decisions and outcomes  

The key to an actionable segmentation study is a precise translation of desired business actions and outcomes into the information needs the research should meet to support those actions and outcomes. In survey-based segmentation studies, this must go further to operationalizing those information needs into good question design grounded in how the team plans to use the results.

It’s not uncommon to see clients bring very indefinite descriptions of how they plan to use the research results. As someone who does market segmentation studies for clients, I often help them define the jobs they want done to support particular function(s) (marketing, product development, operations, etc.) and how they support business outcomes.

Failure to define the specific actions the team plans to make (create content for different media, identify keywords for SEO, etc.) to achieve business outcomes, can take the segmentation study in a direction that is likely to provide less than valuable insights.

Assign a C-suite research champion  

Segmentation studies generate a lot of insights that are often difficult to socialize internally. The sheer amount of data can be overwhelming. Consequently, an action plan is needed to share the insights and help the organization to adopt them. Internal research teams are often responsible for this task but are rarely successful without a mandate from the top. Any strategic research effort needs a champion in the C-suite from its conception to its implementation.

With support from the executive team, researchers connected to marketing or product development need to educate internal stakeholders on the value of both the tactical and strategic implications of the segmentation research the company may have conducted. They need to understand the organization’s ability to adapt to the study’s findings and create an implementation plan to help manage internal clients’ expectations.

By connecting the tactical changes recommended by the findings to the overall strategic business goals, the research team can help internal teams, including the C-suite, to become educated on needed strategic changes.

Allow for a flexible organizational structure

Segmentation research provides insights with both tactical and strategic recommendations. Tactical recommendations may include changing a product configuration, adding new features, changing how is presented in advertising, etc. These changes can be implemented without significant organizational changes.

However, serving identified segments long-term may require a new structure to help manage them if the segmentation solution doesn’t align with the current organizational structure. In cases like these, the solution companies use is to create cross-functional teams, but depending on how rigid the structure is, these teams may get little accomplished.

To implement the strategic insights stemming from segmentation studies, the organization must be willing to change its structure to manage the market segments efficiently.

Create a balance between long- and short-term goals

In many organizations, there is often tension between marketing, sales and product development functions as they own channels and goals with different time horizons. A segmentation study may have recommendations that impact the design of channels these functions own. The marketing team may be receptive to changes the sales team resists because it may upset established client relationship patterns and short-term sales goals.

To balance short- and long-term goals, the management team must consider all research outcomes and decision possibilities of strategic value at the research design stage. If there is no commitment to implement strategic insights from the segmentation study, it is best to narrow its scope to find tactical solutions.

Prioritize certain market segments

A segmentation, by definition, implies discriminating among the segments in some respects. This means the marketing and product development will also discriminate certain segments if the segmentation solution is adopted. In practical terms, this will require prioritizing specific customer segments considering the risk of dedicating fewer resources to others.

If the company doesn’t want to take the risk of discriminating between segments and tries a middle-of-the-road strategy to reach all, it is likely to forfeit the competitive edge the segmentation insights may provide.

Have an experienced team

Understanding the value of the insights that can come from segmentation research and being willing to implement them requires prior experience with segmentation work. A marketing or product team not exposed to a well-designed segmentation study will have difficulty translating the insights into business implications.

If this is the case at your company, experienced internal researchers or external research suppliers should be called to help the teams think through the implications of decision-making based on different findings. Both internal researchers and external research suppliers should have experience in this methodology to help internal teams derive actionable insights.  

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What is Market Segmentation? Common Types & Bases

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Howard moskowitz: chasing the perfect pepsi, 4 types of market segmentation: definitions and examples, demographic segmentation, behavioral segmentation, psychographic segmentation, geographic segmentation, other bases for market segmentation, 7 specific forms of market segmentation, 1. needs-based segmentation, 2. loyalty-based segmentation, 3. generational segmentation, 4. cultural segmentation, 5. online behavioral segmentation, 6. firmographic segmentation, 7. attitudinal segmentation.

By Aaron Moss, PhD, Cheskie Rosenzweig, MS, & Leib Litman, PhD

Part I: What is Market Segmentation?

Every business must answer several critical questions: Who is our optimal customer? What messages must we communicate to our customers? What are the primary attributes of a company that our customers want to do business with? What products/services do our customers want? What are the optimal ways to reach our prospective customers?

Although these questions may seem simple, companies and researchers often struggle to answer them. Finding out what people want is complicated. Sometimes, people do not know what they want; additionally, businesses may be unaware of all the audiences that are interested in their products. And, sometimes, businesses make assumptions that lead them to ask the wrong questions. Take, for example, the story of Howard Moskowitz.

Howard is an experimental psychologist, and, in the early 1970s, Pepsi asked him to help them create a new drink: Diet Pepsi. What Pepsi wanted was for Howard to tell them how much sweetener they should add to Diet Pepsi for people to like it and buy it. So, Howard did what any scientist would do and set up a taste test.

After conducting a large experiment in which people tried Diet Pepsi, all with different amounts of sweetener, Howard reviewed the data to see which version was the most popular. But there was a problem; the results were incoherent. There did not appear to be one “most popular” level of sweetness, but rather many different levels of sweetness that people liked. Howard was confused. Unable to answer the question, he set the project aside and moved on.

Then, several years later, while sitting in a diner, Howard had a breakthrough. He realized that, to paraphrase Malcolm Gladwell , the problem with Pepsi’s experiment was that they were looking for the perfect Pepsi when they should have been looking for multiple perfect Pepsis.

This breakthrough was brilliant.

What Howard realized was that Pepsi and every other food company in the 1970s looked at their market as one large, monolithic mass of humanity. Yet, what Howard saw in his messy data was variability. Pepsi considered everyone who drank Pepsi the same and, therefore, believed people should want the same drink (i.e., the perfect Pepsi). Howard, however, looked at the variability in people who drank Pepsi and realized that what people really wanted were different drinks (i.e., the perfect Pepsis), which is why Pepsi’s product line today looks something like this:

Capturing and understanding the variability between people is the heart of market segmentation . When businesses engage in market segmentation, they take many people and look for groups or clusters that share some trait, characteristic, or other feature that is important to them as consumers (see image below). By identifying different clusters of consumers, businesses can tailor their products, advertising, communication, and engagement to people’s needs and wants. The result is a much better answer to the question of: what do customers want?

When researchers segment a market, they must decide which characteristics of their target audience are most important. Some commonly used characteristics fall into a few broad groups.

Characteristics like people’s age, occupation, education, income, marital status or family composition are demographic traits often used for market segmentation. When companies engage in demographic segmentation, they aim to find groups of people that are interested and uninterested in their products and the best way of speaking to these groups.

An Example of Demographic Segmentation: Positioning Men’s Deodorant

Consider men’s deodorant as an example. Broadly speaking, it doesn’t matter which brand a man purchases — the product is the same and has the same goal: keep underarms dry and odor-free.

However, men’s deodorant isn’t sold the same way to all men. Axe body spray markets their product in a way that might appeal to teenagers, Old Spice in a way that might appeal to young men and Dove in a way that might appeal to middle-aged men. The marketing of these brands is based on demographic segmentation.

Although demographic segmentation helps businesses identify groups worth engaging, demographics alone are somewhat limited. Businesses can often speak much better to their customers when demographic insights are combined with other variables like behavior or psychographics.

People’s behavior provides a rich basis for market segmentation. For example, imagine how you might market to someone if you knew details such as their purchase history, how many times they have visited your website, what their motivation is for considering a product, and how they feel about your company and your competitors. With knowledge of these details, the messages start to write themselves.

An Example of Behavioral Segmentation: Boosting Engagement on Netflix

One of the most successful behavioral segmentation strategies in recent years comes from companies like Netflix. When a user watches or buys content on Netflix, the company records it and uses machine learning to predict similar content people may want to watch in the future. Such behavioral segmentation helps Netflix keep eyeballs on the screen and subscription dollars flowing.

Psychographic segmentation focuses on identifying aspects of people’s personality, lifestyle, values, and psychological makeup that lead them to connect with a company’s products.

An Example of Psychographic Segmentation: Apple Picks A Winning Message

Perhaps one of the best illustrations of psychographic segmentation is Apple’s “Think Different” campaign. When speaking about the campaign, Steve Jobs once said:

“I think you had to really think differently when you bought a Mac. It was a totally different computer, worked in a totally different way, used a totally different part of your brain. And it opened up a computer world for a lot of people who thought differently … And I think you still have to think differently to buy an Apple computer.”

What made the “Think Different” campaign remarkable was how well it spoke to the sort of people interested in buying a Mac computer. Apple told its customers they were unique, independent, and creative people. And, by speaking to how their target market wanted to see themselves, Apple persuaded many people to all do the same thing: buy a Mac (see image below).

Where people live can be used as a basis for market segmentation. The country, state, city or region where people live sometimes informs a business about the kind of products and messages those people will be interested in.

Although it is easy to think of companies that slightly alter their advertising for different markets, the real strength of geographic segmentation occurs when a company so thoroughly enmeshes itself within the ethos of a region that it comes to feel like a natural representation of the people who live there. For example, look at L.L. Bean.

An Example of Geographic Segmentation: L.L. Bean Builds a Brand in Maine

L.L. Bean is an outdoor clothing company that began in Maine in 1911. For more than 100 years, they built a reputation for rugged, well-made and durable outdoor clothing; the popularity of their duck boots is cultish. But, the story of L.L. Bean is unusual. Despite their reputation for quality goods, the company didn’t open a store outside of Maine until the year 2000. And, even today, they are almost exclusively located in states in the Northeast, Midwest, and West — places with a reputation for cold weather and outdoor activity.

As L.L. Bean has grown throughout the years, they have emphasized their roots in Maine. Many products have Maine in the name, are named after places in Maine, or are commonly used by people who live in Maine. In addition, L.L. Bean often produces catalogs with people engaged in outdoor activities, using (you guessed it) the beautiful backdrop of Maine. Even people who don’t know much about L.L. Bean know it’s connected to Maine. In other words, the company’s geographic segmentation has been so successful that in the minds of many people L.L. Bean is Maine and Maine is L.L. Bean. From a marketing perspective, that’s gold.

Often, the most effective market segmentation combines several characteristics to zero in on thin slices of a businesses’ target audience. In addition to the general characteristics listed above, businesses often seek to segment the market based on several factors directly relevant to the business and its relationship with its customers. The more fine-tuned the segmentation, the more directly the business can serve its customers.

Needs-based segmentation is just what it sounds like — an attempt by a business to learn about the needs of its customers and to develop marketing that meets those needs.

How loyal are customers to you and your brand? Are they boosters, first-time users or loyal to one of your competitors? Segmenting based on brand loyalty is one way to learn what customers want.

It’s hard to argue that “kids today” are the same as older generations. Societies change and people grow up in different cultural environments. Sometimes, marketing can leverage generational differences to speak to different groups of consumers. However, generational segmentation carries a huge risk: alienation. Aggressively marketing to one generational group can lead other people to conclude that your product or service is not for them.

If your business operates internationally, it is important to consider whether culture affects people’s interest in your products. If it does, understanding cultural differences and situating your business within different cultural contexts can be an especially effective form of market segmentation. 

Online behavioral segmentation considers details of a users’ online behavior such as their location, number of visits to your site, past transactions, level of engagement with your brand, and what kind of benefits they are seeking. Combining data from people’s online behavior with other characteristics about them can be an especially effective way to segment a market and uncover customers’ needs and wants.

Firmographic segmentation is common in business-to-business marketing. Firmographic segmentation considers things about a company like its industry, size, recent performance and status as a way to know what the business needs. Similar to the way demographics are used to understand individual people, firmographics are used to understand business.  

People’s attitudes about a variety of topics can be used to market to them. However, when possible, it may be preferable to market based on behavior rather than attitudes, as the link between behavior and attitudes is often weaker than people expect. 

CloudResearch gives you the tools to conduct effective market segmentation. Our Prime Panels platform has more than 50 million participants worldwide allowing you to target demographics important to your business. Conduct an online focus group or build a survey and let CloudResearch help you find participants and execute the study. Or, you can use our team of expert researchers to help with your project. We have the knowledge and skill to conduct market segmentation and cluster analysis. Using our Managed Research service, our team will work with you to understand your target audience and what is important to them. Learn more by getting in touch with us today.

Continue Reading: A Guide to Market Segmentation

Part 2: What Are The Benefits of Market Segmentation?

Part 3: How to Build a Market Segmentation Strategy for Your Company

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5 types of market segmentation and how to use them

What is market segmentation.

“Any customer can have a car painted any color that he wants - so long as it is black .” Henry Ford

In the early days of marketing, companies offered products that were easy to manufacture without much concern for a customer’s need. In 1909, black paint dried the fastest, so that was the color of the car that all buyers purchased.

Today, marketers realize that customers have diverse needs. To identify what customers want, marketers have learned to divide people into market segments based on their demographics, behaviors, location, purchasing habits, and other factors that influence their buying patterns.

Market segmentation is the process of dividing a broad population into subgroups according to certain shared factors. These groups may have common demographics (age, gender, etc.), geographic location, attitudes, behaviors, or a combination of similar characteristics.

A consumer may belong to multiple market segments. For instance, a female may be a Millennial (gender and age demographic), living in a rural area (geographic location), who likes to buy her food locally (purchasing habit) from companies with a solid humanitarian ethic (attitude). 

Businesses perform market research to create market segments that include multiple variables. Their challenge is to find potential customers, known as their target market, that combine shared factors, making them the group that is most likely to buy their products and services.

Marketers use different segmentation strategies depending on their goals. The goal of market segmentation is to identify a target market or group of people.  Market segmentation will have greater emphasis on the geographic market segments (e.g. metro areas, DMAs, states, regions, countries).  Consumer segmentation is used to find out the behaviors and attitudes of those groups. Customer segmentation divides the existing customer base into separate groups. While the methods for study design, data collection, and analysis are similar, they focus on different aspects of segmentation.

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Why use market segmentation?

The goal of market segmentation is to develop detailed profiles of each market segment. Once these segments are clearly defined, marketers choose the segments with the highest potential of buying their products and services.

To achieve that goal, marketers go through a three-step process that clarifies who people are and why they buy products.

• Segment . Marketers divide the market into categories based on shared traits.
• Target . They choose the market or target, who are most likely to buy their products.
• Position. Marketers research what product, price, promotion, and place combinations will attract customers to buy their products.

Sound easy? Large companies spend millions of dollars researching markets to find the right target market that will increase a successful product's chances. Each market will likely have other companies who sell similar products, so research on competitors and their products is essential.

Once marketers isolate their target audience, they must define what is different about their product? Is it better, faster, cheaper, or more advanced than competitive products? To answer that question, marketers should understand their target audience's problems and how they can creatively solve those problems. Companies create a competitive advantage for themselves through product differentiation, helping their products and services stand out as solutions for buyers’ issues.

Why should companies use the market segmentation process and focus on how to solve customer problems? According to research, over 30,000 new products are launched each year, and 95% of them fail. By identifying a target market, isolating their problems, and creating a product that solves those problems, marketers have a higher probability of success over their competitors.

