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How to Do Market Segmentation in Business Plan

Market segmentation in a business plan is a section where the target market of the business is separated into smaller groups of people, or segments, to identify areas of possible market growth. This section of the business plan helps marketers identify the primary characteristics that define the target market of the business and also ensures that they can direct marketing efforts to their unique needs, interests, and personalities.

Good market segmentation research helps to provide your business with a vivid direction and an idea of which market will be best to target. Note that the market your research shows to target will more or less represent a massive share of potential profitability to the company.

If your market segmentation research is not aligning with the above requirements, then you are doing it wrong. Always remember that bad market segmentation research is a waste of your time, money, and energy.

Types of Market Segmentation in Business Plan

Indeed, there are various approaches you can leverage when segmenting your target market in your business plan. To ensure that you can clearly define your target market, outlined below are four of the most common types of market segmentation.

  1. Demographic Segmentation

This is one of the most common forms of segmentation because it notes that specific products cater to well-noted individual needs relating to at least one demographic element. This segmentation tends to classify consumers based on specific attributes, such as age or income level.

It also provides a view of consumers as real people in the real world by leveraging common data collection methods. Typically, this segmentation is very suitable for business-to-customer (B2C) marketing efforts. Some of the most notable attributes to consider during demographic segmentation include:

  • Age
  • Gender identity
  • Ethnicity
  • Sexual orientation
  • Income level
  • Household size
  • Education level
  • Geographical location
  1. Psychographic Segmentation

Unlike geographic and demographic segmentation, psychographic segmentation focuses on the deep and built-in traits your target customer possesses. To properly understand your target audience on this level, methods such as focus groups, surveys, interviews, audience testing, and case studies can all prove to be formidable.

According to experts, this segmentation is well suited for B2C and business-to-business (B2B) marketing efforts. Notable psychological characteristics and traits to take into consideration during demographic segmentation include:

  • Personal values
  • Religious beliefs
  • Opinions
  • Attitudes
  • Aspirations
  • Political leanings
  • Lifestyle
  1. Geographic Segmentation

This Segmentation tends to target and separate customers based on a predefined geographic border. Have it in mind that differences in interests, values, and preferences differ exponentially throughout cities, states, and countries.

Therefore it is pertinent to recognize these differences when developing your business plan to ensure you can advertise accordingly. Regional demographics can ensure you sell products and services, depending on where your customers live.

  • State
  • County
  • Country
  • College
  • Community
  • International Marketing
  1. Behavioral Segmentation

Behavioral segmentation strives to separate consumers based on their behaviors especially when it has to do with your products or services, such as when they decide to purchase them and how they use them. Note that by focusing on consumer behavior, behavioral segmentation gives you an insight into how consumers interact with businesses, and this gives you the knowledge you require to improve the effectiveness of your efforts.

Typically, this segmentation is also very suitable for B2C as B2B marketing efforts. Some notable areas of consideration for behavioral segmentation include:

  • Usage frequency
  • Occasion
  • Brand loyalty
  • Benefits needed

Steps to Do Market Segmentation in Business Plan

There are basic steps necessary to carry out market segmentation in your business plan. Here are the steps to guide you through;

  1. Define Your Market

This is one of the most important things to take into consideration. For instance, where does your brand fit within the current market landscape? Is there a demand for the product or solution you intend to offer? How big is the market? Note that these are some vital questions to consider when starting this step.

  1. Segment Your Market

This is where the work really begins. This is where you have to consider the exact segmentation method to use. Make sure you don’t confine yourself to one segmentation method. Today, brands are learning to implement more than one segmentation technique. Owing to that, consider taking a combination approach. Play around with each and find the ideal mix for your brand.

  1. Know Your Market

You must ask your potential target market questions that have to do with the segmentation categories you prefer. You can leverage surveys, focus groups, polls, and more to get your answers. Make sure you are asking questions that will warrant very valid answers.

  1. Write Your Customer Segments

You must leverage the responses you received to create a dynamic market segmentation section in your business plan. Also, make sure that you are focusing on the buying power of the segments and not creating any that are too small. Go through the segment one last time to make sure that you are not making any mistakes.

  1. Test Your Strategy

To ensure that you have interpreted the responses very well, you have to test them on your target market. Consider implementing conversion tracking early. It remains one of the best ways to weigh and understand the effectiveness of your strategy. If you are barely relating to your customers with the segments you have established, then you’ll need to have another look at your survey methods and analysis.


Market segmentation is a very important section of a business plan. Note that it shows your stakeholders that you understand your customers by making available a tailored message that aligns with specific facets of their lives.

Aside from being a vital aspect of your plan, it also ensures you know how to get your message across successfully and this will help your brand grow exponentially. By developing the right strategy for your needs and following the steps noted above, you can be sure that your market segmentation strategy will be effective and successful.