The process of dividing a customer base into different groups based on shared traits, market segmentation is key to ensuring that businesses know who’s most likely to buy what they’re selling — and helps them tweak that offering over time to better serve those customers. 

Market segmentation also enables other key processes, like more specific customer segmentation, and the creation of buyer personas. A clear and accurate understanding of all these processes is necessary to deliver the personalized messaging that’s now expected by 71% of U.S. consumers, according to a 2021 report by McKinsey & Company.   

“Companies that grow faster drive 40 percent more of their revenue from personalization than their slower-growing counterparts,” the report added.

Demographic customer segmentation groups people by age, gender identification, income, or other basic identifiers — for instance, Nike’s decision to more actively pursue women. A company that sells toys is better advised to buy ad space during a children’s show than a late-night talk show. And property management companies will seek to target single renters rather than married couples looking to purchase their first home.  

Companies that may seem limited to one demographic can often open up their segmentation opportunities with some creative thinking. For example, the traditional target market for Victoria's Secret may be women, but they’ve also been successfully marketing to men over the past decade, with advertising directed at boyfriends and husbands. 

Geographic segmentation is based on location, grouping people according to where they live, work, worship or vacation. McDonald’s is a prime example of this type of market segmentation. With each new country it enters, the company is careful to adapt its distinctive style of American fast food to local ingredients and expectations, as well as cultural norms and preferences. 

Geographic market segmentation can also be used to break into new local markets. For instance, Iowa-based supermarket chain Hy-Vee is currently pursuing an ambitious expansion strategy stretching from “the Canadian border (Minnesota) to the Gulf Coast (Alabama).” To be successful, though, it will have to navigate the existing competitive landscape and local pricing expectations for each new location — a variable that differs widely across different states and even counties. 

Behavioral market segmentation examples involve companies that successfully target customers based on past actions. Thanks to online commerce, the ability to gather this kind of data has never been more robust. Simply by utilizing data generated from their own transactions, companies can more effectively connect with everyone from loyal customers to bargain seekers. 

This kind of segmentation can improve the quality of new leads, and enable businesses to maximize relationships with their most valuable customers — particularly in the form of rewards and bonus programs. For example, outdoor gear and clothing retailer REI offers Co-Op, a socially conscious membership program designed to appeal to consumers who value the outdoors and who want to support measures to protect the environment. 

As opposed to demographic information that’s objective by nature, psychographic segmentation examples use subjective data to group people by their memberships and affiliations, lifestyle interests, religious sentiments and even dedication to sports teams — for example, the fanatics of Manchester United, Real Madrid, New York Yankees or Los Angeles Lakers who can be found around the world. 

Writing at the Harvard Business Review, Gretchen Gavett points to a psychographic market segmentation example used by a pregnancy test provider to divide customers into “the hopefuls and the fearfuls.” By addressing the most common attitudes towards a potential pregnancy with different product names, package designs, and even aisle placement, the company maximized market share for a single, specific product.

Examples of technographic market segmentation include companies that build campaigns around the specific technological habits, preferences and capabilities of their existing (or desired) customer base. This often takes the form of digital marketing, such as special incentives offered to customers who shop exclusively on the app, who join a social media group, or who sign up for an email newsletter. 

Airbnb has used technographic market segmentation, and not only to target people who are seeking an alternative to hotels — but also those who are doing so online. As such, they’re competing more with other online travel hubs like Expedia and Hotels.com than with more traditional bed-and-breakfast establishments. They’ve also leveraged another form of tech segmentation by investing in TV ads.  

What examples of market segmentation work best for your company? 

As with most aspects of branding and marketing, the specific solution that works best for an individual business will depend on its unique combination of market share, resources and long-term goals. In other words, market segmentation examples are best taken into consideration as part of a larger strategy. 

A good way to illustrate this is with a closer look at some key multinational brands: Coca-Cola and Tesco 

Tesco is a pioneer in multi-market segmentation, known for its success in putting demographic data and patterns to work engaging customers. Based in the United Kingdom but currently in multinational expansion mode, the retail giant sells the gamut of consumer goods, from food and clothing to household goods and electronics, and even financial services. 

Yet most of the segments that Tesco targets are highly competitive, and only getting more so — for instance, the rise in recent years of ALDI and Lidl as low-cost alternatives. As such, it has a lot of competition. And it’s met that challenge by segmenting its stores in a number of ways — Tesco Express in dense urban areas, and Tesco Metro and Tesco Homeplus in the suburbs, for example. 

In addition, Tesco Bank embraces customers looking for convenient financial transactions and basic guidance, while the Clubcard program brings it all together in an inter-related rewards program to enhance customer loyalty. And the company is constantly developing new campaigns to attract and reward specific customers, particularly in ways that cross-promote its different service lines.