Market segmentation examples

Companies use different approaches to segment their markets. Here are three examples :

No segmentation.  Companies use mass marketing to sell their products to everyone, using an undifferentiated strategy. For example, commodities like salt or generic items with many substitutes may not spend much effort segmenting their market.

Few segments . Firms may use one or more narrowly defined target markets to create a highly focused niche market for specialized products. Example: exclusive high fashion apparel, handmade art, or customized machinery parts.

Thousands of segments. Known as hyper-segmentation, marketers can customize a one-to-one marketing approach for each customer to develop a long-term relationship. For example, personalized services like hair salons and online retailers like Amazon offer personalized recommendations based on purchase history.

Market segmentation is the first step for successful product marketing. Whether companies are marketing to consumers or businesses, market segments help companies better understand their customers’ problems and solve them.

5 types of market segmentation

There are many ways to segment markets to find the right target audience. Five ways to segment markets include demographic, psychographic, behavioral, geographic, and firmographic segmentation.

How to use demographic segmentation

Demographic segmentation assumes that people with common characteristics will have similar lifestyle patterns, tastes, and interests that will influence their purchasing habits. Demographics are often combined with other segmentation approaches to develop target markets with the greatest likelihood of buying their products.

Demographics include factors like age, gender, occupation, income, and education. Surveys are one way to collect demographic information and may consist of these questions :

• What is your age? 
• What is your household income? 
• What is your highest level of education?
• How many members are in your household?
• What gender do you identify as?
• Do you own or rent your home?
• In what zip code is your primary residence?
• Are you married/divorced/single?
• What is your nationality/race?
• How many children do you have?

The advantage of demographic segmentation is that it is easy to collect. Government sources, including the Bureau of Labor Standards , provide household, income, education, and health data for marketing strategy and business goals. Companies have also developed apps that track more granular demographic data for contact tracing and travel patterns. Surveys also reveal the specific demographics of a target market instead of available research data sources and uncover actionable insights.

After using demographics for market segmentation, marketers can use this same information for customer segmentation . Using demographics and behaviors, they can identify:

• How big the market opportunity is for their product.
• How their brand compares to the competition.
• Which demographics are most likely to buy our product or service.
• Which advertising campaigns will resonate best with their target market.

When combined with behavior traits and other variables, demographic segmentation provides valuable insights to understand which specific customers within their target market will buy products and better understand how to reach them with the right marketing messages.

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How to use psychographic segmentation 

Psychographic segmentation divides people into groups based on their personality, lifestyle, social status, activities, interests, opinions, and attitudes. Psychographics is an excellent complement to demographics because they identify the motivations behind why people make particular choices.

Companies use psychographics for market segmentation to understand:

• How consumers perceive their products and services
• What consumers really want—and why
• Gaps or pain points with their current products or services
• Opportunities for future engagement 
• How to better communicate with their target audience

Marketers collect psychographic information using three types of survey questions.

Open-ended questions that use a qualitative approach include a question like, “What is your biggest challenge with…” will provide a deeper understanding of the respondent's problems.

Likert scale questions show how much the respondent agrees or disagrees with a statement, like “strongly agree” to “strongly disagree,” letting marketers know how important the topic is to them.

Continue Reading: What is a Likert Scale?

Semantic differential scale questions ask people to rate a product, brand, company, or other attributes, helping marketers understand their attitude.

How to use behavioral segmentation

Behavioral market segmentation describes specific steps in their ideal customer’s buying process, including what their ideal customers want, why they want it, the benefits sought, and how they go about getting their needs met.

Behavioral segmentation is used to study B2C and B2B market segments. When companies understand why people buy, they can better target their marketing messaging. Behaviors can include:

Purchasing reason. Are buyers searching for the best price, excellent ratings, safety considerations, or other criteria? What problem are they trying to solve?

Occasion or event.  Are consumers buying for a holiday or anniversary? Are B2B buyers trying to use up their budget before year-end? 

Product benefits . Is the buyer looking to purchase the latest technology, safest product, or be the first to buy the newest product?

Buyer’s journey stage. Does the buyer want information for a future purchase? Or are they looking to try out the brand for the first time? 

Engagement level. Is the buyer a die-hard fan looking for the latest product?

These are a few of the behaviors that buyers exhibit when they are purchasing products. When marketers know why consumers or businesses are buying their products, they can make it part of their marketing strategy to address those behaviors.

How to use geographic segmentation

Geographic segmentation allows marketers to group people based on where they live, work, or travel. The location has a significant influence on buying habits that marketers can use to develop their marketing messages.

Marketers use various geographic segmentation variables that include the country, region, state, province, town, climate zone, or zip code. Culture and population density (urban or rural) are also crucial variables to include in their market research. These location variables will influence what problems people have in that region and how marketers can solve it.

An example of geographic segmentation is marketing plants based on the climate zone. Geraniums will be best for hot and sunny locations and blue spruce for places with a harsh winter. Knowing the geographic area's details helps marketers identify which plants, soil, and gardening accessories will sell best in each climate. Here’s a similar example for a coffee company: knowing average temperatures can help marketers know when to market hot drinks vs. iced drinks at the local level.

Where a person lives can influence everything from their food choices to the car they drive. Cultural norms of the area influence their beliefs, causing them to choose one product over another. For instance, working in an office in a big city versus working from home will affect what they wear and what technology they use. Travel destinations also use geographic marketing to promote hotels, activities, and restaurants in the area.

The benefit of geographic segmentation is that the data is relatively easy to collect through online data sources. Marketers can also hone their messaging to the target audience of a specific location or combine it with other segmentation variables, like demographics, to build a complete profile of their target market.

Millions of people move each year. Have your target market geographic profiles changed? Find out in hours with SurveyMonkey Consumer Segmentation.

How to use firmographic segmentation

Firmographic segmentation is to B2B marketers what demographics is for B2C marketers. Firmographics explain their business target market characteristics and include their industry, number of employees, legal status, company size, financial standing, and other business-related variables.

A B2C market may have thousands of customers, but a B2B target market may have only a few large commercial companies in their target market. Firmographics provide information for marketers who want to understand companies' strengths and viability within their target market. They focus on their financial performance and growth trends to see if the market segment is growing or experiencing a decline.

Firmographic data is available through online sources like federal and state government websites, trade journals, and other industry sources. Marketers also use surveys to collect specific data about their B2B target market. 

Firmographic data examples include:

Industry classification - North American Industry Classification System (NAICS) code.

Ownership and Legal Status - Ownership status, including sole proprietorships, limited liability corporations (LLCs), limited liability partnerships, private corporations, and public shareholder-owned corporations. 

Years in Business - Years in business can be an indicator of financial strength and industry experience.

Number of Employees - The number of employees shows how large the company is. 

Location - Locations may include offices, manufacturing plants, or stores. 

Customers and Products - What products the company makes or sells and who their target audience is.

Market Size - How large is their market, and who are their competitors.

Benefits of market segmentation

Market segmentation is the basis for successful product concepts, launches, marketing messages, advertising, and other critical marketing activities. Companies invest crucial resources into understanding their ideal customer’s problems to solve those challenges with valuable products and services.

After investing time and effort into market segmentation, what is the benefit for companies?

Better advertising campaigns

In 2019 , Proctor and Gamble, maker of consumer goods like Tide and Gain, spent $10.7 billion on advertising, making them the #2 advertiser in the US. Who claimed the top spot? Amazon, which spent $11 billion.

Companies spend billions of dollars on marketing and advertising when they know exactly who their audience is and what they want. Marketers now collect vast amounts of data on their target audience to ensure their marketing messages appeal to the right customer, at the right time, for the right products.

Surveys are a great way to test marketing messages to see if they resonate with the target audience. They start by creating a hypothesis about how they think their survey respondents will react. The survey results help them build better messages and more successful campaigns.

Develop on-target products

Companies have great ideas for new products, but they must determine if those ideas solve a problem for their target audience. Without market segmentation, companies will waste time and effort on a product that sounds good but doesn’t sell.

Surveys help take the pulse of a target market. Within a few hours, companies can quickly find out if:

• They are solving a problem for their target market.
• One or more of their ideas is a clear winner.
• Their product concept has the right features, packaging, and logo.
• If buyers will purchase the product and what price they will pay.

Getting the correct answers from a well-defined target market helps companies focus on successful products that their audience will buy.

SurveyMonkey’s Concept Testing solution will tell you if that new product idea is a winner. Receive a product performance scorecard with industry benchmarks.

Identify new trends and opportunities

Trends change quickly. Social media can provide insights into new customer behaviors, but marketers don't know if they are viable opportunities unless those behaviors are measured. 

Understanding the behavior of a target market is the core of market segmentation. As new trends take hold, it is up to marketers to find out which ones are new opportunities and which ones will disappear overnight.

Marketers are responsible for identifying emerging customer problems, defining new marketing messages, and testing new product concepts. To identify new opportunities, marketers need to frequently test their target audiences for new insights and verify if customers still enjoy existing products.

For instance, Millennials represent 25% of purchases, making them a critical group to watch for many marketers. They like technology, are the biggest spenders and are much more willing to switch brands than previous generations. If Millennials are part of a target audience, staying engaged while keeping them loyal customers is a significant challenge.

Provide input to business operations

Market segmentation contains a robust data set that includes customer data that other departments can use to help the company succeed. In B2B companies, the Marketing and Sales departments are often closely linked, with Sales depending on Marketing to generate qualified leads that drive greater revenue. The department in charge of pricing products also needs market and competitive data to correctly price products, helping them maintain a competitive edge. And no manufacturing division suddenly wants to work overtime because of a sudden need for 100,000 widgets to meet increased demand, so sharing buyer trends demand keeps production on track.

Market segmentation data is not meant just for the Marketing department. It should be shared so the entire company can serve its customers.

Establish brand trust

Companies want to do more than just sell products to their target audience. They want to establish a relationship with their customers, so they keep buying from products. When customers know, love, and continually buy a company’s products, they have created brand trust.

What kind of relationship do you have with your audience?

Find out what it takes to build brand trust with SurveyMonkey Brand Tracker.

Market segmentation identifies which audience is most likely to buy not just once but also to make future purchases. By creating a brand identity that customers appreciate, firms start to raise brand awareness and build a trusted relationship with their target market. They stay focused on that trust, creating marketing messaging, new products, valuable content, and current information, creating a customer experience that keeps consumers and B2B clients returning for future purchases.

Apple iPhone users, Harley Davidson bike owners, and Starbucks coffee drinkers are just a few examples of brand trust. These companies invested in their products and services to create die-hard fans of their products.

Target market segmentation helps marketers understand their ideal customers' problems and behaviors, creating solutions that build a long-term brand trust that benefits both parties.

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What Is Market Segmentation?

• How It Works
• Determining Your Market Segment
• Limitations
• Market Segmentation FAQs

The Bottom Line

• Marketing Essentials

Market Segmentation: Definition, Example, Types, Benefits

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Market segmentation is a way of aggregating prospective buyers into groups or segments, based on demographics, geography, behavior, or psychographic factors in order to better understand and market to them.

Key Takeaways

• Market segmentation seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group.
• Markets can be segmented in several ways such as geographically, demographically, or behaviorally.
• Market segmentation helps companies minimize risk by figuring out which products are the most likely to earn a share of a target market and the best ways to market and deliver those products to the market.
• With risk minimized and clarity about the marketing and delivery of a product heightened, a company can then focus its resources on efforts likely to be the most profitable.
• Market segmentation can also increase a company's demographic reach and may help the company discover products or services they hadn't previously considered.

Investopedia / Matthew Collins

Understanding Market Segmentation

Companies can generally use three criteria to identify different market segments:

• Homogeneity , or common needs within a segment
• Distinction , or being unique from other groups
• Reaction , or a similar response to the market

For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements. Understanding these different market segments enables the athletic footwear company to market its branding appropriately.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market  and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Market segmentation allows a company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment (ROI).

Types of Market Segmentation

There are four primary types of market segmentation. However, one type can usually be split into an individual segment and an organization segment. Therefore, below are five common types of market segmentation.

Demographic Segmentation

Demographic segmentation is one of the simple, common methods of market segmentation. It involves breaking the market into customer demographics as age, income, gender, race, education, or occupation. This market segmentation strategy assumes that individuals with similar demographics will have similar needs.

Example: The market segmentation strategy for a new video game console may reveal that most users are young males with disposable income.

Firmographic Segmentation

Firmographic segmentation is the same concept as demographic segmentation. However, instead of analyzing individuals, this strategy looks at organizations and looks at a company's number of employees, number of customers, number of offices, or annual revenue .

Example: A corporate software provider may approach a multinational firm with a more diverse, customizable suite while approaching smaller companies with a fixed fee, more simple product.

Geographic Segmentation

Geographic segmentation is technically a subset of demographic segmentation. This approach groups customers by physical location, assuming that people within a given geographical area may have similar needs. This strategy is more useful for larger companies seeking to expand into different branches, offices, or locations.

Example: A clothing retailer may display more raingear in their Pacific Northwest locations compared to their Southwest locations.

Behavioral Segmentation

Behavioral segmentation relies heavily on market data, consumer actions, and decision-making patterns of customers. This approach groups consumers based on how they have previously interacted with markets and products. This approach assumes that consumers prior spending habits are an indicator of what they may buy in the future, though spending habits may change over time or in response to global events.

Example: Millennial consumers traditionally buy more craft beer, while older generations are traditionally more likely to buy national brands.

Psychographic Segmentation

Often the most difficult market segmentation approach, psychographic segmentation strives to classify consumers based on their lifestyle, personality, opinions, and interests. This may be more difficult to achieve, as these traits (1) may change easily and (2) may not have readily available objective data. However, this approach may yield strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points.

Example: A fitness apparel company may target individuals based on their interest in playing or watching a variety of sports.

Other less notable examples of types of segmentation include volume (i.e. how much a consumer spends), use-related (i.e. how loyal a customer is), or other customer traits (i.e. how innovative or risk-favorable a customer is).

How to Determine Your Market Segment

There's no single universally accepted way to perform market segmentation. To determine your market segments, it's common for companies to ask themselves the following questions along their market segmentation journey.

Phase I: Setting Expectations/Objectives

• What is the purpose or goal of performing market segmentation?
• What does the company hope to find out by performing marketing segmentation?
• Does the company have any expectations on what market segments may exist?

Phase 2: Identify Customer Segments

• What segments are the company's competitors selling to?
• What publicly available information (i.e. U.S. Census Bureau data) is relevant and available to our market?
• What data do we want to collect, and how can we collect it?
• Which of the five types of market segments do we want to segment by?

Phase 3: Evaluate Potential Segments

• What risks are there that our data is not representative of the true market segments?
• Why should we choose to cater to one type of customer over another?
• What is the long-term repercussion of choosing one market segment over another?
• What is the company's ideal customer profile, and which segments best overlap with this "perfect customer"?

Phase 4: Develop Segment Strategy

• How can the company test its assumptions on a sample test market?
• What defines a successful marketing segment strategy?
• How can the company measure whether the strategy is working?

