What is marketing segmentation?

Christopher Lowe

Sep 30, 2020

The success of a business lies in offering the right product to the right consumer. To do this, marketers need to know their customers inside out. This makes market segmentation a vital tool for organizations, to study and segment consumer behavior. It can reap huge dividends. A Harvard Business School survey conducted in the US found that 95% new products fail due to ineffective marketing segmentation

Every consumer comes with unique requirements. So a one-size-fits-all marketing strategy will not work to engage users across the board. Marketing segmentation can help companies divide users into unique groups, in order to analyze their needs and communicate with them effectively. This gives a competitive advantage to organizations, as well as improve Return on Ad Spend (ROAS). 

Table of Contents
  1. What is Market Segmentation?

  2. Relationship between Market Segmentation, Target Marketing and Positioning?

  3. What Are The Types of Marketing Segmentation?

  4. How Do You Develop a Market Segmentation Strategy?

  5. How Insider Can Help in Marketing Segmentation

What is Market Segmentation?

Marketing segmentation is the process of creating customer groups based on common behavioral and consumption patterns. In fact, demographic, psychographic, behavioral, and geographic similarities cluster customers. Specifically, these four segments break into subcategories to optimize marketing strategy.

Understanding target marketing

In today’s digital world, marketing has become a precise and customer-centric process. Targeting your customers with specific advertisements that are relevant and timely for them works better, than running a generic, fancy ad campaign.

Decoding Positioning

This is a strategic exercise that outlines the USP of a product and highlights what makes it better than its competitors. This exercise is a basic tenet of every marketing story. It works at three levels: find out who the right audience is, find out their needs and craft a marketing strategy that tells them how the product is best-fit for them. The better a product’s positioning, the higher its business success.

Relationship between Market Segmentation, Target Marketing and Positioning?

Market segmentation, target marketing and positioning is a chain of events that result in a well-rounded marketing strategy. All three rely on each other to perform a perfect marketing masterstroke. Marketing segmentation categorizes a customer base according to their interests. This helps marketers target potential customers with relevant products. This, in turn, optimizes their marketing strategy. Take the market segmentation example of YouTube, which segments users and then places advertisements as per their interests. 

Once marketers have the relevant data on customers and their requirements, they can position a product in a way that ticks all the boxes for the user. This way, marketers can position a product or a service effectively and improve conversion rates on their leads.

What Are The Types of Marketing Segmentation?

There are four broad types, based on their unique attributes. Each is subdivides into smaller categories, to serve them better.

  • Demographic segmentation
  • Psychographic segmentation
  • Behavioral segmentation
  • Geographic segmentation

Demographic segmentation

It’s the simplest and most generalized segmentation category. It creates large groups of people based on their age, gender, religion, location or occupation. For example, a beauty cream is more relevant to women in the age group of 16 to 35 years, rather than men. 

Psychographic segmentation

People who think alike usually shop alike. The consumer is segmented based on their attitudes, lifestyles, interests or values. Though psychographic segmentation isn’t as easy to mark as demographic, it gives marketers deeper insights into their audience. For example, if a consumer is highly concerned about the privacy features of her smartphone, she might opt to buy an iPhone. 

Behavioral segmentation

Marketing expert Jon Miller said: “Knowing who your customers are is great. Knowing how they behave is better.” Behavioral segmentation divides customers based on what they do, using insights derived from customers’ actions. It is based on patterns of behavior displayed by customers as they interact with a company or make a purchase decision. 

Examples: Buying patterns of a user, brand interaction, website interaction, engagement on an app or website, loyalty.

Geographic Segmentation

People are categorized based on geographical boundaries, so that marketers can better serve customers in a particular area. Besides geographic units, factors like climate, cultural preferences and urban-suburban-rural divides also factor in to segment consumers. 

How do you develop a marketing segmentation strategy?

We’ve understood marketing segmentation at a theoretical level. Now let’s delve into how it works at a practical level. Here’s a step-by-step guide to how marketers can develop a market segmentation strategy:

  1. Analyze your existing customers: This will help marketers understand their customers’ behavior. Here are some marketing techniques to engage with customers:
  • Get feedback: Ask customers about their experience with your product and optimize it accordingly. 
  • Brainstorm with your sales team: Your sales team spends the most time interfacing with the customer and knows them well. Use insights from this team as a critical resource. 
  • Analyze your website analytics: There’s enough data on your website- time spent on your website, what is the bounce rate, which page did they spend maximum time on. Use these metrics to understand your customer and engagement levels.
  • Analyze audience interest: If a consumer is visiting your website to explore a particular product category, put them in the concerned psychographic segment.

2. Build a consumer segment group for your product: Once you’ve understood your consumer, you can draw a complete picture of your target user group. This will help you get a 360 degree understanding of your consumer and create the right marketing strategy to target them. 

3. Create a brand positioning for your product: When a marketer is clear about who his potential customer is, it becomes easy to position a product in a way that it addresses the user’s issues. 

4. Find the right market segment that’s a right-fit for your brand: This is where you link your product’s positioning with your consumer’s requirements. For example: What problem does your product solve? Is there a customer segment that not having its needs met? Link the two, and find your right-fit user segment.

5. Launch your campaign: The homework: check. It’s time to launch your campaign. Of course to play completely safe, you can A/B Test your campaign for optimal results. 

How Insider Can Help in Marketing Segmentation

Marketers segment their customers to gain insight into buyer personas. Even then, missteps can happen in the segmentation process. At times, segmentation gets confused with plain demographics. Or a company may not close the gaps between consumer segmentation and creating the right strategies. Marketers need to ask some critical questions: Why do you want to segment? How will the marketing campaign encompass all the information they collect about customers and the market? 

