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

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

by Molly Winik , Senior Digital Research & eCommerce Specialist 5 Min.
October 4, 2021 | Updated June 22, 2022

You wouldn’t walk into a room full of people with lactose intolerance and try to sell them ice cream, right? So why would you promote your product without understanding who’s actually buying it?

Does it matter if your target customers are male or female? How does location impact their need for your product? Who are your competitors successfully targeting?

Any business can segment their market to get an understanding of their target audience’s personas and their customers’ needs, preferences, and expectations. To find the right market segmentation strategy, you’ll need digital research intelligence to analyze the size and diversity of your market and audience, the number of segments, what they look like, and more.  

The process of market segmentation involves three phases:

  1. Research
  2. Analysis
  3. Implementation.

In this article, we’ll help you create segments that make sense for your business and complement your research strategy. You’ll learn how to do it from scratch to optimization.

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 to keep your segments precise, you need robust data analytics. 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 requires a deep understanding of the total addressable market and your target audience.  Splitting the market into sub-groups makes it more approachable as a whole and helps you create more targeted and curated marketing materials for different audiences.

market segmentation definition

How can markets be segmented? Markets aren’t merely defined by audience geography or demographics, even though these are relevant. You may want to add behavioral segmentation to identify target markets more accurately or add psychographic criteria to determine your audience’s interests and values. You’ll need to correlate between 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. Eventually, it will affect your business on a larger scale.

7 steps to 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 kind of 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 have the opportunity to win back traffic share. Take it even 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 a variety of different 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.

the 7 steps of market segmentation

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:

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

Compare and identify gaps, groups, and opportunities

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: 

  1. Do a separate conversion analysis to discover divergence and where your funnel may be leaking. 
  2. Evaluate engagement metrics for each segment to help you refine your segmented marketing strategy based on audience preference or specific needs. One group might be more active on certain marketing channels than others.
  3. 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 be working well for other companies. 
  4. Use a benchmarking tool to get a granular view of how your site performs 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.

similarweb audience demographics

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 analysis that’s behind every successful market segmentation. Try our platform for free today and see our advanced data analytics in action.  

level up your market research with similarweb


What are the 4 types of market segmentation?

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

What are the steps of market segmentation?

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


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