Phase 5: Launch and Monitor

• Who are key stakeholders that can provide feedback after the market segmentation strategy has been unveiled?
• What barriers to execution exist, and how can they can be overcome?
• How should the launch of the marketing campaign be communicated internally?

Benefits of Market Segmentation

Marketing segmentation takes effort and resources to implement. However, successful marketing segmentation campaigns can increase the long-term profitability and health of a company. Several benefits of market segmentation include;

• Increased resource efficiency. Marketing segmentation allows management to focus on certain demographics or customers. Instead of trying to promote products to the entire market, marketing segmentation allows a focused, precise approach that often costs less compared to a broad reach approach.
• Stronger brand image. Marketing segment forces management to consider how it wants to be perceived by a specific group of people. Once the market segment is identified, management must then consider what message to craft. Because this message is directed at a target audience, a company's branding and messaging is more likely to be very intentional. This may also have an indirect effect of causing better customer experiences with the company.
• Greater potential for brand loyalty. Marketing segmentation increases the opportunity for consumers to build long-term relationships with a company. More direct, personal marketing approaches may resonate with customers and foster a sense of inclusion, community, and a sense of belonging. In addition, market segmentation increases the probability that you land the right client that fits your product line and demographic.
• Stronger market differentiation. Market segmentation gives a company the opportunity to pinpoint the exact message they way to convey to the market and to competitors. This can also help create product differentiation by communicating specifically how a company is different from its competitors. Instead of a broad approach to marketing, management crafts a specific image that is more likely to be memorable and specific.
• Better targeted digital advertising. Marketing segmentation enables a company to perform better targeted advertising strategies. This includes marketing plans that direct effort towards specific ages, locations, or habits via social media.

Market segmentation exists outside of business. There has been extensive research using market segmentation strategies to promote overcoming COVID-19 vaccination hesitancy and other health initiatives.

Limitations of Market Segmentation

The benefits above can't be achieved with some potential downsides. Here are some disadvantages to consider when considering implementing market segmentation strategies.

• Higher upfront marketing expenses. Marketing segmentation has the long-term goal of being efficient. However, to capture this efficiency, companies must often spend resources upfront to gain the insight, data, and research into their customer base and the broad markets.
• Increased product line complexity. Marketing segmentation takes a large market and attempts to break it into more specific, manageable pieces. This has the downside risk of creating an overly complex, fractionalized product line that focuses too deeply on catering to specific market segments. Instead of a company having a cohesive product line, a company's marketing mix may become too confusing and inconsistently communicate its overall brand.
• Greater risk of misassumptions. Market segmentation is rooted in the assumption that similar demographics will share common needs. This may not always be the case. By grouping a population together with the belief that they share common traits, a company may risk misidentifying the needs, values, or motivations within individuals of a given population.
• Higher reliance on reliable data. Market segmentation is only as strong as the underlying data that support the claims that are made. This means being mindful of what sources are used to pull in data. This also means being conscious of changing trends and when market segments may have shifted from prior studies.

Examples of Market Segmentation

Market segmentation is evident in the products, marketing, and advertising that people use every day. Auto manufacturers thrive on their ability to identify market segments correctly and create products and advertising campaigns that appeal to those segments.

Cereal producers market actively to three or four market segments at a time, pushing traditional brands that appeal to older consumers and healthy brands to health-conscious consumers, while building brand loyalty among the youngest consumers by tying their products to, say, popular children's movie themes.

A sports-shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women, and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with a high appeal more efficiently than trying to appeal to the broader masses.

Market segmentation is a marketing strategy in which select groups of consumers are identified so that certain products or product lines can be presented to them in a way that appeals to their interests.

Why Is Market Segmentation Important?

Market segmentation realizes that not all customers have the same interests, purchasing power, or consumer needs. Instead of catering to all prospective clients broadly, market segmentation is important because it strives to make a company's marketing endeavors more strategic and refined. By developing specific plans for specific products with target audiences in mind, a company can increase its chances of generating sales and being more efficient with resources.

What Are the Types of Market Segmentation?

Types of segmentation include homogeneity, which looks at a segment's common needs, distinction, which looks at how the particular group stands apart from others, and reaction, or how certain groups respond to the market.

What Are Some Market Segmentation Strategies?

Strategies include targeting a group by location, by demographics—such as age or gender—by social class or lifestyle, or behaviorally—such as by use or response.

What Is an Example of Market Segmentation?

Upon analysis of its target audience and desired brand image, Crypto.com entered into an agreement with Matt Damon to promote their platform and cryptocurrency investing. With backdrops of space exploration and historical feats of innovation, Crypto.com's market segmentation targeted younger, bolder, more risk-accepting individuals.

Market segmentation is a process companies use to break their potential customers into different sections. This allows the company to allocate the appropriate resource to each individual segment which allows for more accurate targeting across a variety of marketing campaigns.

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Mastering Segmentation Strategy: A Comprehensive Guide

Ever wondered how top brands effortlessly capture the hearts and minds of their customers? It all starts with understanding your target market. 

What is a segmentation strategy?

A segmentation strategy involves dividing a heterogeneous market into distinct groups of consumers who have similar needs, characteristics, or behaviors. Companies can then target these groups, called segments, with tailored marketing efforts. The overarching aim is to improve the effectiveness of marketing efforts and enhance overall competitiveness.

Benefits of segmentation 

• Better understand your customers . Segmentation gives you deeper insights into the diverse needs, preferences, and behaviors of different customer groups. By understanding these differences, you can tailor products, services, and marketing messages to the needs of each segment.
• Increase your relevance . Customers today expect superior experiences and relevant content from the brands they interact with. Segmentation allows you to deliver more personalized messages , offers, and recommendations.
• Gain a competitive advantage . By effectively segmenting the market and targeting specific customer segments, you can differentiate your company from competitors and create a competitive advantage. By offering tailored products and services, you attract and retain more customers than with a one-size-fits-all approach.
• Optimize resource allocation . Focus on the segments with the greatest potential for growth and profitability to allocate resources more efficiently. Segmentation helps you optimize your marketing spend, product development efforts, and sales strategies to maximize returns.
• Adapt to market changes . Markets are constantly evolving, with changes in consumer preferences, competitive dynamics, and technological advancements. Segmentation allows you to adapt more quickly to these changes by understanding how different segments respond.

Four steps for your segmentation strategy 

• The process begins with market segmentation, which involves identifying and analyzing the various subgroups within a larger market. You can base segmentation on various factors, including demographics (age, gender, income, education), psychographics (lifestyles, values, attitudes), behavior (purchasing habits, usage patterns), geographic location, or a combination of these factors.
• The next step is to evaluate each segment's attractiveness and select the most promising segments to target. This involves assessing factors such as size and growth potential, profitability, accessibility, and the competition within the segment.
• After selecting target segments, develop a positioning strategy that defines how consumers within each segment should perceive your product. Positioning involves communicating a unique value proposition in a way that resonates with each target segment's needs and preferences.
• Next, you can tailor your marketing mix (product, price, promotion, and distribution) to each segment. This may involve developing different product versions or features, adjusting pricing strategies, creating targeted advertising and promotional campaigns, and selecting distribution channels.

Demographic segmentation or behavioral segmentation? 

Demographic segmentation divides the market based on demographic variables such as age, gender, income, education, occupation, marital status, and family size. It is often used when the characteristics of the target market are closely related to demographic factors. For example, products or services that are specifically for certain age groups or genders may benefit from demographic segmentation.

The advantage is that it is easy to implement and understand. Demographic segmentation provides a basic understanding of the target audience and helps you tailor marketing messages and campaigns to specific groups. However, it does come with its limitations. 

Demographic segmentation does not capture differences in behavior or preferences within these groups. It assumes that individuals within the same demographic category have similar needs and preferences. This may not always be accurate. Therefore, demographic factors may not always be the best predictors of consumer behavior.

In contrast, behavioral segmentation divides the market based on consumer behavior, including purchasing habits, usage patterns, brand loyalty, benefits sought, and decision-making processes. Behavioral segmentation is often used when consumer behavior is a better predictor of purchasing decisions than demographic factors. It's particularly useful for products or services where customer preferences and usage patterns vary widely.

Behavioral segmentation comes with several benefits:

• Provides deeper insights into customer needs, preferences, and motivations.
• Allows for more targeted marketing strategies based on actual behavior.
• Helps in identifying and reaching high-value customer segments.

Of course, behavioral segmentation can be more complex and challenging to implement than demographic segmentation. It requires access to customer behavior data and the right analysis capabilities. Ultimately, the choice between the two approaches depends on the specific goals and requirements of your marketing strategy.

Examples of successful segmentation 

Several companies have implemented successful segmentation strategies across various industries. Here are a few examples:

• Nike . Nike targets different customer segments based on factors such as age, lifestyle, and sports preferences. For example, the company has distinct product lines targeting athletes, fitness enthusiasts, and casual wearers. Each line has its own branding, messaging, and product offerings. 
• Apple . Apple offers multiple iPhone models at different price points to appeal to various customer segments based on their budget and preferences. Additionally, Apple's ecosystem approach, which integrates hardware, software , and services seamlessly, helps foster brand loyalty and customer retention among its user base.
• Starbucks . Starbucks employs a segmentation strategy based on both demographic and psychographic factors to target different customer segments. For example, the company offers a range of coffee blends and customization options to cater to diverse taste preferences. Starbucks also creates personalized marketing campaigns and loyalty programs to engage with its customer base and drive repeat business.
• Amazon . Amazon utilizes a data-driven segmentation strategy to personalize the shopping experience for its customers. The company analyzes customer data to segment users based on their past purchase behavior, browsing history, and preferences. Amazon then tailors product recommendations, promotional offers, and marketing messages to each segment, driving higher conversion rates and customer satisfaction.
• Netflix . Netflix employs a behavioral segmentation strategy to recommend personalized content to its subscribers. The company analyzes user interactions, viewing history, and ratings to segment users into different taste profiles. Netflix then uses this data to curate personalized content recommendations, improving user engagement and retention.

The importance of market research

Market research is crucial for segmentation strategy. Whether it's demographics, psychographics, behavior, or other factors, market research provides the data needed to identify the most meaningful segmentation variables. It also allows you to validate your segmentation strategy by testing different segmentation approaches with real customers. 

In addition, market research provides valuable insights that can inform product development efforts. By understanding customer needs and preferences, you can identify opportunities to develop products or services that better meet the needs of specific customer segments.

Without market research, you may rely on assumptions or stereotypes to segment your target market. This can lead to inaccurate or incomplete segmentation, resulting in misaligned marketing strategies and ineffective targeting of customer segments. You may also overlook valuable opportunities to target underserved or niche segments, resulting in missed revenue potential and loss of market share. 

The result? You can expect suboptimal returns on investment, dissatisfaction among customers, churn, and lost market share to more customer-centric rivals .

Segmentation is not a one-time process

Markets are dynamic and constantly evolving, and consumer behavior is not static. Factors such as changes in technology, economic conditions, regulatory environments, and societal trends can impact consumer preferences, purchasing behavior, and market demand. 

Also, watch out for new competitors entering the market and new product launches among your existing competitors. How might these developments impact the effectiveness of your segmentation strategy?

Successful segmentation strategies require adaptability and flexibility. Be prepared to iterate on your segmentation approach, test new segmentation variables or criteria, and experiment with different segmentation strategies to find the most effective approach for achieving your objectives.

Key performance indicators (KPIs) such as segment profitability, customer satisfaction, market penetration , and customer lifetime value can provide valuable insights into the success of your segmentation strategy.

Gathering feedback from customers is also essential for understanding their needs, preferences, and satisfaction levels. 

Here, you can use surveys, interviews, focus groups, and other feedback mechanisms to gather insights directly from customers. This feedback can help identify areas where the segmentation strategy may need adjustment to better meet customer expectations and improve overall customer experience .

How Simon-Kucher can help

At Simon-Kucher, we understand the pivotal role that segmentation strategy plays in driving business success. Our data-driven approach and comprehensive market research help tailor your marketing efforts, driving growth and profitability. Partner with us to unlock your customer base 's full potential and elevate your segmentation strategy.

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Segmentation Research: Process, Tools, & Examples [template]

Topics covered ✅.

• Segmentation Basics
• Company Service Advantages
• Segmentation Types
• Product Marketing
• Creating Segments
• Market Segmentation Approach
• Target Market Research
• Target Market Types
• Geographic Segmentation
• Target Audience

Segmentation research is one of the first steps in your marketing strategy. It helps you understand your customers and their needs more clearly. As a result, it allows you to create relevant messages that speak directly to them.

Claim My Free Segmentation Research Template

This hub is ready-made and comes pre-populated with free tools, examples, and files to help you improve your segmentation research. 

1.  Segmentation Basics

Segmentation is the process by which you divide a market into different groups based on certain characteristics.

These characteristics can be demographic (age, gender), psychographic (interests), or behavioral (brand loyalty).

The goal of segmentation is to find groups who will be interested in your products or services and then target these groups with specific marketing messages.

It also helps companies make more money by allowing them to focus their marketing efforts on the people most likely to buy their products.

By targeting only certain types of customers, companies can spend less money on advertising and more money making sure that their product works for them.

Segmentation research takes segmentation one step further, allowing you to tailor your marketing efforts to appeal to specific groups of customers.

2. Company Service Advantages

Segmentation is a vital process for many companies because it helps marketers identify target markets for their products or services, properly use audience research tools , determine which customers they should focus on, and how to best serve them.

3. Segmentation Types

There are two types of segmentation:

Demographic segmentation

This is the most common method of segmentation.

Demographic segmentation focuses on characteristics like age, gender, income level, education level, family size and composition (number of children), occupation or job type (salary levels), marital status (single or married), and geographic location (city or suburb).

Women between 35-50 years old with an annual income of $40K-$60K may be one demographically based customer segment for a company selling cosmetic products for women in this age group with that income range.

Psychographic segmentation

Psychographic segmentation focuses on personal interests and needs rather than demographics. This type of segmentation is used by companies to divide their customers into groups based on their:

• spending habits

For example, if you're selling a new kind of metal detector, you would want to find out what hobbies people like in order to determine who might buy your product.

4. Product Marketing

Marketing is a vocation that requires a lot of creativity and thought. One of the most important things you can do to ensure your marketing campaigns are successful is to segment your market.

When you understand the needs of each segment and how they differ from each other, it's easier for you to do product testing market research , and create products and services that will appeal to them—and ultimately make more money.

5. Creating Segments

The first step in creating effective segments is deciding what type of information you want to use for your segmentation variables—the factors that will determine how many segments you'll have and what they'll look like.

Many segmentation algorithms are used to divide markets into different groups. For example, the clustering algorithm ensures that members within one group are very similar, while members of two separate groups are very dissimilar.

6. Market Segmentation Approach

The market segmentation process starts with defining the business problem or opportunity that needs to be addressed by market research.

This can be done through secondary research or primary research.

After identifying the business problem or opportunity, marketers need to analyze the current situation in order to identify potential solutions and establish project goals.

