Market Segmentation: The Key to Reaching—and Resonating With—Your Ideal Customers
Discerning Shoppers On The Rise: Consumers are becoming more selective in their purchases, prompting online retailers to adapt and meet these higher expectations.
Retailers, Keep Up or Get Left Behind: As consumer standards increase, businesses must innovate and enhance their online shopping experiences to remain competitive.
Online Sales—More Than Just Transactions: Retailers need to focus on customer satisfaction by providing quality, convenience, and unique experiences in the shopping journey.
Creating Connections Beyond the Checkout: Establishing a genuine connection with customers can lead to lasting loyalty and repeat business.
Innovation Is Key in Retail Evolution: To stay relevant, online retailers should continually explore new technologies and strategies to improve customer interactions and services.
Shoppers are becoming more discerning, which means online retailers like you need to keep pace.
Even the young ones prove they can look beyond surface-level branding. Seventy-eight percent of 18 to 26-year-old respondents agreed that businesses struggle to engage their target audience due to a lack of relevance, while 56% attribute it to a lack of authenticity.
So here’s something for you to ponder on:
You're positioning your products as solutions to a variety of customer pain points—but are you able to connect with them effectively?
Meeting their needs is difficult without a solid understanding of their preferences, expectations, and motivations.
This is where having an effective market segmentation strategy makes a difference.
Rather than viewing your audience as a homogeneous group, segmentation allows you to reach them in ways that truly matter.
It’s what successful brands like Apple and Amazon do so well.
They let their strategies shape their business decisions, allowing them to create products, campaigns, content, and experiences relevant to their target market.
In this article, we’ll cover the benefits of market segmentation, explore its types, and share actionable steps to implement it effectively, along with top ecommerce marketing tools to support your strategy.
What is Market Segmentation?
Market segmentation is the process of splitting your total addressable market (TAM) into groups that display similar attributes, needs, or behaviors.
It’s a foundational step that enhances your entire ecommerce strategy, informing product development, pricing, marketing, and the customer experience you aim to provide.
Let’s say an ecommerce brand, TammyBooster, specializes in a variety of gut health supplements catering to a broad audience.
While their diverse product lineup expands market reach, it also means they need to understand each product’s unique customer potential.
To achieve this, they’ll need to dig into each segment to uncover what these potential customers expect, need, prefer, and require from the brand to maximize relevance and impact.
This is where market segmentation comes into play.
The Benefits of Market Segmentation in Ecommerce
If done well, market segmentation can have a positive impact on a business from many angles.
It helps with the allocation of marketing resources, pointing product development in a more beneficial direction, and can lay the path for maximum value for all customers through targeted and personalized marketing and better pricing.
These developments in various ecommerce operations can lead to:
Improve marketing ROI
Mass marketing can spread awareness, but targeted marketing pays off more.
According to McKinsey, targeted online campaigns could boost overall conversion rates by up to 30%.
Case in point:
When ecommerce brand Beltbuy targeted their corporate customers with specific products and campaigns, they saw an increase in online conversion rate of 25% and sales by 30%.
Enhance customer profitability
Analyzing market segments helps you target customers that have higher potential.
Think: you can upsell to a certain customer segment known to bundle items and wean out problematic groups of customers such as those with high product return rates.
Case in point:
Jewelry recommerce platform Alloy targeted clients interested in high-value appraisals, which resulted in 30% repeat business.
Lower acquisition costs
Knowing how different market segments behave can help you target the right audience, especially those with high retention rates.
Case in point:
When sustainable B2B ecommerce brand Mercha set their sights on millennial and Gen-Z-led businesses, (which are more inclined towards ethical consumerism), their customer base increased by 40%.
Reveal growth opportunities
Knowing how to implement marketing segmentation well helps you understand your product portfolio better and how to expand it.
Case in point:
After analyzing customer preferences, Home Healthcare Shoppe experienced a 25% increase in sales after launching a product that caters to the demands of their younger demographic.
Reveal niche markets
Market segmentation implementation can filter out the strongest groups of customers your product has an impact on.
You can tap into it or choose to shift your strategy to improve your business.
Case in point:
H2 Catering Equipment moved from working with major chains to also working with small businesses. When they altered their messaging and products to fit small cafés, they saw a 25% increase in conversion rates.
Increased brand loyalty and differentiation
It costs more to get a new customer on board than it does to bring existing customers back, so finding your loyal customers (even the idle ones) is an easy sell.
Market segmentation offers you insights into who they are and what they respond to.
