How to identify the best market segments and target audience
- Alberto Carniel
- Nov 26, 2019
- 8 min read
Updated: Dec 29, 2025
How can you serve the best market segment for your business model?
What does market segmentation mean, and how can you do it?
How can you increase sales with market segmentation?
Keep reading to discover everything you need to know to identify the best market segment and target audience.
Table of contents
WHAT MARKET SEGMENTATION MEANS
From my professional experience, trying to sell a product or service without a target population in mind is one of the greatest mistakes a small business entrepreneur can make.
Companies can’t serve effectively large, broad, or diverse markets.
Why?
Because every group of consumers has different needs and wants.
Understanding consumers’ behavior is fundamental to develop a solid #MarketingPlan.
Managers should figure out what makes a market segment different and unique.
Kotler and Keller state:
“Identifying and satisfying the right market segments is often the key to marketing success.”
Defining a market segment
A market segment is a group of consumers who share similar needs and wants.
Accordingly, companies should focus on the industry where they have the greatest chance of satisfying customers.
A good market segment should be…
Identifiable (or differentiable).
It should be possible to describe a segment using descriptive characteristics (geographic, demographic, psychographic) or behavioral considerations (consumer responses to benefits, usage occasions, or brands).
Plus: applying a distinct marketing mix to that segment should lead to different outcomes.
Accessible.
Example: you are an Iranian manufacturer of blank tapes and CDs and want to export to the US.
In this case, the market wouldn’t be accessible: CBP (US Customs and Border Protection) banned blank tapes and CDs from Iran and other countries like Cuba, Burma and Sudan (source: CBP – Merchandise from embargoed countries; info retrieved on 11/20/2019).
Substantial.
Large enough to allow companies to make profits.
Measurable.
Companies must be able to estimate segment size, purchasing power, and understand their market share and positioning.
Also worth mentioning: Michael Eugene Porter (Harvard Business School) created the Five Forces framework to understand the long-term attractiveness of a market or industry.
Market segmentation benefits and drawbacks
Segmentation helps companies discover business opportunities and better understand their target audience.
It also allows them to tailor the marketing mix.
According to a theory elaborated by Jerome McCarthy in 1960, the 7Ps of the marketing mix are:
Product
Price
Placement
Promotion
People
Process
Physical Evidence
On the other hand, segmentation increases marketing costs.
Continued personalization can lead to a proliferation of products and cause bottlenecks.
And there’s another modern constraint: privacy sensitivity.
The more a company personalizes its product or service, the more data it needs to shape consumers’ traits and preferences—data that customers may not want to share.
MARKET SEGMENTATION CRITERIA
As I mentioned before, some researchers define segments using descriptive characteristics, while others focus on behavioral traits.
Now it’s time to analyze each criterion of market segmentation.
Geographical criterion
Geographic segmentation targets consumers according to specific areas or territories:
Country
Region
City/suburbs
Climate
A popular strategy here is grassroots marketing, where companies target their message to small groups of people and expect them to spread it to a larger audience.
It starts from the ground up and is usually cost-effective: focusing on smaller-scale campaigns helps concentrate efforts and contain budget.
Mastering geographic segmentation is fundamental for local businesses.
But… not all that glitters is gold.
A drawback is that local marketing can increase manufacturing costs, create logistical problems, and reduce economies of scale.
Also, brand perception can be compromised if different communities receive different product/service and messaging.
That’s the trade-off marketers have to play with.
Demographic criterion
Demographic segmentation is usually easy to perform and aggregates people who often have similar needs and wants.
It’s also useful to understand which media to use to reach those people.
Examples of demographic variables:
Age
Gender
Job position
Employment status
Income
Family
Social class
Wants and abilities develop with age, so age and life-cycle are critical.
Toothpaste firms usually offer three main product lines to target kids, adults, and the elderly.
Pampers divided its market into:
Prenatal
Newborn babies (0–5 months)
Babies (6–12 months)
Toddlers (13–23 months)
Preschoolers (over 24 months)
Age and life-cycle can be tricky though.
Example:
Honda launched a campaign aimed at younger generations… but the people who actually responded were baby boomers.
Another factor is life-stage, which represents people’s major concern at a certain time.
Events like divorce, second marriage, taking care of an older relative, deciding to live with a roommate, buying a new home, and so on are great opportunities for marketers—because they can help customers cope with those concerns.
Gender also matters, since men and women can have different attitudes and behaviors.
Income is widely used, but it rarely reflects the best customer for a given product.
For instance, workmen were among the first to buy color TV sets because they were still cheaper than going to the cinema or restaurants.
That said, income segmentation can help companies develop different product lines with different positioning for each bracket.
Psychographic criterion
People in the same demographic segment can still have very different psychographic traits.
That’s why psychographics segment individuals based on:
Personality
Aptitude
Values
Lifestyle
One of the most powerful classification systems based on psychographics is Strategic Business Insight’s (SBI) VALS framework.
After responding to a questionnaire, people are classified into eight main groups.
Discover your VALS type by taking the survey on SBI’s website!
VALS tests vary according to culture, so the US VALS may not match your country—search for the version that fits your market.
VALS segmentation system by Strategic Business Insights
The VALS framework has two dimensions:
Consumer motivation (horizontal)
Consumer resources (vertical)
Individuals are inspired by one of three primary motivations:
Ideals (knowledge and principles)
Achievement (showing success to peers)
Self-expression (social/physical activity, variety, risk)
People’s resources are determined by demographics and personality traits such as: energy, self-confidence, intellectualism, novelty seeking, innovativeness, impulsiveness, leadership, vanity.