Marketers then need to decide what type of segmentation will best suit their needs – demographic or psychographic – before moving forward with the rest of the project planning process and conducting any necessary research activities required before implementing a new marketing strategy successfully!

Next, marketers will want to create profiles for each group so that everyone involved with the marketing plan knows how best to target each group individually without overlapping them (which could muddy up the message).

7. Target Market Research

If you can't tell what kind of person will buy your product or service, then how can you ever hope to sell it?

The answer is simple: market research!

This is how companies find out what their customers want so that they can give it to them (and make more money). By extension, it also helps with customer loyalty research .

It all starts with identifying different types of people who might be interested in what you're selling—which isn't always easy because people don't always fit neatly into categories like "men" or "women."

That's where market segmentation comes in handy!

8. Target Market Types

Common target markets for businesses include:

• For an upscale clothing boutique: Middle-aged people with a high income in comparison to the area's cost of living who often attend formal social events
• For a fast-food restaurant: Lower or middle-class adults who are traveling through the area and need a quick, cheap bite to eat
• For a photography studio: Families looking for portraits, couples who are getting married soon, seniors in high school or college who are looking for senior photos

9. Geographic Segmentation

The market segmentation process may include the use of customer segmentation.

Customer segments are important because they help the organization to understand its customers better and increase sales.

Geographic segmentation is a strategy that targets the products and services of people who live in or shop at a particular location.

It works based on the assumption that people in that location have similar needs, wants, and cultural considerations.

Brands can use their understanding of a particular area's interest to target more relevant marketing messages and suitable products to the potential customers who live there.

The benefits of geographic segmentation are:

• Relevancy - Targeted marketing campaigns within a geographic location will be relevant to the customers who live there and influence purchases.
• Saving money - Your marketing budget is more efficient when it offers products and services to people who really need them. It prevents you from wasting money on promoting things that nobody in the designated area needs. Geographic segmentation is often cheaper than psychographic, demographic or behavioral segmentation.
• Ease : Location information is easy to figure out and analyze.

10. Target Audience

Segmentation can be done using both quantitative and qualitative methods.

Quantitative methods include different types of surveys for research , while qualitative methods include focus groups or interviews.

These market research methods help identify different segments within a target audience based on their characteristics, such as age groupings or geographic location within the country where they reside or work.

This data can then be used by marketers so they know how best to reach out to these groups through various communication channels, such as print ads in newspapers/magazines; and digital ads on social media sites (like Facebook and Twitter).

As you can see from our overview, the segmentation of a market is a crucial part of any business. It not only helps you find the best customers and target them effectively but helps you create the right product to fit consumers' needs.

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Market Segmentation: The Key Element for Marketing Success

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Your potential audience is vast and diverse. How do you market effectively on a worldwide stage? Divide and conquer.

Market segmentation divides this global audience into smaller groups with similar characteristics, needs, and behaviors. This process allows a digital marketing services agency to help businesses tailor products, services, and strategies to meet different customer segments’ specific needs and preferences.

This guide further explains segmentation through the following topics:

• Understanding segmentation
• Benefits of segmentation
• Conducting analysis
• Challenges in segmentation
• Integrating the process with the overall marketing strategy

Read below to learn how to effectively segment the audience and increase your marketing efforts’ relevance, engagement, and effectiveness. Let’s go!

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Understanding Market Segmentation

Market segmentation divides a broad audience into smaller segments according to shared characteristics or attributes. One of the most common examples is demographic segmentation, which categorizes consumers based on age, gender, income, education, and occupation. 

Geographic segmentation divides the market based on geographic location, such as country, region, city, or climate. The information guides local marketing strategies .  

Another form of segmentation is psychographic. It focuses on lifestyles, values, attitudes, interests, and personality traits. Meanwhile, behavioral segmentation sorts consumers based on purchasing behavior, usage patterns, brand loyalty, and buying motives. 

Each type helps businesses identify and understand their target audience to develop effective, tailored marketing strategies and offerings.

Improve market segmentation with these strategies:

• Conduct surveys and send questionnaires to gather data on customer demographics, preferences, behaviors, and needs. 
• Analyze customer data, transactions, and online behavior to uncover patterns and trends. 
• Research to gather qualitative and quantitative data on consumer attitudes, motivations, and lifestyle factors. 
• Monitor conversations on social media platforms to understand customer sentiment, interests, and discussions related to your industry or products. 

Finally, segmentation models such as recency, frequency, monetary (RFM) analysis; customer lifetime value (CLV) analysis; or cluster analysis group customers based on their value, engagement, or behavioral patterns. These identify high-value segments, loyal customers, and messaging opportunities and provide insights on personalizing marketing campaigns.

Benefits of Market Segmentation

Market segmentation offers several benefits to businesses . It improves targeting by allowing companies to tailor their marketing efforts to each segment. This process enhances engagement, brand loyalty, and customer relationships because messages and offerings are more relevant and personalized. 

Additionally, market segmentation facilitates more efficient resource allocation and marketing spending , increasing return on investment (ROI) as companies focus on the most profitable and promising segments. 

A digital marketing services agency uses segmentation in the following ways:

     1. Personalized Messaging

Segmentation allows businesses to craft personalized messages based on each customer segment’s unique needs and preferences. For example, a cosmetics company might send targeted emails promoting anti-aging products to older customers while highlighting trendy makeup products to a younger demographic.

     2. Product Customization

Segmentation enables businesses to customize products or services to better meet customer expectations and needs. For example, a software company offers a product with modifiable features and pricing tiers to cater to the preferences and budgets of different clients, such as small businesses and enterprises.

     3. Channel Selection

Segmenting the audience identifies the most effective marketing channels for reaching them. A fitness apparel brand might focus its social media advertising efforts on Instagram and TikTok to target a more fashion-conscious younger audience. At the same time, email marketing campaigns consistently nurture loyal customers.

     4. Promotional Offers

Segmentation creates targeted promotional offers and incentives. A grocery store might provide discounts on organic produce to health-conscious customers while offering buy-one-get-one-free deals on snacks and beverages to families with children.

     5. Timing and Frequency

Breaking down a broad market optimizes the timing and frequency of communications to maximize engagement and response rates. For example, a travel agency sends targeted email newsletters promoting vacation packages to customers who have previously shown interest in travel during peak booking seasons.

Market segmentation helps businesses better understand and serve their customers, ultimately driving market growth and competitiveness.

Conducting Market Segmentation Analysis

Segmentation goes beyond simply dividing your market– it involves systematically examining the market to understand the distinct groups that you identify. It boosts marketing success by providing valuable insights into the audience’s diverse preferences, behaviors, and motivations. 

By understanding these segments, marketers can tailor their strategies, messages, and offerings to meet the specific needs of their targeted leads. 

Below are tips for identifying distinct market segments using data and research tools:

• Conduct surveys to collect data on demographics, psychographics, and behavior. Use tools such as SurveyMonkey or Google Forms to create and distribute surveys and analyze the responses.
• Use analytics tools such as Google Analytics, customer relationship management (CRM) software, or marketing automation platforms to gather data on customer interactions, website visits, and purchasing behavior.
• Maximize artificial intelligence (AI) for precision marketing.  
• Access market research reports and industry studies to gather insights into broader market trends, consumer preferences, and competitive landscapes. 
• Analyze customer feedback, reviews, and testimonials to learn more about their experiences, preferences, and pain points. 

Ultimately, market segmentation analysis enables businesses to allocate resources efficiently, maximize ROI, and build stronger connections with the target audience, sustaining growth.

Tackling the Challenges in Market Segmentation

Common challenges in market segmentation include limited data availability or quality, making it difficult to accurately identify and profile customer segments. Additionally, segmentation criteria do not always align with business objectives or fail to capture relevant customer differences. 

Businesses also struggle to balance the need for segmentation with the resources and expertise required to effectively implement and manage segmented marketing strategies. Lastly, consumers evolve, requiring ongoing monitoring and adjustment of tactics to remain relevant and effective.

A digital marketing services company performs many strategies to overcome these challenges. Examples include:

• Improve data collection methods and invest in data quality management to ensure accurate and comprehensive customer data.
• Refine segmentation criteria to align them with business objectives.
• Conduct market research, customer surveys, and focus groups to identify relevant variables and characteristics that differentiate customer segments effectively.
• Leverage advanced analytics techniques such as predictive modeling, machine learning, and clustering algorithms to identify meaningful patterns and segments within the data.
• Use AI tools that streamline segmenting based on predefined criteria. 
• Continuously monitor and evaluate the effectiveness of segmentation strategies by analyzing key performance indicators (KPIs) and customer feedback. 

These strategies help businesses remain agile and responsive to changes in market dynamics and customer behavior to keep segmentation criteria relevant and impactful.

Integrating Segmentation with Overall Marketing Strategy

Aligning segmentation with business goals ensures marketing efforts are targeted and effective. It focuses resources on high-potential opportunities that maximize ROI. 

Businesses can effectively integrate segmentation with marketing strategies using these best practices:

• Clearly define what the business wants to achieve through segmentation.
• Conduct thorough market research to identify segments that align with the business objectives and target audience. 
• Tailor marketing strategies and messaging for each identified segment. Customize product offerings, communication channels, and promotional campaigns to their unique needs and preferences.
• Allocate resources based on each segment’s potential value and importance to business objectives. 
• Continuously monitor the performance of marketing initiatives for each segment and track KPIs such as sales, ROI, and customer satisfaction. 
• Use data analytics to evaluate the effectiveness of segmentation strategies and adjust strategies as needed to achieve desired results.

Segmentation aligned with business objectives creates personalized marketing strategies. Content and offers address specific customer needs and drive desired outcomes, such as increased sales, market share, or brand loyalty. 

Dividing a heterogeneous market into smaller, more homogeneous segments allows you to better understand and meet the target audience’s diverse needs and preferences. Effective market segmentation increases relevance, engagement, and customer satisfaction, driving stronger relationships, higher conversions, and long-term business growth. 

What steps can your business take to implement more effective market segmentation?  

A reputable digital marketing agency guides you in segmenting a broad market and customizes strategies based on your needs and objectives. Contact Digital Authority Partners (DAP) today to talk with an expert. 

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What is Market Segmentation Research?

Market segmentation research is research that is used to help a firm identify segments in a market, with the end goal of developing different strategies and tactics for the different segments (i.e., market segmentation). Market segmentation research is often referred to as segmentation research.

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The output of segmentation research.

The table below is an example of the end-point of a basic segmentation study. It describes four segments of toothpaste buyers. Typically, there will be a lot more information than shown here, both in terms of richer qualitative information and detailed tables of differences between segments.

Types of segmentation research

Broadly speaking, segmentation research can be classified into four broad types of methodology:

Quantitative survey-based research

Research carried out on secondary data, research carried out based on company databases, qualitative research.

Survey-based research involves the collection of data from a survey of people in the market of interest, and then using a segmentation algorithm, such as k-means cluster analysis or latent class analysis, to form segments. This is the main way that companies form market segments, because/since this method is the most flexible and produces the most detailed outputs, in that:

• Any form of data can be collected, such as demographics, behavior, attitudes, price sensitivity, preferences, etc.
• As a byproduct, it can produce all the key bits of information that are required for the implementation of the market segmentation (e.g., the size of the segments, the differences between segments in their attitudes, media viewing, etc.)

Secondary data is data that has already been collected and is usually in the public domain. Most commonly this is data collected by government statistical agencies, such as census data. Segmentations based on secondary data tend to focus on demographics.

Segmentation research studies based on company databases tend to focus on behavioral data, such as frequency and types of products purchased, customer value, and loyalty.

The three most common qualitative research methods are focus groups, in-depth interviews, and ethnography. The strength of qualitative research is its ability to provide complex textual descriptions of how people experience a given research issue. One advantage of qualitative methods in exploratory research is that the use of open-ended questions and probing gives participants the opportunity to respond in their own words. Researchers often use qualitative and quantitative material to complement each other. The final qualitative report containing descriptions and estimates of the sizes of the segments.

The term rich data describes the notion that qualitative data and their subsequent representation should reveal the complexities and the richness of what is being studied and the type of data that can be used for forming segments. However, they present the most challenges in terms of implementation, since/because the nature of the research means that much of the information required for effective implementation is missing (e.g., media usage, the size of the segments).

Acknowledgments

The table of outputs is adapted from Haley, R. I. (1968). "Benefit Segmentation: A Decision Oriented Research Tool." Journal of Marketing 30(July): 30-35.

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53 Marketing Segmentation Essay Topic Ideas & Examples

🏆 best marketing segmentation topic ideas & essay examples, 📝 good research topics about marketing segmentation, 📌 most interesting research topics topics to write about.

• Victoria’s Secret Target Market Segmentation Criteria This segment consists of women who are mostly seeking to enter the dating scene. The other segment consists of women of ages eighteen to thirty five who are in relationships.
• Understanding of Sub-Cultures and Marketing Segmentation Marketing segmentation refers to the act of putting prospective buyers into segments that are characterised by common business needs and demands.
• Global vs. Domestic Marketing Approaches to Segmentation On the opposite, global marketing has to consider distinctions of the targeting area and adapt the strategy individually to each specific group.
• Segmentation in Marketing Campaign A campaign to make the product more appealing and popular among the customers is recommended that will involve the internet and the print media.
• Marketing Segmentation and ‘Fordism’ Henry Ford expressed the idea that people want access to goods, and the way to give this access is to reduce prices and increase the wages of workers.
• Benefits of Segmentation Marketing With this in mind we will be able to group our targets in order to have to have the maximum results of our marketing efforts.
• Global Marketing. Segmentation and Targeting For example, if the segmentation is being done for the retail sector, then the segmentation process might involve classifying the customers on the basis of goods and commodities being purchased, number of visits to the […]
• The Marketing Segmentation Concept The concept of marketing segmentation implies that the business or the company will evaluate the market and segment it in the groups of those who are most likely to become their customers.
• W5 Company’s Segmentation as Marketing Approach Segmentation research is a way of identifying the target audience with the help of the detailed and profound analysis. In the following part of the paper, the procedures of the segmentation research are described.
• Segmentation, Target Marketing and Positioning Product Development: Information gathered from the market research will be used in research and development to find out additional features that need to be added to the product to make it more appropriate for the […]
• Marketing plan and segmentation This helps in knowing the customers that have to be retained, the services they value, and the incentives they ought to be given that would help motivate them.
• Marketing Management: Segmentation and Communication In relation to McDonald and Dunbar writing, marketers engage in the market segmentation in the aim of understanding the importance of finding a sufficient customer-base to cater for the needs.
• Marketing Segmentation and Promotion Strategies in Achieving a Competitive Advantage
• Analysis, Segmentation, and Marketing Mix of Apple
• Differences Between Marketing Mix and Market Segmentation
• STP Marketing: The Segmentation, Targeting, Positioning Model
• Business Case: Marketing Research for Customers Segmentation
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• The Segmentation Utilized by Apple iPhone Marketing
• The Link Between Customer Segmentation, Marketing Mix, and Creation of Value
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• Value in Mature Food Markets Through Market Segmentation and Product Differentiation
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• Segmentation, Targeting, and Positioning Model in Modern Marketing
• Market Segmentation and Target Marketing: Differentiation and Positioning
• Global Market Segmentation and Mode of Entry Strategies
• Green Toys Marketing Segmentation, Strategy, and Data Collection Method
• Market Segmentation Product Positioning: Impact on Consumer
• How Market Segmentation Differs From Target Marketing
• International Market Segmentation: Kentucky Fried Chicken Company
• Correlation of Marketing Agencies and the Economics of Market Segmentation
• Marketing Concept and Marketing Segmentation in Practice: Haagen-Dazs
• The Link Between Marketing Plan and the Segmentation of the Target Market
• Marketing Report: Marketing Segmentation and Position of Offering
• Comparison of Multivariate Market Segmentation, Branding, Relationship Marketing, or Ethical Marketing
• Requirements for Effective Marketing Segmentation
• Revisiting the Substantiality Criterion: From Ethnic Marketing to Market Segmentation
• Segmentation, Targeting, and Positioning: Achieving a Successful Marketing Mix
• Relations Between Target Marketing and Market Segmentation
• Analysis of the Malaysian Organic Market and Segmentation
• The Strategic Marketing Planning – General Framework for Customer Segmentation
• Traveler Segmentation Through Social Media for Intercultural Marketing Purposes
• Why Segmentation Was a Successful Marketing Strategy for Nokia
• The Importance of Marketing and Segmentation
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• How to Make Segmentation Research Actionable

Summary: Segmentation research allows companies to find target segments that can propel their growth and profitability. Many variables may be part of the mix of criteria that differentiate between segments. Segmentation studies may have little impact on organizational decision-making unless some conditions needed for insights implementation are in place.