Case in point:
When Southwestern Rugs Depot learned how to implement market segmentation, they discovered that certain products (American-made Southwestern and Native American designs) attract passionate customers.
This led to repeat purchases, with returning customers making up a significant portion of their sales.
5 Major Types of Market Segmentation
If you’ve ever played darts—or any target games or sports—you’ll know that throwing blindly won’t get you anywhere.
Think of your ecommerce business the same way: to create effective, targeted campaigns, you need a clear line of sight.
Market segmentation helps you do that by grouping prospective buyers into well-defined subsets to ensure your marketing efforts consistently hit the target.
But you still need to learn how to leverage this technique well to get results.
To help you get started, I’ll walk you through the different types of market segmentation and show how popular brands are putting them into practice.
Draw insights from these real-life segmentation examples and implement them in your business where possible.
1. Demographic segmentation
Demographic segmentation sorts your target customers by basic attributes—age, gender, income, education, marital status, and/or family size.
The goal is to maximize market potential for each demographic.
Specific segments have varying expectations based on their life stage or circumstances. By targeting the right crowd, you’ll fill your sales funnel with customers who are genuinely interested in what you offer.
Thirty-three percent of brands employ this segmentation approach to separate markets and create tailored customer experiences.
Take Coca-Cola’s product portfolio, which they’ve made available in varying sizes and price points to cater to their diverse audience:
- Smaller, more affordable 12-ounce cans or 16.9-ounce bottles for students and anyone on-the-go
- Larger packaging options, such as 2-liter bottles and multipack cans for middle-class families, and party packs for big events and social gatherings
- Minute Maid, another Coca-Cola brand, comes in tiny juice boxes for school kids and larger containers for families.
Demographic data helps you position your brand, especially your products, to connect with your niche markets. This will save you time, money, and effort from chasing down uninterested prospects.
2. Psychographic segmentation
Psychographic segmentation explores consumer emotions and psychology through their interests, values, lifestyles, and motivations.
Consider this: 90% of shoppers notice targeted ads while shopping online. Of them, 96% made a purchase.
The more tailored your marketing strategy, the more likely they’ll engage with your brand. And it’s not only through targeted ads.
Motorcycle company Harley-Davidson knows how to tap into their customers’ passions for exploration and community.
It shows through the exclusive experiences, memberships, and beginner motorcycle courses they offer:
These initiatives are well-received by their target market: riders, adventurers, and open-road enthusiasts.
You can tell from their reactions to Harley-Davidson’s social media announcements, which are always flooded with excitement, creating a magnetic pull for new and old prospects:
This type of segmentation fosters meaningful differentiation that builds brand loyalty. It turns faceless demographics into real individuals with unique identities.
3. Behavioral segmentation
Behavioral segmentation analyzes a person’s purchasing habits and overall engagement across platforms.
Brands commonly use attributes like product purchase history (35%) and duration of customer relationships (31%) to pull this off.
Market segmentation uses this information to meet customers where they are, provide what they need, and reward their actions.
David’s Tea, a premium tea brand, uses consumer behavior like first-time and repeat purchasing intent to offer targeted discounts and perks.
For example: They entice new web visitors with a 15% off voucher on their first order, only a few moments after scrolling through their homepage.
On the other hand, they give frequent shoppers or “steepers” 1 point for every $1 spent to unlock perks and tiered rewards.
This targeted strategy encourages repeat purchases while turning a simple purchase into a more engaging and rewarding experience.
Every consumer displays a different behavior and brand engagement level throughout their customer journey.
It’s your responsibility to personalize your marketing strategies to meet the distinct needs of each specific group.
4. Geographic segmentation
Geographic market segmentation tailors products and marketing strategies based on a specific region, climate, population density, or local culture.
The objective is to not only connect with audiences but also optimize offerings and distribution methods to meet local preferences.
Where your target market lives shapes their preferences, and you don’t want to push products that don’t fit local needs or trends.
Furniture giant IKEA’s ecommerce website exemplifies what region-specific marketing does well. For temperate countries, cozy fall-themed furniture and decor fill the homepage.
Take a look at the homepage of the IKEA US website, which could inspire American shoppers to give their homes a seasonal makeover.
For tropical and equatorial countries, IKEA uses a different approach.
In the Philippines, for instance, IKEA actively promotes Christmas merchandise early. Locals begin celebrating the festive season as early as September, so this campaign motivates shoppers to kickstart their holiday preparations.
Having geographic foresight in your focus groups can be helpful if you have future product development and market expansion plans.