Different levels of resources can increase or decrease motivation.
The four groups with higher resources are:
Innovators: refined, active, confident people who lead. Sophisticated tastes; value high-end niche products/services. First to buy regardless of mainstream trends.
Thinkers: mature, fulfilled, contemplative people inspired by values, order, knowledge, responsibility. Prefer durable and functional products.
Achievers: goal-oriented individuals focused on career and family. Prefer upscale products to signal success. Buy when products become trendy.
Experiencers: young, passionate, spontaneous people who seek variety and adventure. Spend on fashion, entertainment, and social activities.
The four groups with lower resources are:
Believers: traditional people with strong beliefs. Prefer local products; loyal to familiar brands.
Strivers: fashionable, outgoing consumers with limited financial resources. Prefer trendy imitations of high-end products.
Makers: practical, self-sustaining people who like to work with their hands. Search for local products with functional purpose.
Survivors: elderly, resistant to change, loyal to favorite firms.
Behavioral criterion
People have different attitudes and expectations from products or services.
Behavioral segmentation divides consumers according to:
Use
Loyalty
Buyer readiness
A common behavioral approach groups consumers by the benefits they seek from a product.
For example:
Discounts
Purchasing time
A specific service
Another behavioral segmentation angle is the role played by a person during the buying decision.
There are five main roles:
Initiator
Influencer
Decider
Buyer
User
Example:
Janet is organizing the birthday party for her son, Alex.
She tells her husband to buy a video-game as a gift (initiator).
Her husband interviews Alex’s friends to learn what’s trending (influencers).
After that, the husband buys the video-game (buyer).
After the birthday party, Janet discovers the game is so perfect that now Alex’s brother plays with it too (users).
Buyer readiness is especially interesting for digital marketers because it connects directly to the marketing funnel.
Nowadays, almost all digital marketing activities consider consumers’ awareness stages.
If we combine different behavioral segmentation types, we get a more comprehensive view of the target market.
Situational criterion
Situational segmentation identifies groups of customers based on the occasion of product/service usage.
It marks a specific usage time during a consumer’s life.
For instance, the occasion that triggers air travel is often connected to:
Business
Vacation
Family
Situational segmentation helps expand product usage.
Its key points are:
Time dedicated to the purchase
Social circumstances
Physical circumstances
Reasons for buying
SEGMENTATION STRATEGIES
While evaluating and selecting market segments, marketers should consider:
Overall industry attractiveness (Porter’s Five Forces)
Company objectives and assets
This helps identify the best segment and target.
Full market coverage (undifferentiated segmentation strategy)
This approach applies a single marketing mix to the entire market.
In mass marketing, a company goes after the whole market with one offer, ignoring segment differences.
This requires huge capital, and usually only large corporations can do it (Microsoft, General Motors, Coca-Cola…).
A full market coverage approach is appropriate when:
Consumers’ preferences are not very relevant, and
The industry doesn’t have natural segments
It leads to standardization, which can mean lower costs or higher margins.
However, the proliferation of marketing communication channels makes it difficult—and expensive—to reach a mass audience.
Multiple segments specialization (differentiated segmentation strategy)
A business can specialize in a product or service and target different segments that share some traits.
Example: smartphone manufacturers don’t target only people who need to communicate.
They also target photography enthusiasts and music lovers (powerful cameras, speakers, etc.).
Companies can also specialize in a market by serving multiple needs of a specific group.
This approach helps diversify risk.
That’s why it’s called differentiated segmentation strategy: each segment gets its own marketing mix.
Single segment concentration (concentrated segmentation strategy)
With this model, organizations target a single market segment and become experts in that industry.
They apply one marketing mix to one segment: concentrated segmentation strategy.
A company acquires deep knowledge of consumers’ needs and can more easily build a strong market presence.
Marketers can also divide the industry into sub-segments and attack a specific niche.
Individual marketing (one-to-one marketing)
Thanks to AI and Machine Learning, it’s possible to create personalized purchasing experiences.
Example: HubSpot users can create tailored web pages according to the specific prospect visiting the website at a certain time.
Companies can also create tools, platforms, or interfaces that allow customers to personalize the product or service themselves.
Still, customization can be difficult for complex products/services and may increase the price beyond what customers are willing to pay.
Sometimes digital marketers don’t really understand what personalization means.
So I want to close this section with a quote from Dan Jack, Head of Email and SMS at British Gas:
“Personalization — it is not about first/last name. It’s about relevant content.”
CONCLUSIONS
Market segmentation is fundamental to increase sales and achieve marketing objectives.
It directs efforts and assets toward the relevant target audience.
What segmentation strategy is your company adopting?
What challenges did you have to overcome to compete in your industry?
I can’t wait to read your experience in the comments below.
References
Kotler, Philip; Keller, Kevin Lane. Marketing Management. Pearson.
Porter, Michael E. Competitive Strategy: Techniques for Analyzing Industries and Competitors. Free Press.
McCarthy, E. Jerome. Basic Marketing: A Managerial Approach. Richard D. Irwin, 1960.
U.S. Customs and Border Protection (CBP). Merchandise from embargoed countries (information retrieved on 11/20/2019).
Strategic Business Insights (SBI). VALS™ Framework and Survey.
HubSpot. Personalization / Smart Content features (product functionality reference).
Dan Jack (British Gas). Quote as cited in the article: “Personalization — it is not about first/last name. It’s about relevant content.”
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