12 minutes to read. By author Michaela Mora on March 4, 2023 Topics: Market Research , Market Segmentation

Segmentation research helps companies identify groups of current and potential customers or users with the highest profitability potential. This is one of the pillars of strategic marketing and product development. The other pillars are product positioning and target marketing.

This is broadly called “ market segmentation ” in marketing and market research  because we effectively study current and potential buyers and users of products and services. Depending on the roles they adopt at different points in the user experience journey, buyer and user behaviors may or may not be present simultaneously in customers.

For example, in video game purchases for minors, in specific segments of the gaming population, the parents are more likely to play the role of buyers since they hold the purse or may require their children to ask for permission to make purchases. At the same time, their kids are most likely to be product users, but they also influence the purchase decision, often by nagging their parents to grant such permission or give them money. Depending on the business goals, we may focus on segmenting customers on the buying or their user behaviors or a combination of both.

The division (or merging) of roles between buyers, decision-makers, decision influencers, and users can be found in many product categories. It is a mistake to assume users only play a particular role. The roles change based on many factors, including demographics, psychographics, market trends, and purchase and usage situation scenarios.

Addressing the myriad roles a customer can take on requires different marketing tactics and product positioning as part of the overall strategy to reach the intended market. On the product development side, it may require the development of product features to satisfy different needs based on those roles.

Key Concepts in Market Segmentation

Markets are not homogeneous. They are comprised of individual consumers/users with unique needs and desires. This is why segmentation research, in which we explore the underlying drivers of user behavior, is a powerful tool for creating better user experiences and leveraging competitive advantage. This applies to both B2C and B2B markets.

A market segment is a portion of a larger market whose needs differ somewhat from the larger market and potentially from other portions of the market.

When we do segmentation research, we need to consider the current and potential organizational capabilities. Capabilities include existing products and services, technologies, brand reputation, innovation pipeline, etc.

The first step is to identify Need sets the organization can meet. There is no point in segmenting needs that we don’t have the skills and resources to meet, and there are no plans to acquire them.

We talk about Need Sets because most products satisfy more than one need.

Customer needs are not restricted to those satisfied by product features or user interactions. Their needs also include those that arise at different points during the journey of becoming (or not) a customer connected to:

• Types and sources of information about the product.
• Channels where the product is available.
• Price of the product.
• Services associated with the product.
• Perceptions and image of the product or brand about product quality, corporate values, etc.
• Where and how the product is produced or developed.
• User’s life stages and lifestyle.

Identifying relevant need sets that the organization’s current and potential products may satisfy requires qualitative and quantitative research.

Product Features vs. Product Benefits

Customers buy need satisfaction, not product features or attributes. Behind a preference for a feature or attribute, there is a need searching for satisfaction and driving behavior.

A consumer may buy cosmetics to satisfy the need to feel beautiful or transformed. Another will buy a drill for a DIY project that gives him or her a sense of accomplishment. A product manager may buy software to save time and more efficiently manage her job’s daily tasks. Segmentation studies based on product features tend to be less actionable than those based on needs, or what is sometimes called the “jobs the user needs to get done.”

The Role of Demographic Variables

Users’ needs don’t exist in a vacuum. They are often associated with demographic variables such as gender, age, ethnicity, marital status, family composition, education, social class, occupation, and geographic location.

A segmentation solution may start by grouping users with similar product need sets despite different demographics. However, it is essential to understand these demographic differences to design effective marketing programs to reach them through different channels and messages.

Demographic information provides insights into the context in which products are purchased and used, how they think about the products beyond product features, and the language they use to describe their user experience. For example, while singles, young families with children, and middle-aged couples may want the same features in a mobile app, website, or car display, they likely differ in how they perceive different aspects of product design, messages, channels we use to communicate with each group and the points of friction in product interactions.

Excluding demographic information from understanding user interactions with products and services also leads to a lack of diversity, unintended discrimination, and missed product development opportunities.

For specific product categories, demographic variables can be used as segmentation criteria if they identify segments with distinctive needs and behaviors. In other categories, demographic information may not be as discriminating but still can be used to profile the segments and understand the context in which products are purchased and used.

Key Demographics Influencing Product Use

Research has shown that age shapes the products we buy, how we use them, where we shop, how we use technology and media, and how we think and feel about marketing activities. The use of product categories grows and declines as we age, from diapers for babies to diapers for seniors.

Many products are created with gender in mind. However, sometimes gender-specific products can be based on obsolete ideas of what each gender may need or prefer. There are also product designs that intentionally or unintentionally ignore the needs of the other gender (e.g., Battery packs for portable microphones are designed to be clipped on pants, so a female speaker in a dress would have nowhere to clip it on to).

Race and ethnic origin are connected to ethnic subcultures in which members share unique behaviors based on a common racial, language, or cultural background. It is important to remember that all subcultures are very diverse, and general descriptions don’t apply to all the members, so we must be vigilant about unconscious biases that can lead to stereotypes.

Nonetheless, shared cultural traditions, values, language, and behaviors within those subcultures are rooted in history, impacting how their members see their needs represented in the products they buy and use. The cultures we identify with influence how we use language, interpret visual design elements, and activate mental models about how products should work based on personal experiences connected to that culture.

Stage of the Household Cycle

As social species, we usually grow up in families and go through different stages in life, each with specific needs. As we age, we may get married, have children, become empty nesters, or be caregivers of older parents. Our family may shrink or expand over time depending on the paths we take and the relationships we develop. The needs for products and services in each stage will change and influence what we buy and how we use products.

Education and Income

Education influences opportunities and what one can purchase and use by often determining occupation and income. Education also influences how we think, make decisions, and relate to others.

Consider Intersectionality

We don’t just identify with a gender, race, or a particular age. We are all those things together all the time. This means research must consider the intersectionality of many of these variables at the segment level. The experiences of young black American men in America are very different from that of young White men. They will share preferences and use certain products in similar ways. Still, they could differ in perceived barriers to product use, depending on design elements and messaging about the product connected to their identity groups.

Firmographics

In B2B markets, we use “firmographics” as equivalents to demographic information in B2C. Variables such as company size in terms of employees and revenue, industry, product category, structure, decision-making chain and processes, and geographic location often correlate with the products and services they buy and how they are used internally.

These are just some of the demographics or firmographic variables that may be relevant for your product category. There are more. Qualitative and secondary research from internal data systems or prior primary research can shed light on which variables may influence product use in your case.

Segment Profiling

The selection of a segmentation solution is often based on a combination of technical know-how and judgment calls that consider the consistency and viability of the segments.

In exploratory segmentation research, in which we don’t know what the segments are a priori, we use multivariate statistical techniques to identify segments with similar needs sets, behaviors, attitudes, perceptions, demographics, and other relevant variables. But we can’t stop there. We need to describe the segments across all the measured variables and check if their profiles make sense.

The smaller the segments, the more likely the product will meet the segment’s needs. Smaller segments tend to have dominant and specific needs and behaviors that separate them from the rest, but servicing a small segment can be very costly. A segment must be large enough to be worth investing in to be viable.

Segment profiles, also called Personas , should highlight the most prominent common traits within the segments that act as differentiators against other segments. These could be behaviors, use occasions, buyer and user roles, attitudes, barriers and pains, motivators, demographics, etc.

Segments are probabilistic constructs, which means they summarize needs sets, behaviors, attitudes, etc., that are more likely to be shared by a group of people (or companies in B2B). This doesn’t mean that each individual classified in a segment will perfectly fit the segment. We are all individuals with unique needs, yet we share commonalities with the different groups we belong to.

Segment profiles help understand a group’s core needs and distinctive user behaviors so the company can develop products that satisfy those needs.

Making Segmentation Research Actionable

Despite significant investment in segmentation studies, these may have little impact on organizational decision-making unless some conditions are in place for insights implementation.

Define Desired Business Decisions and Outcomes

The key to an actionable segmentation study is a precise translation of desired business actions and outcomes into the information needs the research should meet to support those actions and outcomes. In survey-based segmentation studies, this must go further to operationalizing those information needs into good question design grounded in how the team plans to use the results.

It’s not uncommon to see clients bring very indefinite descriptions of how they plan to use the research results. As someone who does market segmentation studies for clients, I often have to help them define the jobs they want done to support particular function(s) (marketing, product development, operations, etc.) and how they support business outcomes.

Failure to define the specific actions the team plans to make (e.g., select reach channels, create content for different media, find key benefits for positioning, identify keywords for SEO, prioritize features for product development, etc.) to achieve business outcomes, can take the segmentation study in a direction that is likely to provide less than valuable insights.

Find Research Champion (s) at the Top

Segmentation studies generate a lot of insights that are often difficult to socialize internally. The sheer amount of data can be overwhelming. Consequently, an action plan is needed to share the insights and help the organization to adopt them. Internal research teams are often responsible for this task but are rarely successful without a mandate from the top. Any strategic research effort needs a champion in the C-suite from its conception to its insights implementation.

With support from the executive team, researchers connected to marketing or product development need to educate internal stakeholders on the value of both the tactical and strategic implications of the segmentation research the company may have conducted. They need to understand the organization’s ability to adapt to the study’s findings and create an insights implementation plan to help manage internal clients’ expectations.

By connecting the tactical changes recommended by the findings to the overall strategic business goals, the research team can help internal teams, including the C-suite, to become educated on needed strategic changes.

Allow for a Flexible Organizational Structure

Segmentation research provides insights with both tactical and strategic recommendations. Tactical recommendations may include changing a product configuration, adding new features, changing advertising messages, etc. These changes can be implemented without significant organizational changes.

However, serving identified segments long-term may require a new structure to help manage them if the segmentation solution doesn’t align with the current organizational structure. In cases like these, the solution companies use is to create cross-functional teams, but depending on how rigid the structure is, these teams may get little accomplished.

To implement the strategic insights stemming from segmentation studies, the organization must be willing to change its structure to manage the market segments efficiently.

Balance Short- and Long-Term Business Goals

In many organizations, there is often tension between marketing, sales, and product development functions as they own channels and goals with different time horizons. A segmentation study may have recommendations that impact the design of channels these functions own (e.g., eCommerce, offline retail). The marketing team may be receptive to changes the sales team resists because it may upset established client relationship patterns and short-term sales goals.

To balance short- and long-term goals, the management team must consider all research outcomes and decision possibilities of strategic value at the research design stage. If there is no commitment to implement strategic insights from the segmentation study, it is best to narrow its scope to find tactical solutions.

Prioritize Certain Market Segments

A segmentation, by definition, implies discriminating among the segments in some respects. This means the marketing and product development will also discriminate certain segments if the segmentation solution is adopted. In practical terms, this will require prioritizing particular customer segments considering the risk of dedicating fewer resources to others.

If the company doesn’t want to take the risk of discriminating between segments and tries a middle-of-the-road strategy to reach all, it is likely to forfeit the competitive edge the segmentation insights may provide.

Have an Experienced Team

Understanding the value of the insights that can come from segmentation research and being willing to implement them requires prior experience with segmentation work. A marketing or product team not exposed to a well-designed segmentation study will have difficulty translating the insights into business implications.

If this is the case at your company, experienced internal researchers or external research suppliers should be called to help the teams think through the implications of decision-making based on different findings. Segmentation research is not for amateurs. Both internal researchers and external research suppliers should have experience in this methodology to help internal teams to derive actionable insights.

Segmentation research allows companies to find target segments that can propel their growth and profitability. Many variables may be part of the mix of criteria that differentiate between segments. Demographics is just one set of variables to consider in addition to customers’ need sets, pains, motivators, preferences, attitudes, purchase and user behaviors, values, and cultural identity, among others. A hybrid approach using qualitative and quantitative research methods is usually needed.

To make segmentation research actionable, organizations must be ready to understand how these studies may affect their structure and decision-making process regarding customer communications, channels, and product development. Management needs to be a champion of this type of research, bring an experienced team to conduct the research and implement the insights, provide guidance to manage short- and long-term during the insights implementation process, foster willingness to prioritize segments, and be open to change the organizational structure to manage and serve those segments.

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Dissertations / Theses on the topic 'Market segmentation'

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Camilleri, Liberato. "Statistical models for market segmentation." Thesis, Lancaster University, 2005. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.441119.

Fialho, Priscilla Vieira. "Essays on labour market segmentation." Thesis, University College London (University of London), 2018. http://discovery.ucl.ac.uk/10046278/.

Stenbom, Gustav. "Geodemographic Segmentation in Market Research." Thesis, KTH, Optimeringslära och systemteori, 2016. http://urn.kb.se/resolve?urn=urn:nbn:se:kth:diva-188816.

Batie, Michael. "Charter schools and market segmentation." Diss., UC access only, 2009. http://proquest.umi.com/pqdweb?index=32&did=1905738701&SrchMode=1&sid=2&Fmt=7&retrieveGroup=0&VType=PQD&VInst=PROD&RQT=309&VName=PQD&TS=1270138718&clientId=48051.

Valli, Carlotta. "International market segmentation : a comparison of alternative segmentation approaches applied to the European yoghurt market." Thesis, University of Reading, 1999. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.270248.

Templeton, William James. "Consumer interests as market segmentation variables." Thesis, London Business School (University of London), 1986. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.312926.

Mugadza, Nyasha Olivia Valerie. "Challenges of defining and implementing strategic market segmentation." Diss., University of Pretoria, 2012. http://hdl.handle.net/2263/22807.

