Market segmentation

What it means

Market segmentation is dividing a whole market into smaller groups of customers with similar needs, behaviour or characteristics who respond similarly to marketing stimuli. The company then need not address everyone the same way but can choose the segments where it has the best chance of success and tailor its offer, price, channels and messaging to them.

For consumers the market is divided, for example, by age, income, location, lifestyle or buying behaviour. For business customers, the B2B segment, criteria include company size, industry, region, legal form, headcount, process maturity or how they buy. Several criteria are often combined.

Segmentation is the first step of the trio of segmentation, targeting and positioning. After dividing the market, the company assesses the size, profitability and accessibility of segments, chooses target groups and formulates a value proposition for each. A buyer persona is often created to give a concrete picture of the customer in a segment.

How it works in practice

An accounting firm might divide its market into sole traders on flat-rate expenses, small s. r. o. companies without staff, growing companies with employees, and foreign entrepreneurs setting up in Slovakia. Each segment has different needs, different price sensitivity and looks for information in different places. Services, price lists and website content differ accordingly.

In online marketing, segmentation drives the set-up of PPC campaigns, social media targeting and email. Results are measured by conversion rate and customer value per segment. It often turns out that a smaller segment brings most of the profit and budget should shift towards it.

Segmenting existing customers uses data from the CRM, invoicing and analytics, such as purchase frequency, average order or industry. If segmentation is done automatically at the level of individuals, it is profiling under the GDPR and data protection rules must be followed.

What to watch out for

The most common mistake is segmentation that is too broad or too fine. A segment like all small and medium-sized companies says nothing about needs and cannot be targeted. Dozens of micro-segments, on the other hand, cannot be served differently. A good segment is measurable, large enough, reachable and internally similar.

Segmentation is not a one-off task. Markets change, new competitors go after the same groups and customer needs shift. We recommend checking once a year whether the chosen segments still deliver the expected results and whether new opportunities have appeared.