Foundation 2 of 20 · Target
What Is Market Segmentation? Examples for Small Business
You Cannot Serve Everyone Well. You Can Serve Three Groups Very Well.
"I stock everything anyone ever asked for. Why does nobody buy any of it?" If you stock a little of everything and still run out of what customers actually want, you need market segmentation. Here is what it is, how to find your two to four segments, and what to do with the long tail.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
What Is Market Segmentation?
Textbook Definition
Market segmentation is the process of dividing a broad market into distinct subgroups of customers with similar needs, characteristics, or behaviors, so that a business can tailor its products, pricing, and marketing to each group.
In Plain English
Market segmentation means sorting your customers into a few groups, where everyone in a group wants roughly the same thing for roughly the same reason. Then you arrange your products, prices, and message so each group finds what it came for fast.
Why It Matters
Why Does Having Something for Everyone Fail?
When every customer is "whoever walks in," you end up with a little of everything and not enough of anything. Your real best sellers run out. Your cash sits in things nobody buys. And your best customers walk past a wall of stuff to find the few things they need.
Most small businesses have two to four real segments, even if the owner has never named them. A segment is a group of customers who want the same thing for the same reason. Serve each one well, and stop stocking for a group called "somebody, once."
Signs you have this problem:
- You keep items "just in case" someone asks again.
- You regularly run out of your real best sellers.
- Customers walk through your shop without buying.
- Your menu, catalog, or service list keeps growing.
- You cannot name the two or three kinds of customers who keep you in business.
- You have never said "I don't carry that."
What It Looks Like
What It Looks Like When Forty Feet of Counter Sells Nothing
From the Fabled Forest · Chapter 2
Cal the Camel runs the only stall at the Dry Wash Market and has stocked everything anyone ever asked for, once, for forty years. Saddles. A sled. A crate of umbrellas, in the desert. Forty hats, none ever sold. Fewer customers came each month.
Doctor Owl asked who came that morning. Three groups: caravan drivers who needed rope, lamp oil, and feed; ranch families buying a month of flour, salt, nails, and seed; and forest visitors walking through to buy Thelma's pots. Cal had been out of feed and seed. The forest visitors never bought anything because there was nothing for them.
They turned forty feet of counter into three stalls: CARAVAN, RANCH, and one for forest visitors, with dates and desert sand-glass Cal had forgotten he had. Cal said, for the first time in forty years, "I don't carry that." Next market day the caravan loaded in twenty minutes and bought all six sacks of feed.
Cal's story is Chapter 2 of Marketing for Small Businesses, Book 4 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Segment Your Market in 5 Steps
Watch for a week, or read a month of sales. You are looking for groups, not individuals.
Watch who buys, and why.
Group customers by what they came for and why they came. Aim for two to four groups.
Name each group.
A plain name you would use out loud: "contractors," "weekend gardeners," "lunch regulars." This is market segmentation in practice.
List what each group buys every time.
Five to ten items or services per group. These are the things you must never run out of.
Arrange your business around the groups.
Your shelves, menu, website, or service list, so each group can find its things fast, in one place.
Stop carrying what fits no group.
Sell it, give it away, or keep one thing you love. When someone asks for it, say "I don't carry that," and point them somewhere that does.
Dr. Paul's Insight
The most common mistake is keeping the long tail "just in case." Just in case is where your cash goes to wait. A wide range is fine if a real segment buys from it. Stock nobody has asked for twice is not range, it is storage. And look for the segment you are ignoring entirely. Sometimes your easiest new sales are to people already walking through your door.
Sample: A Segment Sheet
Two to four groups, and what each one buys every time.
| Segment | Comes for | Always buys | Never run out of |
|---|---|---|---|
| Caravan drivers | Supplies for the road | Rope, lamp oil, feed, water skins | Feed |
| Ranch families | A month of living | Flour, salt, nails, cloth, seed | Seed in season |
| Forest visitors | Something to take home | Dates, local glass, local pottery | Local gifts |
| Fits no group | Asked for once | Hats, saddles, umbrellas | Clear it out |
Sample for illustration. Most businesses have two to four segments.
Watch
Video: How to Find the Segments Already in Your Business
What Is Market Segmentation? Examples for Small Business
Dr. Paul sorts a day of customers into segments and rearranges a product list on screen.
From the Book
I Don't Carry That
Chapter 2 · Market Segmentation
Forty Hats, No Heads: A Camel's Everything
Cal opened his mouth. Nothing came out. He tried again.
"I don't," he said, with enormous effort, "carry that."
It was the first time in forty years. Thelma, in the shade, made a sound that in a younger tortoise might have been a laugh.
How did forty feet of counter become three stalls, and who were they for? Find out in Chapter 2. Book 4 of Dr. Paul's Fabled Forest Business School Series.
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Market Segmentation Questions
What are examples of market segmentation for a small business?
What are the main types of market segmentation?
How many segments should a small business have?
What is the long tail in a small business?
Keep Going
Related Foundations
Segmentation connects three foundations that help a small business feel built for each customer. New to a term on this page? Every one is in the marketing glossary.
Written by Dr. Paul Borosky, DBA, MBA, business consultant and author who helps owners get found by the right customers. Want help sorting your customers into the groups that matter? See business growth plan options.
This page is for general educational purposes only. It is not legal, financial, or other professional advice. Trademark, privacy, and advertising rules vary, so talk with a qualified professional before registering a name, collecting customer data, or making claims about a competitor. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.