Martensen, Kaj. "Essays on entry externalities and market segmentation." Doctoral thesis, Stockholm : Economic Research Institute, Stockholm School of Economics (Ekonomiska forskningsinstitutet vid Handelshögsk.) (EFI), 2001. http://www.hhs.se/efi/summary/572.htm.

Syed, Imran Ahmed, and Adrien Saint. "Segmentation of the car market in China." Thesis, Linnéuniversitetet, Institutionen för marknadsföring (MF), 2013. http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-26272.

Natter, Martin, and Markus Feurstein. "Individual level or segmentation based market simulation?" SFB Adaptive Information Systems and Modelling in Economics and Management Science, WU Vienna University of Economics and Business, 1999. http://epub.wu.ac.at/1746/1/document.pdf.

Pilstl, Michaela. "Lifestyle market segmentation - efficiency and ethical issues." Master's thesis, Vysoká škola ekonomická v Praze, 2010. http://www.nusl.cz/ntk/nusl-73795.

Bae, Kee-Hong. "Market segmentation and time varaition in the price of risk evidence on the Korean stock market /." Hong Kong : City Polytechnic of Hong Kong, 1993. http://catalog.hathitrust.org/api/volumes/oclc/30272640.html.

Liang, Jing. "Market segmentation and dual-listed stock price premium - an empirical investigation of the Chinese stock market." Thesis, University of St Andrews, 2009. http://hdl.handle.net/10023/894.

Brossard, Núñez Ian Paul. "Predicting market segmentation variables using Twitter following relations." Master's thesis, Pontificia Universidad Católica del Perú, 2018. http://tesis.pucp.edu.pe/repositorio/handle/123456789/13072.

Deines, Tara. "Market segmentation to become the partner of choice." Thesis, Kansas State University, 2014. http://hdl.handle.net/2097/32782.

Taylor, Mallory Blythe. "A Market Segmentation Study Based on Wellness Attributes." Thesis, Virginia Tech, 2014. http://hdl.handle.net/10919/48169.

Hollinger, Wendy Allyn. "Market Segmentation for the Field of Graphic Design." The Ohio State University, 1989. http://rave.ohiolink.edu/etdc/view?acc_num=osu1419263208.

Sharam, Andrea. "Market segmentation and domestic electricity supply in Victoria." Swinburne Research Bank, 2005. http://adt.lib.swin.edu.au/public/adt-VSWT20061109.101315.

Niki, Satomi. "Labor market segmentation and migrant workers in Japan." Thesis, This resource online, 1995. http://scholar.lib.vt.edu/theses/available/etd-08222009-040608/.

Cao, Chen. "An Empirical Study on Market Segmentation and Information Diffusion in Chinese Stock Markets." Thesis, Uppsala University, Department of Statistics, 2010. http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-126659.

The efficacy and accuracy of information is very important for making decision in stock markets. In this paper, we study on the effect of information diffusion in Chinese stock market before and after the owership release in February 19, 2001, by testing the stationary of A share premium and cointegration between A and B share prices. The panel unit root tests we propose on A share premium are Augmented Dickey-Fullar (ADF) tests for individual firm and Fisher tests for the panel, based on combining pvalues from each individual cross-section. The panel cointegration tests on A and B shares we use is Johansen’s likelihood ratio tests for individual firm and likelihoodbased panel cointegraion tests for panel, based on combining the test statistics. The results show that before the opening of B share markets to domestic investors, A share premiums have a unit root and there is no cointegration relationship between A and B share markets. On the contrary, after ownership release, A share premium is stationary and there is cointegration relationship between A and B share markets.

Liu, Yanli. "Options for implementing a strategy of market segmentation in Chinese consumer goods markets." Berlin Logos-Verl, 2005. http://deposit.ddb.de/cgi-bin/dokserv?id=2669947&prov=M&dok_var=1&dok_ext=htm.

Violaris, Antonis M. "Tests of capital market integration/segmentation : the case of the European equity markets." Thesis, Durham University, 1999. http://etheses.dur.ac.uk/1439/.

Ibrahim, Ali. "Qualitative Segmentation vs. Quantitative Segmentation in a Water Use Market: A Cost Benefit Approach." Thesis, Griffith University, 2018. http://hdl.handle.net/10072/381386.

Tkaczynski, Aaron. "Destination segmentation: a recommended two-step approach." University of Southern Queensland, Faculty of Business, 2009. http://eprints.usq.edu.au/archive/00006255/.

Karlsson, Daniel, and Daniel Darnfors. "Towards a new paradigm in market segmentation : A case study of how corporate identity and image are influenced by market segmentation." Thesis, Linnéuniversitetet, Ekonomihögskolan, ELNU, 2012. http://urn.kb.se/resolve?urn=urn:nbn:se:lnu:diva-19272.

Liu, Ying. "Multicriterion Market Segmentation: A Unified Model, Implementation and Evaluation." Diss., The University of Arizona, 2007. http://hdl.handle.net/10150/193867.

Breitbach, Verena. "Analysis of current segmentation procedures within the 3M Industry and Transportation Department and recommendations for future segmentation approaches." Master's thesis, Vysoká škola ekonomická v Praze, 2012. http://www.nusl.cz/ntk/nusl-114438.

Stirling, Quinn Lee. "Market segmentation : critique and implications of consumer lifestyle fragmentation." Thesis, Manchester Metropolitan University, 2008. http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.485326.

Tam, Chi-ho, and 譚志豪. "Market segmentation: the case of A shares andB shares." Thesis, The University of Hong Kong (Pokfulam, Hong Kong), 2003. http://hub.hku.hk/bib/B31954613.

Wu, Ming-Tzong, and 吳明宗. "Banking Market Segmentation." Thesis, 1993. http://ndltd.ncl.edu.tw/handle/73970468018127066588.

Liang, Fu-Ting, and 梁富珽. "Market Segmentation and Price Efficiency across Emerging Markets." Thesis, 2018. http://ndltd.ncl.edu.tw/handle/z98393.

"Market cable through segmentation." Chinese University of Hong Kong, 1997. http://library.cuhk.edu.hk/record=b5889051.

QIAN, WU-WEI, and 錢無威. "Market segmentation of hypermarket." Thesis, 1992. http://ndltd.ncl.edu.tw/handle/65885358728684597045.

Brandt, Angela. "Cluster analysis for market segmentation /." 2005. http://link.library.utoronto.ca/eir/EIRdetail.cfm?Resources__ID=370169&T=F.

Huang, li we, and 黃瓅緯. "Housing market segmentation -case study." Thesis, 1998. http://ndltd.ncl.edu.tw/handle/69380602265647402076.

SHI, YAO-XUN, and 施燿熏. "Market segmentation of consumer banking." Thesis, 1993. http://ndltd.ncl.edu.tw/handle/07235096678677022980.

卓莉雯. "Market segmentation and price differentials in Chinese stock market." Thesis, 2004. http://ndltd.ncl.edu.tw/handle/75747430475451152919.

Chen, Chi Hong, and 陳志鴻. "The Market Segmentation Study -- A Case on Sports Shoes Market." Thesis, 2002. http://ndltd.ncl.edu.tw/handle/38473531255912512147.

Zhao, Wei-Qiang, and 趙維強. "Market Segmentation and Product Differentiation in Cookies and Crackers Market." Thesis, 1996. http://ndltd.ncl.edu.tw/handle/36679566060058647198.

Chen, Yi-Feng, and 陳逸鋒. "Development of Intelligent Market Segmentation System for Market Survey Industry." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/j8s4xs.

YANG, NAI-GUAN, and 楊乃冠. "The study of recreation market segmentation using psychographic segmentation as a framework." Thesis, 1992. http://ndltd.ncl.edu.tw/handle/40376837321796962355.

Hsu, Chang-Ten, and 許章騰. "The Study of Consumer Behavior Researches and Market Segmentation In Medicine Cosmetic Industries－ Market Segmentation by lifestyle Model." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/b3br7d.

Yang, Nai-Hua, and 楊乃樺. "Mining Multidimensional Association Rules for Market Segmentation." Thesis, 2007. http://ndltd.ncl.edu.tw/handle/78f64c.

Chang, Ya-Ching, and 張雅清. "A Study on Wireless Internet Market Segmentation." Thesis, 2000. http://ndltd.ncl.edu.tw/handle/49830941301702184040.

Nguyen, Thi-Phuong-Hien, and 阮氏芳賢. "Market Segmentation in the Vietnamese Banking Sector." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/86610053221580815966.

"Benefit segmentation of Hong Kong's shampoo market." Chinese University of Hong Kong, 1997. http://library.cuhk.edu.hk/record=b5888996.

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Lai, Shan-Ching, and 賴珊靖. "Segmentation Analysis for International Air Travel Market." Thesis, 2008. http://ndltd.ncl.edu.tw/handle/45984762113067252985.

張洪仁. "Nominal Rigidities, Market Segmentation, and Monetary Policy." Thesis, 2006. http://ndltd.ncl.edu.tw/handle/50915374519219351627.

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Is College Worth It?

1. labor market and economic trends for young adults, table of contents.

• Labor force trends and economic outcomes for young adults
• Economic outcomes for young men
• Economic outcomes for young women
• Wealth trends for households headed by a young adult
• The importance of a four-year college degree
• Getting a high-paying job without a college degree
• Do Americans think their education prepared them for the workplace?
• Is college worth the cost?
• Acknowledgments
• The American Trends Panel survey methodology
• Current Population Survey methodology
• Survey of Consumer Finances methodology

A majority of the nation’s 36 million workers ages 25 to 34 have not completed a four-year college degree. In 2023, there were 19 million young workers who had some college or less education, including those who had not finished high school.

The overall number of employed young adults has grown over the decades as more young women joined the workforce. The number of employed young adults without a college degree peaked around 1990 at 25 million and then started to fall, as more young people began finishing college .

This chapter looks at the following key labor market and economic trends separately for young men and young women by their level of education:

Labor force participation

• Individual earnings

Household income

• Net worth 1

When looking at how young adults are doing in the job market, it generally makes the most sense to analyze men and women separately. They tend to work in different occupations and have different career patterns, and their educational paths have diverged in recent decades.

In 1970, almost all young men whose highest educational attainment was a high school diploma (98%) were in the labor force, meaning they were working or looking for work. By 2013, only 88% of high school-educated young men were in the labor force. Today, that share is 87%.

Similarly, 96% of young men whose highest attainment was some college education were in the labor force in 1970. Today, the share is 89%.

By comparison, labor force participation among young men with at least a bachelor’s degree has remained relatively stable these past few decades. Today, 94% of young men with at least a bachelor’s degree are in the labor force.

The long-running decline in the labor force participation of young men without a bachelor’s degree may be due to several factors, including declining wages , the types of jobs available to this group becoming less desirable, rising incarceration rates and the opioid epidemic . 2

Looking at labor force and earnings trends over the past several decades, it’s important to keep in mind broader forces shaping the national job market.

The Great Recession officially ended in June 2009, but the national job market recovered slowly . At the beginning of the Great Recession in the fourth quarter of 2007, the national unemployment rate was 4.6%. Unemployment peaked at 10.4% in the first quarter of 2010. It was not until the fourth quarter of 2016 that unemployment finally returned to its prerecession level (4.5%).

Studies suggest that things started to look up for less-skilled workers around 2014. Among men with less education, hourly earnings began rising in 2014 after a decade of stagnation. Wage growth for low-wage workers also picked up in 2014. The tightening labor markets in the last five years of the expansion after the Great Recession improved the labor market prospects of “vulnerable workers” considerably.

The COVID-19 pandemic interrupted the tight labor market, but the COVID-19 recession and recovery were quite different from the Great Recession in their job market impact. The more recent recession was arguably more severe, as the national unemployment rate reached 12.9% in the second quarter of 2020. But it was short – officially lasting two months, compared with the 18-month Great Recession – and the labor market bounced back much quicker. Unemployment was 3.3% before the COVID-19 recession; three years later, unemployment had once again returned to that level.

Full-time, full-year employment

Since the Great Recession of 2007-09, young men without a four-year college degree have seen a significant increase in the average number of hours they work.

• Today, 77% of young workers with a high school education work full time, full year, compared with 69% in 2011.
• 83% of young workers with some college education work full time, full year, compared with 70% in 2011.

The share of young men with a college degree who work full time, year-round has remained fairly steady in recent decades – at about 80% – and hasn’t fluctuated with good or bad economic cycles.

Annual earnings

Annual earnings for young men without a college degree were on a mostly downward path from 1973 until roughly 10 years ago (with the exception of a bump in the late 1990s). 3

Earnings have been increasing modestly over the past decade for these groups.

• Young men with a high school education who are working full time, full year have median earnings of $45,000 today, up from $39,300 in 2014. (All figures are in 2022 dollars.)
• The median earnings of young men with some college education who are working full time, full year are $50,000 today, similar to their median earnings in 2014 ($49,100).

It’s important to note that median annual earnings for both groups of noncollege men remain below their 1973 levels.

Median earnings for young men with a four-year college degree have increased over the past 10 years, from $67,500 in 2014 to $77,000 today.

Unlike young men without a college degree, the earnings of college-educated young men are now above what they were in the early 1970s. The gap in median earnings between young men with and without a college degree grew significantly from the late 1970s to 2014. In 1973, the typical young man with a degree earned 23% more than his high school-educated counterpart. By 2014, it was 72% more. Today, that gap stands at 71%. 4

Household income has also trended up for young men in the past 10 years, regardless of educational attainment.

This measure takes into account the contributions of everyone in the household. For this analysis, we excluded young men who are living in their parents’ home (about 20% of 25- to 34-year-old men in 2023).

• The median household income of young men with a high school education is $75,200 today, up from $63,800 in 2014. This is slightly lower than the highpoint reached around 2019.
• The median household income of young men with some college education is $92,200 today, up from $81,100 in 2014. This is close to the 2022 peak of $93,800.

The median household income of young men with at least a bachelor’s degree has also increased from a low point of $118,700 in 2014 after the Great Recession to $145,000 today.

The gap in household income between young men with and without a college degree grew significantly between 1980 and 2014. In 1980, the median household income of young men with at least a bachelor’s degree was about 38% more than that of high school graduates. By 2014, that gap had widened to 86%.

Over the past 10 years, the income gap has fluctuated. In 2023, the typical college graduate’s household income was 93% more than that of the typical high school graduate.

The 2001 recession and Great Recession resulted in a large increase in poverty among young men without a college degree.

• In 2000, among young men living independently of their parents, 8% of those with a high school education were in poverty. Poverty peaked for this group at 17% around 2011 and has since declined to 12% in 2023.
• Among young men with some college education, poverty peaked at 12% around 2014, up from 4% in 2000. Poverty has fallen for this group since 2014 and stands at 8% as of 2023.
• Young men with a four-year college degree also experienced a slight uptick in poverty during the 2001 recession and Great Recession. In 2014, 6% of young college graduates were in poverty, up from 4% in 2000. Poverty among college graduates stands at 5% in 2023.

Labor force trends for young women are very different than for young men. There are occupational and educational differences between young women and men, and their earnings have followed different patterns.

Unlike the long-running decline for noncollege young men, young women without a college degree saw their labor force participation increase steadily from 1970 to about 1990.