You can allocate resources to untapped, high-potential segments for better ROI.
5. Firmographic segmentation
Firmographic segmentation is a B2B strategy that groups clients by business attributes for targeted marketing.
These include company size, industry, revenue, number of employees, legal status, and location—think demographic data but for companies.
Sixty-four percent of B2B businesses intend to personalize customer journeys for brand expansion and growth, but 47% report sales and marketing alignment challenges.
Firmographic data can help bridge the gap to provide rich insights for tailoring messaging and outreach.
Chocomize uses industry, company size, and use cases to target client groups with different offerings:
- Industry: Custom chocolate bars tailored for marketing, sales, and hospitality sectors to boost brand visibility
- Company size: Diverse catalog from “Promotional Gifts Under $5” for small businesses to premium centerpiece sets around $50 for larger corporations
- Use cases: Specific products for office treats, trade show gifts, customer appreciation gifts, business holiday gifts, and company anniversary gifts
B2B ecommerce brands can use firmographic segmentation to tweak their product offerings and messaging to meet each client segment’s pain points.
Whether demographic, psychographic, behavioral, geographic, or firmographic, your market segmentation approach can impact the quality of your connection with your customer base.
These market segmentation types and examples should help you determine your strategy for your business,
Now that we have the wheels turning, it’s time to learn how to turn these ideas into reality.
Up next, we’ll talk about practical market segmentation strategies to enhance your marketing endeavors.
How to Implement a Market Segmentation Strategy in 5 Steps
Forty-one percent of businesses that tailor offerings to specific customer attributes have seen revenue growth exceeding 10% in one year.
That said, implementing this strategy calls for time and resource commitment—which means you need to proceed carefully.
In this section, I’ll talk about five simple steps to implementing a market segmentation strategy, as well as the best marketing software to use for this purpose.
I’ll also bring back TammyBooster, so you can picture the process from an ecommerce brand’s perspective.
Step 1: Define your target market
Market research (and some statistics) is your best friend when defining your target market. It’ll help you understand potential customers’ specific preferences and pain points.
Analyze trends from surveys or reviews to see what they appreciate or find lacking. Or, look for unmet needs or weaknesses in your competitors’ offerings.
You’ll also need to look at your Total Addressable Market (TAM), which represents your full revenue potential if you were to serve every possible customer in your market.
Thorough market research equips you with the data necessary—target market size, number of potential customers, and industry growth trends—to calculate a realistic TAM.
Let’s say, TammyBooster doesn't want to risk inefficiencies and errors, so they adopted Salesforce CRM to spot and analyze trends manual data analysis might have missed.
The tools provided them with the insights needed to calculate TAM and identify potential revenue opportunities within the gut health supplement industry.
They can choose from the following approaches to do this:
1. Top-down approach
The top-down approach starts with broad industry data and narrows it down to your specific market to calculate TAM.
Suppose industry papers report the global market for gut health supplements is US$51.65 billion.
TammyBooster only caters to North America, which, let’s say, represents about 35% of this market.
Total Addressable Market = Total Market Size × Target Market Share
TAM = $51.65 billion × 0.35
TAM = $18.08 billion
2. Bottom-up approach
In the bottom-up method, you begin with specific, granular data from your business. You then scale it up to estimate the overall market size.
Companies find this method more reliable than the top-down approach, since the use of in-house data means the resulting TAM is specific to the organization.
TammyBooster’s average sales per customer are around $150. So, let’s imagine that data shows there are five million potential customers in North America willing to buy gut health supplements.
Total Addressable Market = Average Revenue per Customer × Total Potential Customers
TAM = $150 × 5,000,000
TAM = $750 million
3. Value-theory approach
The value-theory approach estimates how much value a product provides to customers and how many are willing to pay for that value.
It’s the best formula to use when you’re introducing an innovative product or a new category in the market.
TammyBooster’s new Microbiome Magic blend offers rapid bloating relief that alternative supplements don’t.
If surveys say that 1 million potential buyers would gladly pay $50 for this niche product, then using this formula we can calculate the TAM:
Total Addressable Market = Number of Potential Customers × Willingness to Pay
TAM = 1,000,000 × $50
TAM = $50 million
Since the market segmentation process starts with having a broad perspective of the market through data collection, you’ll need a unified tool to pull data from multiple channels.
CRM software can simplify this first step by consolidating sales, marketing, and customer service interactions.
Tools like CRM Creatio can help brands create detailed customer profiles through data enrichment from multiple channels.