Technology can help marketers create the right customer segment groups and engage with them using the right tools. Let’s look at some of these handy tech tools:

  1. Use Predictive Segments & App Tracker to detect users who are about to uninstall and switch to a rival brand. Engage to bring them back onboard.

Let’s take an example of a finance company that has an app to sell services like loans, insurance and mutual funds. It’s a leading industry brand and its app has been downloaded by thousands of users. But competition is stiff. The company realizes that a growing number of its VIP users are uninstalling its app and switching to a rival company. How can it halt the trend? How can it convince someone who has decided to move to a competitor to stay on?

The company realizes that if its existing customers switch to a rival company, it will directly impact its Customer Lifetime Value metric. After all, it costs less to keep existing customers than to acquire new ones. 

Using Insider’s Predictive Segments and App Tracker, the finance firm is able to track the online behavior of its users, and find out if they are following a competitor’s application. Users enter a segment likely to uninstall their app in the future. Next, comes engagement with a clear target. Naturally, the company doesn’t want to lose a consumer to a rival brand at any cost. 

Image explaining using Insider’s Predictive Segments and App Tracker

Once this user segment is identified like above, the company uses Insider’s Architect to engage with the consumer through appropriate channels. If the user is opted-in to the email channel send a strong offer, if the user is not opted-in, send an app push notification which specifies new product arrivals. If the user does not take any action send him to Facebook remarketing channel. The emails highlight the ongoing relationship between the consumer and the brand and the special deals they can avail as long-term clients. The users are made to feel unique and opt to remain onboard. 

Image explaining using Insider’s Architect

2. Target users who visit a product page multiple times but don’t purchase. Help them change their mind.

A travel company offers customized holidays, hotel bookings and flight tickets through its website. During one of its audits, the company discovered that there was a large base of users who would visit its website, check out holiday destinations and airfares but did not book anything.

One thing is clear to the company: this is a user segment that is highly likely to purchase. They want to go on that holiday to Egypt or Greece but seem to have a change of mind at the last minute. The company decides to engage with these users to get them to convert. As a first step, it created a segment of consumers who visited the website more than five times in one week. 

Next, using Insider’s Architect, it started sending them web push notifications, offering steal hotel deals and the cheapest airfares available. If the user did not respond to the notifications, it was followed with emails. 

The strategy works and users land on the company website. Insider’s Onsite Smart Recommender takes over from here, showing a personalized webpage to them as per their travel interests. As the users revisit the page, Smart Recommender’s Shuffling application shuffles the categories and shows the users a new product in every visit. The personalized website experience increases conversion rates.

3. Cut down on cart abandonment by creating urgency around your product.

Thousands of shoppers go online to shop with an e-commerce retailer, who sold an array of products: from electronic items and smartphones, to shoes and clothes. The company, however, realized that there were a growing number of cart abandoners on the site. They would add an item from a specific product category and then not return to purchase for days. 

Besides hampering sales, this posed another problem: the item in the cart automatically reduced the stock numbers listed with the company. They were not able to show it to other customers.

Besides hampering sales, this posed another problem: the item in the cart automatically reduced the stock numbers listed with the company. They were not able to show it to other customers.

To convert the cart abandoners, the retailer began sending them dynamic push notifications, using Insider’s Automated App Push. When a user clicked on this notification, she landed directly on the product page of the sweatshirt that she had left forgotten in her cart.

Insider’s Social Proof took charge from here. To build urgency around the product, the tool posted a banner on the product page: “Only 10 items left in stock.”  This nudged the consumer to make the purchase before it ran out of stock. 

Image explaining Insider' Social Proof journey

4. Target new and returning users by persuading them to stay on the website, register and purchase.

Let’s take an example of an e-commerce company. It’s a new company, has just launched its website and is looking at attracting visitors to its webpage to drive sales. E-retail is a crowded marketplace and the company doesn’t want to lose the consumers who land on its webpage for the first time to check out its product line up.

Example of Insider’s Exit Intent to capture a user’s cursor movement on the website

The company used Insider’s Exit Intent to capture a user’s cursor movement on the webpage. If the tool sensed that the user was about to click out, a pop up showed up on the webpage, handing out offers like free shipping and money back guarantee. This was a clincher, as most users opted to take up the offer, after sharing their email id. This way, the startup retailer got to build its user database as well.

5. Retarget registered users by reinforcing the benefits of your product. 

As a global fitness fad gains momentum, a fitness app saw the number of registrations soar on its application. However, the high registration rates were not translating into an equally high number of active users. 

The firm drew a marketing strategy to engage users who registered for its fitness programs but did not start a session for a fortnight. It used Insider’s Mobile App Push, to send notifications to these users. Not only did the notifications talk about the various workout programs and free online classes that the company offered, but also highlighted the importance of staying fit to lead a meaningful life. The idea worked wonders with consumers.

Example of Insider’s Mobile App Push that send notifications
Example of Insider’s Mobile App Push that send notifications


Marketing segmentation helps companies target customers based on their unique characteristics and requirements. It is easier for businesses to focus their marketing energies and resources on reaching the right audiences to achieve their business goals.

Getting a segmentation strategy right can, however, take time and effort. Make it seamless with the right technology.

Christopher has a long history of driving value and creating personalized, omnichannel journeys that enhance customer experience. He's passionate about learning and development and has a keen interest in developing economies, especially ones with a lot of room for digital growth.