Segmentation is one of the most misunderstood parts of marketing strategy. Too often, it becomes an exercise in naming customer groups, building neat personas and producing colourful charts that do very little to help marketers understand the make-up of the market they are targeting.
When segmentation is done correctly, it does something far more useful. It helps marketers identify meaningful differences within the market, group similar consumers or businesses into distinct segments, understand the relative size and value of each, and make better decisions about where to play and how to win - the core function of strategy.
The process is straightforward in principle.
First, define the market. This is the broader space in which your organisation will compete and position its product or service. From there, you can identify the subset of customers or businesses you are best placed to serve. Getting this definition right sets the boundaries for the segmentation that follows. Take The MiniMBA in Marketing, for example. Its potential market could be defined in several ways: all marketers, marketers in specific geographies, marketers at a certain level of seniority, or marketers with particular education or capability needs.
Once the market is defined, research is used to identify the variables that matter within it. These should be differences significant enough to shape customer behaviour, commercial value or strategic opportunity, and therefore give your organisation a credible basis for targeting one group over another. The aim is to group customers into segments that are meaningfully different from one another.
A strong segmentation process gives marketers a clear view of the different groups that exist within a market. The next step is targeting: assessing which of those segments are large enough, valuable enough and reachable enough to pursue. It is this progression from segmentation to targeting that The MiniMBA in Marketing explores across its Segmentation and Targeting modules.
Three examples of great segmentation
Skechers is a useful example. On the surface, it sells footwear. But its market is not one big mass of “people who wear shoes”. The business serves different needs across lifestyles and performance. Its own reporting describes products for men, women and kids across multiple price points, with comfort technology at the centre of the offer. More importantly, its product portfolio reflects distinct needs: lifestyle footwear for fashion, athleisure and everyday comfort; performance shoes for sports such as football, basketball, golf, running, walking, pickleball and cricket; kids’ shoes built around colour, comfort and growing feet; and work shoes for occupational needs such as slip resistance, safety toes and durability.
Tesco Clubcard provides another useful example. Rather than treating shoppers as one mass, Tesco used behavioural data to understand different buying patterns, category preferences and levels of loyalty. The value was not simply in knowing that different customers existed. It came from using those differences to shape promotions, offers and retention activity. In other words, segmentation became operational as well as strategic.
LEGO offers a different lesson. For years, many people would have framed the market as children and parents buying toys. But LEGO’s adult fans, collectors and display-led buyers demonstrate another kind of demand. These customers do not buy in the same way as a parent picking up a birthday present. They buy for nostalgia, creativity, fandom and personal enjoyment. That opens the door to different products, price points, partnerships and retail experiences.
Be selective with the data you use
Marketers must be careful with the data they choose to segment a market. Just because data is easily accessible does not mean it is the right data, or valuable enough to support robust strategic decisions. Demographic segmentation is a great example of this. Demographics are easy to collect, but they are often poor explanations of behaviour. Two people of the same age, income and postcode can want completely different things. One may be price-sensitive and functional. Another may be emotionally invested and willing to pay a premium.
Take the famous milkshake example popularised by Clayton Christensen. A fast-food restaurant chain wanted to understand why people bought milkshakes. A lazy segmentation might have looked at age, income or family status. But observation showed something more useful. Many customers were buying milkshakes early in the morning because they had a long commute and wanted something filling, convenient and slow to consume. The real segment was not “men aged 25-45”. It was “commuters hiring a milkshake to make the journey more bearable”.
That kind of insight changes the marketing response. You might alter the product texture, packaging, speed of service, point-of-sale messaging and location strategy. That is segmentation doing its job.
A useful segmentation should pass four tests: The segments should be distinct, measurable, commercially valuable and actionable. If you cannot reach the segment, tailor an offer to it, or make different decisions because of it, the segmentation is not yet useful.
A strong segmentation process gives a business the basis for deciding which customers matter most, what they need, how they behave, and what the brand must do differently to win them. It is not a labelling exercise. It is the foundation for targeting, positioning and the full marketing mix.
Get segmentation right, and strategy becomes clearer. Get it wrong, and the rest of the marketing plan can veer off course quickly, often forcing you back to the research and segmentation work that should have guided those decisions in the first place.