It has helped Russian ecomm brand Askona gather customer data from their disconnected systems (online store, offline shops, and an ERP system) by creating a unified digital environment.
The result: more cohesive customer interactions and insights, increasing sales conversion by 29%.
Consolidate customer data, spot patterns, and get a better figure of your TAM without guesswork with our top 10 picks for CRM tools.
Step 2: Choose your segmentation variables
So, you’ve figured out the size of the entire pie you can take in. Now, the next step is to slice it up and see which parts are the most profitable for your brand.
Divide your broader market into smaller, more manageable segments by setting your objectives.
Are you looking to increase customer retention, boost sales for new products, or understand customers better? Your market segments must align with these objectives.
You can utilize a combination of tools to gather data and find your target segments.
How TammyBooster used surveys for better targeting
TammyBooster plans to double their hormonal balance supplement Tummy Tune-Up’s conversion rates by targeting the right customer segments with tailored promotions and marketing messages.
To identify segmentation variables, they deployed Salesforce Surveys and surveyed people who have shown interest in health supplements.
They offered free 20% off vouchers to encourage more responses.
Salesforce aggregated and analyzed the survey data for common themes within the responses.
They found that many female respondents reported struggling with gut health and hormonal issues like irregular menstrual cycles, mood swings, and weight fluctuations.
Based on this, they created criteria for segmentation variables:
- Demographic variables: Women aged 25-40 reported the highest incidence of gut health and hormonal issues
- Psychographic variables: Health-conscious individuals who invest in wellness and prefer natural remedies
- Behavioral variables: Shoppers have previously purchased gut health products or shown interest in similar supplements
- Geographic variables: Urban areas where wellness trends are more popular
TammyBooster can now realign their marketing strategies to match these preferences and double Tummy Tune-Up’s market share.
Step 3: Create personas and marketing messaging
Customer personas are your target market’s fictional representations. They’ll be your reference for future marketing communications, product launches, and promotions.
To create one, review the similar characteristics among your target audience like their pain points, goals, or purchasing motivations.
Observe and outline how these personas interact with your brand:
- How often do they purchase your products?
- What are their preferred communication channels?
- What types of content do they engage with the most?
TammyBooster's buyer personas
Consistent with this approach, TammyBooster’s personas for specific market segments are as follows:
| Hormonal Helen | Fitness Finn | Senior Sally | |
|---|---|---|---|
| Segment description | Women aged 25-40 struggling with hormonal imbalance | Men aged 18-40 focused on fitness and health | Seniors aged 65+ seeking digestive wellness |
| Product match | Tummy Tune-Up | Gut Guerrilla | Happy Belly Blend |
| Customer needs | Relief from hormonal fluctuations | Optimal gut health and workout recovery | Gentle digestive support |
| Sensitivity to price | Moderate—willing to pay for quality | Price-sensitive—values affordability | Price-sensitive—values affordability |
| Preferred channels | Instagram, Pinterest, health blogs, email newsletters | Instagram, email newsletters | Email newsletters, community events |
| Main competitors | Organic supplement brands | Fitness supplements and protein powder brands | Brick-and-mortar pharmacies |
Let’s say, all three segments prefer email newsletters.
TammyBooster uses an email marketing software called Omnisend to automate persona-specific email campaigns, based on their product matches.
Fitness Finn subscribers receive a 30-day fitness challenge with daily workout tasks. Participants who complete the challenge earn a discount on Gut Guerrilla and a chance to win a fitness bundle.
Hormonal Helens and Senior Sallies are exempted from this campaign.
This type of personalized email can boost open and click rates when they land in the right inboxes. Ninety percent of email marketers see better campaign results with this strategy.
Tools like Omnisend also offer automation capabilities that streamline this process.
You can draft on-brand campaigns and connect with your customer personas to maximize ROI—no coding required.
Graphic t-shirt brand B-Wear Sportswear relied on the platform to create automated campaigns—from welcome emails to abandoned cart emails.
The results? The brand reaped a 42% conversion rate and 40% of their total company sales came through the platform.
Top email marketing solutions
With the right email marketing platform by your side, you can let automation take care of segmentation and targeting and focus your resources on crafting creative and effective campaigns.
Here are our top 10 recommended tools for the job:
Step 4: Test and refine your strategy for success
Testing goes a long way in market segmentation. This is an opportunity to validate your assumptions about your customer personas and their responses.
It’s hard to get it right the first time, and testing can help you hone your approach because knowing different segments will respond is what gets them to the next step.