By 2000, about three-quarters of young women with a high school diploma and 79% of those with some college education were in the labor force.

Labor force participation has also trended upward for college-educated young women and has consistently been higher than for those with less education.

After rising for decades, labor force participation for young women without a college degree fell during the 2001 recession and the Great Recession. Their labor force participation has increased slightly since 2014.

As of 2023, 69% of young women with a high school education were in the labor force, as were 78% of young women with some college education. Today’s level of labor force participation for young women without a college degree is slightly lower than the level seen around 2000.

The decline in labor force participation for noncollege women partly reflects the declining labor force participation for mothers with children under 18 years of age . Other research has suggested that without federal paid parental and family leave benefits for parents, some women with less education may leave the labor force after having a baby.

In contrast, labor force participation for young women with a college degree has fully recovered from the recessions of the early 2000s. Today, 87% of college-educated young women are in the labor force, the highest estimate on record.

Young women without a college degree have steadily increased their work hours over the decades. The past 10 years in particular have seen a significant increase in the share of employed noncollege women working full time, full year (with the exception of 2021).

• In 2023, 69% of employed young women with a high school education worked full time, full year, up from 56% in 2014. This share is the highest it’s ever been.
• In 2023, 65% of employed women with some college worked full time, full year, up from 58% in 2014. This is among the highest levels ever.

The trend in the share working full time, full year has been similar for young women with college degrees. By 2023, 78% of these women worked full time, full year, the highest share it’s ever been.

Unlike young men, young women without a college education did not see their earnings fall between 1970 and 2000.

The 2001 recession and Great Recession also did not significantly impact the earnings of noncollege young women. In the past 10 years, their median earnings have trended upward.

• For young women with a high school diploma, median earnings reached $36,000 in 2023, up from $30,900 in 2014.
• For those with some college, median earnings rose to $40,000 in 2023 from $37,700 in 2014.

For young women with a college degree, median earnings rose steadily from the mid-1980s until the early 2000s. By 2003, they reached $62,100, but this declined to $55,200 by 2014. In the past 10 years, the median earnings of college-educated young women have risen, reaching $65,000 in 2023.

In the mid-1980s, the typical young woman with a college degree earned about 48% more than her counterpart with a high school diploma. The pay gap among women has widened since then, and by 2014, the typical college graduate earned 79% more than the typical high school graduate. The gap has changed little over the past 10 years.

Noncollege young women living independently from their parents have experienced large household income gains over the past 10 years, measured at the median.

• In 2023, young women with a high school diploma had a median household income of $61,600, up from $48,100 in 2014.
• The pattern is similar for young women with some college education. Their median income rose to $75,200 in 2023 from $64,600 in 2014.

The median household income for young women with a four-year college degree is significantly higher than it is for their counterparts without a degree. College-educated young women have made substantial gains in the past 10 years.

The income gap between young women with and without a college degree has widened over the decades. In 1980, the median household income of young women with a college degree was 50% higher than that of high school-educated women. By 2014, the income gap had grown to 139%. Today, the household income advantage of college-educated women stands at 121% ($136,000 vs. $61,600).

Poverty trends for young women mirror those for young men, although young women are overall more likely to be in poverty than young men. The past 10 years have resulted in a steep reduction in the share of noncollege women in poverty.

• Today, 21% of young women with a high school diploma are living in poverty. This is down from 31% in 2014.
• 15% of young women with some college education live in poverty, compared with 21% in 2014.
• Young women with a college degree are consistently far less likely than either group to be living in poverty (5% in 2023).

Along with young adults’ rising incomes over the past 10 years, there’s been a substantial increase in their wealth. This part of our analysis does not look at men and women separately due to limitations in sample size.

In 2022, households headed by a young high school graduate had a median net worth of $30,700, up from $12,700 in 2013. Those headed by a young adult with some college education had a median net worth of $52,900, up from $15,700 in 2013.

The typical wealth level of households headed by a young college graduate was $120,200 in 2022, up from $46,600 in 2013.

There has not been any significant narrowing of the wealth gap between young high school graduate and young college graduate households since 2013.

Wealth increased for Americans across age groups over this period due to several factors. Many were able to save money during the pandemic lockdowns. In addition, home values increased, and the stock market surged.

• Most of the analysis in this chapter is based on the Annual Social and Economic Supplement collected by the U.S. Census Bureau. Information on net worth is based on a Federal Reserve survey, which interviews fewer households. Due to this smaller sample size, the net worth of households headed by a young adult cannot be broken out by gender and education. ↩
• Bureau of Labor Statistics data indicates that the labor force participation rate for men ages 25 to 54 has been declining since 1953. ↩
• This analysis looks at the earnings of employed adults working full time, full year. This measure of earnings is not uncommon. For example, the National Center for Education Statistics publishes a series on the annual earnings of 25- to 34-year-olds working full time, full year. ↩
• Other studies using hourly wages rather than annual earnings find that the college wage premium has narrowed. For example, researchers at the San Francisco Federal Reserve report that the college wage gap peaked in the mid-2010s but declined by just 4 percentage points to about 75% in 2022. ↩

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McKinsey Global Private Markets Review 2024: Private markets in a slower era

At a glance, macroeconomic challenges continued.

McKinsey Global Private Markets Review 2024: Private markets: A slower era

If 2022 was a tale of two halves, with robust fundraising and deal activity in the first six months followed by a slowdown in the second half, then 2023 might be considered a tale of one whole. Macroeconomic headwinds persisted throughout the year, with rising financing costs, and an uncertain growth outlook taking a toll on private markets. Full-year fundraising continued to decline from 2021’s lofty peak, weighed down by the “denominator effect” that persisted in part due to a less active deal market. Managers largely held onto assets to avoid selling in a lower-multiple environment, fueling an activity-dampening cycle in which distribution-starved limited partners (LPs) reined in new commitments.

About the authors

This article is a summary of a larger report, available as a PDF, that is a collaborative effort by Fredrik Dahlqvist , Alastair Green , Paul Maia, Alexandra Nee , David Quigley , Aditya Sanghvi , Connor Mangan, John Spivey, Rahel Schneider, and Brian Vickery , representing views from McKinsey’s Private Equity & Principal Investors Practice.

Performance in most private asset classes remained below historical averages for a second consecutive year. Decade-long tailwinds from low and falling interest rates and consistently expanding multiples seem to be things of the past. As private market managers look to boost performance in this new era of investing, a deeper focus on revenue growth and margin expansion will be needed now more than ever.

Perspectives on a slower era in private markets

Global fundraising contracted.

Fundraising fell 22 percent across private market asset classes globally to just over $1 trillion, as of year-end reported data—the lowest total since 2017. Fundraising in North America, a rare bright spot in 2022, declined in line with global totals, while in Europe, fundraising proved most resilient, falling just 3 percent. In Asia, fundraising fell precipitously and now sits 72 percent below the region’s 2018 peak.

Despite difficult fundraising conditions, headwinds did not affect all strategies or managers equally. Private equity (PE) buyout strategies posted their best fundraising year ever, and larger managers and vehicles also fared well, continuing the prior year’s trend toward greater fundraising concentration.

The numerator effect persisted

Despite a marked recovery in the denominator—the 1,000 largest US retirement funds grew 7 percent in the year ending September 2023, after falling 14 percent the prior year, for example 1 “U.S. retirement plans recover half of 2022 losses amid no-show recession,” Pensions and Investments , February 12, 2024. —many LPs remain overexposed to private markets relative to their target allocations. LPs started 2023 overweight: according to analysis from CEM Benchmarking, average allocations across PE, infrastructure, and real estate were at or above target allocations as of the beginning of the year. And the numerator grew throughout the year, as a lack of exits and rebounding valuations drove net asset values (NAVs) higher. While not all LPs strictly follow asset allocation targets, our analysis in partnership with global private markets firm StepStone Group suggests that an overallocation of just one percentage point can reduce planned commitments by as much as 10 to 12 percent per year for five years or more.

Despite these headwinds, recent surveys indicate that LPs remain broadly committed to private markets. In fact, the majority plan to maintain or increase allocations over the medium to long term.

Investors fled to known names and larger funds

Fundraising concentration reached its highest level in over a decade, as investors continued to shift new commitments in favor of the largest fund managers. The 25 most successful fundraisers collected 41 percent of aggregate commitments to closed-end funds (with the top five managers accounting for nearly half that total). Closed-end fundraising totals may understate the extent of concentration in the industry overall, as the largest managers also tend to be more successful in raising non-institutional capital.

While the largest funds grew even larger—the largest vehicles on record were raised in buyout, real estate, infrastructure, and private debt in 2023—smaller and newer funds struggled. Fewer than 1,700 funds of less than $1 billion were closed during the year, half as many as closed in 2022 and the fewest of any year since 2012. New manager formation also fell to the lowest level since 2012, with just 651 new firms launched in 2023.

Whether recent fundraising concentration and a spate of M&A activity signals the beginning of oft-rumored consolidation in the private markets remains uncertain, as a similar pattern developed in each of the last two fundraising downturns before giving way to renewed entrepreneurialism among general partners (GPs) and commitment diversification among LPs. Compared with how things played out in the last two downturns, perhaps this movie really is different, or perhaps we’re watching a trilogy reusing a familiar plotline.

Dry powder inventory spiked (again)

Private markets assets under management totaled $13.1 trillion as of June 30, 2023, and have grown nearly 20 percent per annum since 2018. Dry powder reserves—the amount of capital committed but not yet deployed—increased to $3.7 trillion, marking the ninth consecutive year of growth. Dry powder inventory—the amount of capital available to GPs expressed as a multiple of annual deployment—increased for the second consecutive year in PE, as new commitments continued to outpace deal activity. Inventory sat at 1.6 years in 2023, up markedly from the 0.9 years recorded at the end of 2021 but still within the historical range. NAV grew as well, largely driven by the reluctance of managers to exit positions and crystallize returns in a depressed multiple environment.

Private equity strategies diverged

Buyout and venture capital, the two largest PE sub-asset classes, charted wildly different courses over the past 18 months. Buyout notched its highest fundraising year ever in 2023, and its performance improved, with funds posting a (still paltry) 5 percent net internal rate of return through September 30. And although buyout deal volumes declined by 19 percent, 2023 was still the third-most-active year on record. In contrast, venture capital (VC) fundraising declined by nearly 60 percent, equaling its lowest total since 2015, and deal volume fell by 36 percent to the lowest level since 2019. VC funds returned –3 percent through September, posting negative returns for seven consecutive quarters. VC was the fastest-growing—as well as the highest-performing—PE strategy by a significant margin from 2010 to 2022, but investors appear to be reevaluating their approach in the current environment.

Private equity entry multiples contracted

PE buyout entry multiples declined by roughly one turn from 11.9 to 11.0 times EBITDA, slightly outpacing the decline in public market multiples (down from 12.1 to 11.3 times EBITDA), through the first nine months of 2023. For nearly a decade leading up to 2022, managers consistently sold assets into a higher-multiple environment than that in which they had bought those assets, providing a substantial performance tailwind for the industry. Nowhere has this been truer than in technology. After experiencing more than eight turns of multiple expansion from 2009 to 2021 (the most of any sector), technology multiples have declined by nearly three turns in the past two years, 50 percent more than in any other sector. Overall, roughly two-thirds of the total return for buyout deals that were entered in 2010 or later and exited in 2021 or before can be attributed to market multiple expansion and leverage. Now, with falling multiples and higher financing costs, revenue growth and margin expansion are taking center stage for GPs.

Real estate receded

Demand uncertainty, slowing rent growth, and elevated financing costs drove cap rates higher and made price discovery challenging, all of which weighed on deal volume, fundraising, and investment performance. Global closed-end fundraising declined 34 percent year over year, and funds returned −4 percent in the first nine months of the year, losing money for the first time since the 2007–08 global financial crisis. Capital shifted away from core and core-plus strategies as investors sought liquidity via redemptions in open-end vehicles, from which net outflows reached their highest level in at least two decades. Opportunistic strategies benefited from this shift, with investors focusing on capital appreciation over income generation in a market where alternative sources of yield have grown more attractive. Rising interest rates widened bid–ask spreads and impaired deal volume across food groups, including in what were formerly hot sectors: multifamily and industrial.

Private debt pays dividends

Debt again proved to be the most resilient private asset class against a turbulent market backdrop. Fundraising declined just 13 percent, largely driven by lower commitments to direct lending strategies, for which a slower PE deal environment has made capital deployment challenging. The asset class also posted the highest returns among all private asset classes through September 30. Many private debt securities are tied to floating rates, which enhance returns in a rising-rate environment. Thus far, managers appear to have successfully navigated the rising incidence of default and distress exhibited across the broader leveraged-lending market. Although direct lending deal volume declined from 2022, private lenders financed an all-time high 59 percent of leveraged buyout transactions last year and are now expanding into additional strategies to drive the next era of growth.

Infrastructure took a detour

After several years of robust growth and strong performance, infrastructure and natural resources fundraising declined by 53 percent to the lowest total since 2013. Supply-side timing is partially to blame: five of the seven largest infrastructure managers closed a flagship vehicle in 2021 or 2022, and none of those five held a final close last year. As in real estate, investors shied away from core and core-plus investments in a higher-yield environment. Yet there are reasons to believe infrastructure’s growth will bounce back. Limited partners (LPs) surveyed by McKinsey remain bullish on their deployment to the asset class, and at least a dozen vehicles targeting more than $10 billion were actively fundraising as of the end of 2023. Multiple recent acquisitions of large infrastructure GPs by global multi-asset-class managers also indicate marketwide conviction in the asset class’s potential.

Private markets still have work to do on diversity

Private markets firms are slowly improving their representation of females (up two percentage points over the prior year) and ethnic and racial minorities (up one percentage point). On some diversity metrics, including entry-level representation of women, private markets now compare favorably with corporate America. Yet broad-based parity remains elusive and too slow in the making. Ethnic, racial, and gender imbalances are particularly stark across more influential investing roles and senior positions. In fact, McKinsey’s research  reveals that at the current pace, it would take several decades for private markets firms to reach gender parity at senior levels. Increasing representation across all levels will require managers to take fresh approaches to hiring, retention, and promotion.

Artificial intelligence generating excitement

The transformative potential of generative AI was perhaps 2023’s hottest topic (beyond Taylor Swift). Private markets players are excited about the potential for the technology to optimize their approach to thesis generation, deal sourcing, investment due diligence, and portfolio performance, among other areas. While the technology is still nascent and few GPs can boast scaled implementations, pilot programs are already in flight across the industry, particularly within portfolio companies. Adoption seems nearly certain to accelerate throughout 2024.

Private markets in a slower era

If private markets investors entered 2023 hoping for a return to the heady days of 2021, they likely left the year disappointed. Many of the headwinds that emerged in the latter half of 2022 persisted throughout the year, pressuring fundraising, dealmaking, and performance. Inflation moderated somewhat over the course of the year but remained stubbornly elevated by recent historical standards. Interest rates started high and rose higher, increasing the cost of financing. A reinvigorated public equity market recovered most of 2022’s losses but did little to resolve the valuation uncertainty private market investors have faced for the past 18 months.