In email marketing, for instance, the average open rate for ecommerce emails sits around 29.81%—that’s less than 3 out of every 10 emails you send.
If catching their attention to open the email is tough, imagine the effort it takes to get them to click through and take action.
Testing should be done across your marketing channels—social media ads, landing pages, and influencer collaborations—to see how different segments engage with your messages.
When TammyBooster launches an email campaign targeting Hormonal Helen, Omnisend lets them test two subject lines:
- “Feel Your Best During Hormonal Change”
- “Balance Your Hormones Naturally”
Each version pairs different image variations as well—lifestyle shots, soothing natural elements, and product-focused visuals.
After testing, the “Feel Your Best During Hormonal Changes” subject line + lifestyle shots combo reached the highest open rates, click-through rates, and conversion rates.
This data-driven insight confirms TammyBooster’s understanding of Hormonal Helen’s preferences:
- Messaging that speaks to their hormonal concerns and offers empathetic and supportive solutions, and
- Images that showcase the benefits of the product in real-life settings
These findings now serve as a roadmap to inform future marketing campaigns and win new markets.
Case in point:
Mailchimp’s A/B testing helped MovingWaldo, a residential movers platform, improve their campaigns by determining when and how to target their market (i.e., B2B, B2C, and realtors).
They found the optimal timing, messaging, and language to engage their audience, resulting in optimized messaging and revenue growth.
Top marketing automation tools
Marketing automation tools like Mailchimp and Omnisend can expedite your testing efforts, even with large volumes of data and interactions.
They feature advanced analytics capabilities that can help you identify what works and what doesn’t in real time.
Check out 10 marketing automation platforms that streamline segment testing for success.
Top Two Common Segmentation Mistakes and How to Avoid Them
The steps above should teach you how to implement market segmentation well, but it doesn’t exempt you from making mistakes.
I’ve talked to some ecommerce marketers about how to avoid the two most common pitfalls brands fall into when implementing market segmentation.
Over-segmentation
It might be tempting to create as many subgroups as possible from your total addressable market, but you need to keep your focus.
According to Yuki Yang, manager of ecommerce baby clothing brand Kabeier, this can lead to diluted messaging.
This completely defeats the purpose of implementing market segmentation.
Having too many variables to worry about create small segments that can be difficult to manage so Matt Wouldes, founder of outdoor gear brand Land & Sea NZ believes that it’s better to select a “few key variables that align closely with your products and business goals.”
Think about it:
If our fictional brand TammyBooster were to segment their market with overly specific age ranges (e.g., 20 to 24, 25 to 29, 30 to 34 and so on) or by US state or Canadian province, they would need to spend a lot of resources on creating tailored customer experiences.
Instead, the gut health ecommerce company chooses to segment by broader age groups (e.g., 25 to 4 for hormonal balance, and 18 to 4 for fitness-focused customers) and geographic regions (e.g., Midwest and South [US], and Atlantic and Central [Canada])
Failure to update models over time
Market segmentation needs to evolve with your market. As customer preferences and market trends change, you’ll have to refine your segments as you go along.
Some brands fail to update their segmentation strategies accordingly.
Clare Jones, outreach manager at Custom Neon shared:
For us, it could look like continuing to send wedding signs to a customer that recently ordered a sign for their wedding—even after the event.
To avoid sending customers away due to irrelevant campaigns, Jones advises brands to revisit segments and adjust based on new data and trends to keep messaging relevant and effective.
This segmentation mistake can also lead to missed opportunities because it can also cause your marketing strategies to become outdated.
Kratom Earth’s marketing manager Loris Petro shared that he found, “implementing feedback loops through surveys and data analytics helps brands stay agile in a changing market. This method helps companies adjust fast, keep good relationships with customers, and stay in the lead.”
Think about it:
If our fictional brand, TammyBooster were to ignore new trends in inquiries and complaints indicating that their target market wanted vegan and allergen-free products, they wouldn’t uncover this new segment, losing market share and sales.
Instead, the gut health ecommerce company regularly seeks feedback from their social media followers and reviews market trends.
Even before customers requested them, they identified these emerging pain points and developed products to address them.
Final Thoughts
Market segmentation helps you know your brand’s potential and create a plan of action to meet it.
Successful segmentation leads to a better ROI and greater opportunities, which every ecommerce brand aspires to have.
Implement the steps above and explore the different marketing tools and software that can help you execute them with ease.
You might also enjoy reading about these marketing-related topics:
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