Within private markets, the denominator effect remained in play, despite the public market recovery, as the numerator continued to expand. An activity-dampening cycle emerged: higher cost of capital and lower multiples limited the ability or willingness of general partners (GPs) to exit positions; fewer exits, coupled with continuing capital calls, pushed LP allocations higher, thereby limiting their ability or willingness to make new commitments. These conditions weighed on managers’ ability to fundraise. Based on data reported as of year-end 2023, private markets fundraising fell 22 percent from the prior year to just over $1 trillion, the largest such drop since 2009 (Exhibit 1).

The impact of the fundraising environment was not felt equally among GPs. Continuing a trend that emerged in 2022, and consistent with prior downturns in fundraising, LPs favored larger vehicles and the scaled GPs that typically manage them. Smaller and newer managers struggled, and the number of sub–$1 billion vehicles and new firm launches each declined to its lowest level in more than a decade.

Despite the decline in fundraising, private markets assets under management (AUM) continued to grow, increasing 12 percent to $13.1 trillion as of June 30, 2023. 2023 fundraising was still the sixth-highest annual haul on record, pushing dry powder higher, while the slowdown in deal making limited distributions.

Investment performance across private market asset classes fell short of historical averages. Private equity (PE) got back in the black but generated the lowest annual performance in the past 15 years, excluding 2022. Closed-end real estate produced negative returns for the first time since 2009, as capitalization (cap) rates expanded across sectors and rent growth dissipated in formerly hot sectors, including multifamily and industrial. The performance of infrastructure funds was less than half of its long-term average and even further below the double-digit returns generated in 2021 and 2022. Private debt was the standout performer (if there was one), outperforming all other private asset classes and illustrating the asset class’s countercyclical appeal.

Private equity down but not out

Higher financing costs, lower multiples, and an uncertain macroeconomic environment created a challenging backdrop for private equity managers in 2023. Fundraising declined for the second year in a row, falling 15 percent to $649 billion, as LPs grappled with the denominator effect and a slowdown in distributions. Managers were on the fundraising trail longer to raise this capital: funds that closed in 2023 were open for a record-high average of 20.1 months, notably longer than 18.7 months in 2022 and 14.1 months in 2018. VC and growth equity strategies led the decline, dropping to their lowest level of cumulative capital raised since 2015. Fundraising in Asia fell for the fourth year of the last five, with the greatest decline in China.

Despite the difficult fundraising context, a subset of strategies and managers prevailed. Buyout managers collectively had their best fundraising year on record, raising more than $400 billion. Fundraising in Europe surged by more than 50 percent, resulting in the region’s biggest haul ever. The largest managers raised an outsized share of the total for a second consecutive year, making 2023 the most concentrated fundraising year of the last decade (Exhibit 2).

Despite the drop in aggregate fundraising, PE assets under management increased 8 percent to $8.2 trillion. Only a small part of this growth was performance driven: PE funds produced a net IRR of just 2.5 percent through September 30, 2023. Buyouts and growth equity generated positive returns, while VC lost money. PE performance, dating back to the beginning of 2022, remains negative, highlighting the difficulty of generating attractive investment returns in a higher interest rate and lower multiple environment. As PE managers devise value creation strategies to improve performance, their focus includes ensuring operating efficiency and profitability of their portfolio companies.

Deal activity volume and count fell sharply, by 21 percent and 24 percent, respectively, which continued the slower pace set in the second half of 2022. Sponsors largely opted to hold assets longer rather than lock in underwhelming returns. While higher financing costs and valuation mismatches weighed on overall deal activity, certain types of M&A gained share. Add-on deals, for example, accounted for a record 46 percent of total buyout deal volume last year.

Real estate recedes

For real estate, 2023 was a year of transition, characterized by a litany of new and familiar challenges. Pandemic-driven demand issues continued, while elevated financing costs, expanding cap rates, and valuation uncertainty weighed on commercial real estate deal volumes, fundraising, and investment performance.

Managers faced one of the toughest fundraising environments in many years. Global closed-end fundraising declined 34 percent to $125 billion. While fundraising challenges were widespread, they were not ubiquitous across strategies. Dollars continued to shift to large, multi-asset class platforms, with the top five managers accounting for 37 percent of aggregate closed-end real estate fundraising. In April, the largest real estate fund ever raised closed on a record $30 billion.

Capital shifted away from core and core-plus strategies as investors sought liquidity through redemptions in open-end vehicles and reduced gross contributions to the lowest level since 2009. Opportunistic strategies benefited from this shift, as investors turned their attention toward capital appreciation over income generation in a market where alternative sources of yield have grown more attractive.

In the United States, for instance, open-end funds, as represented by the National Council of Real Estate Investment Fiduciaries Fund Index—Open-End Equity (NFI-OE), recorded $13 billion in net outflows in 2023, reversing the trend of positive net inflows throughout the 2010s. The negative flows mainly reflected $9 billion in core outflows, with core-plus funds accounting for the remaining outflows, which reversed a 20-year run of net inflows.

As a result, the NAV in US open-end funds fell roughly 16 percent year over year. Meanwhile, global assets under management in closed-end funds reached a new peak of $1.7 trillion as of June 2023, growing 14 percent between June 2022 and June 2023.

Real estate underperformed historical averages in 2023, as previously high-performing multifamily and industrial sectors joined office in producing negative returns caused by slowing demand growth and cap rate expansion. Closed-end funds generated a pooled net IRR of −3.5 percent in the first nine months of 2023, losing money for the first time since the global financial crisis. The lone bright spot among major sectors was hospitality, which—thanks to a rush of postpandemic travel—returned 10.3 percent in 2023. 2 Based on NCREIFs NPI index. Hotels represent 1 percent of total properties in the index. As a whole, the average pooled lifetime net IRRs for closed-end real estate funds from 2011–20 vintages remained around historical levels (9.8 percent).

Global deal volume declined 47 percent in 2023 to reach a ten-year low of $650 billion, driven by widening bid–ask spreads amid valuation uncertainty and higher costs of financing (Exhibit 3). 3 CBRE, Real Capital Analytics Deal flow in the office sector remained depressed, partly as a result of continued uncertainty in the demand for space in a hybrid working world.

During a turbulent year for private markets, private debt was a relative bright spot, topping private markets asset classes in terms of fundraising growth, AUM growth, and performance.

Fundraising for private debt declined just 13 percent year over year, nearly ten percentage points less than the private markets overall. Despite the decline in fundraising, AUM surged 27 percent to $1.7 trillion. And private debt posted the highest investment returns of any private asset class through the first three quarters of 2023.

Private debt’s risk/return characteristics are well suited to the current environment. With interest rates at their highest in more than a decade, current yields in the asset class have grown more attractive on both an absolute and relative basis, particularly if higher rates sustain and put downward pressure on equity returns (Exhibit 4). The built-in security derived from debt’s privileged position in the capital structure, moreover, appeals to investors that are wary of market volatility and valuation uncertainty.

Direct lending continued to be the largest strategy in 2023, with fundraising for the mostly-senior-debt strategy accounting for almost half of the asset class’s total haul (despite declining from the previous year). Separately, mezzanine debt fundraising hit a new high, thanks to the closings of three of the largest funds ever raised in the strategy.

Over the longer term, growth in private debt has largely been driven by institutional investors rotating out of traditional fixed income in favor of private alternatives. Despite this growth in commitments, LPs remain underweight in this asset class relative to their targets. In fact, the allocation gap has only grown wider in recent years, a sharp contrast to other private asset classes, for which LPs’ current allocations exceed their targets on average. According to data from CEM Benchmarking, the private debt allocation gap now stands at 1.4 percent, which means that, in aggregate, investors must commit hundreds of billions in net new capital to the asset class just to reach current targets.

Private debt was not completely immune to the macroeconomic conditions last year, however. Fundraising declined for the second consecutive year and now sits 23 percent below 2021’s peak. Furthermore, though private lenders took share in 2023 from other capital sources, overall deal volumes also declined for the second year in a row. The drop was largely driven by a less active PE deal environment: private debt is predominantly used to finance PE-backed companies, though managers are increasingly diversifying their origination capabilities to include a broad new range of companies and asset types.

Infrastructure and natural resources take a detour

For infrastructure and natural resources fundraising, 2023 was an exceptionally challenging year. Aggregate capital raised declined 53 percent year over year to $82 billion, the lowest annual total since 2013. The size of the drop is particularly surprising in light of infrastructure’s recent momentum. The asset class had set fundraising records in four of the previous five years, and infrastructure is often considered an attractive investment in uncertain markets.

While there is little doubt that the broader fundraising headwinds discussed elsewhere in this report affected infrastructure and natural resources fundraising last year, dynamics specific to the asset class were at play as well. One issue was supply-side timing: nine of the ten largest infrastructure GPs did not close a flagship fund in 2023. Second was the migration of investor dollars away from core and core-plus investments, which have historically accounted for the bulk of infrastructure fundraising, in a higher rate environment.

The asset class had some notable bright spots last year. Fundraising for higher-returning opportunistic strategies more than doubled the prior year’s total (Exhibit 5). AUM grew 18 percent, reaching a new high of $1.5 trillion. Infrastructure funds returned a net IRR of 3.4 percent in 2023; this was below historical averages but still the second-best return among private asset classes. And as was the case in other asset classes, investors concentrated commitments in larger funds and managers in 2023, including in the largest infrastructure fund ever raised.

The outlook for the asset class, moreover, remains positive. Funds targeting a record amount of capital were in the market at year-end, providing a robust foundation for fundraising in 2024 and 2025. A recent spate of infrastructure GP acquisitions signal multi-asset managers’ long-term conviction in the asset class, despite short-term headwinds. Global megatrends like decarbonization and digitization, as well as revolutions in energy and mobility, have spurred new infrastructure investment opportunities around the world, particularly for value-oriented investors that are willing to take on more risk.

Private markets make measured progress in DEI

Diversity, equity, and inclusion (DEI) has become an important part of the fundraising, talent, and investing landscape for private market participants. Encouragingly, incremental progress has been made in recent years, including more diverse talent being brought to entry-level positions, investing roles, and investment committees. The scope of DEI metrics provided to institutional investors during fundraising has also increased in recent years: more than half of PE firms now provide data across investing teams, portfolio company boards, and portfolio company management (versus investment team data only). 4 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023.

In 2023, McKinsey surveyed 66 global private markets firms that collectively employ more than 60,000 people for the second annual State of diversity in global private markets report. 5 “ The state of diversity in global private markets: 2023 ,” McKinsey, August 22, 2023. The research offers insight into the representation of women and ethnic and racial minorities in private investing as of year-end 2022. In this chapter, we discuss where the numbers stand and how firms can bring a more diverse set of perspectives to the table.

The statistics indicate signs of modest advancement. Overall representation of women in private markets increased two percentage points to 35 percent, and ethnic and racial minorities increased one percentage point to 30 percent (Exhibit 6). Entry-level positions have nearly reached gender parity, with female representation at 48 percent. The share of women holding C-suite roles globally increased 3 percentage points, while the share of people from ethnic and racial minorities in investment committees increased 9 percentage points. There is growing evidence that external hiring is gradually helping close the diversity gap, especially at senior levels. For example, 33 percent of external hires at the managing director level were ethnic or racial minorities, higher than their existing representation level (19 percent).

Yet, the scope of the challenge remains substantial. Women and minorities continue to be underrepresented in senior positions and investing roles. They also experience uneven rates of progress due to lower promotion and higher attrition rates, particularly at smaller firms. Firms are also navigating an increasingly polarized workplace today, with additional scrutiny and a growing number of lawsuits against corporate diversity and inclusion programs, particularly in the US, which threatens to impact the industry’s pace of progress.

Fredrik Dahlqvist is a senior partner in McKinsey’s Stockholm office; Alastair Green  is a senior partner in the Washington, DC, office, where Paul Maia and Alexandra Nee  are partners; David Quigley  is a senior partner in the New York office, where Connor Mangan is an associate partner and Aditya Sanghvi  is a senior partner; Rahel Schneider is an associate partner in the Bay Area office; John Spivey is a partner in the Charlotte office; and Brian Vickery  is a partner in the Boston office.

The authors wish to thank Jonathan Christy, Louis Dufau, Vaibhav Gujral, Graham Healy-Day, Laura Johnson, Ryan Luby, Tripp Norton, Alastair Rami, Henri Torbey, and Alex Wolkomir for their contributions

The authors would also like to thank CEM Benchmarking and the StepStone Group for their partnership in this year's report.

This article was edited by Arshiya Khullar, an editor in the Gurugram office.

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The Biden administration plans to raise tariffs on Chinese electric vehicle imports from 25 per cent to 100 per cent, as it intensifies efforts ahead of the US election to protect American industry.

The administration is expected to announce the move, and other tariffs on clean energy imports, on Tuesday, according to people familiar with the situation.

The sharp rise in the levies comes amid mounting concern that China could flood the US market with cheap EVs , threatening the American car industry. President Joe Biden has taken several actions in recent months to convince union members in swing states that he will protect jobs.

The Biden administration has for three years been reviewing the tariffs that then president Donald Trump put on imports from China as part of the trade war he launched in 2018. The new EV tariffs will be announced alongside the conclusion of the review, led by the US Trade Representative.

During a visit last month to Pennsylvania — a swing state in November’s election — Biden said he wanted the agency to triple tariffs on Chinese steel and aluminium. USTR also recently opened an investigation into unfair practices in the Chinese shipbuilding industry following a petition from the United Steelworkers union.

But the decision to increase tariffs on EVs comes as the administration becomes particularly concerned that China is moving far ahead in the green industrial sector, including in the production of solar panels.

“The Biden administration is trying to get ahead of the curve and ensure that the US car industry does not suffer the same fate as the US solar industry, which was virtually decimated by unfairly traded Chinese imports,” said Wendy Cutler, a former trade official and vice-president of the Asia Society Policy Institute. 

Cutler said Chinese carmakers had been prepared to swallow the cost of the existing tariffs in an effort to “cripple” their US competitors, but the higher tariffs would make that much harder.

“A quadrupling of this tariff rate, however, would more effectively shield US auto manufacturers from unfairly traded Chinese vehicles before they can gain a foothold in the US market,” Cutler said.

The Biden administration has poured billions of dollars into subsidies for EV and battery production in the US — an effort to spur investment in a domestic clean tech sector as part of a strategy to reindustrialise the rust-belt, slash carbon emissions and break dependence on Chinese supply chains.

In February, Biden also ordered an investigation into whether Chinese “connected vehicles” — a growing category of vehicles connected to the internet that includes EVs — posed a national security risk to the US.

The tariffs are the latest action by the administration that show how Biden is continuing to impose costs on China at the same time that Beijing and Washington pursue efforts to stabilise relations following a summit between the US president and Chinese President Xi Jinping last year.

News of the tariff increase comes after the US and China, the world’s two biggest emitters, said this week they would “ intensify ” co-operation on climate-related issues, including the rollout of green energy.

The decision to increase tariffs was first reported by Bloomberg.

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