Market segmentation only works when it’s anchored in the customer, not in categories that look tidy on a whiteboard. True segments are small, specific, and homogenous enough to make marketing and sales easier, not harder.

Most organizations define markets from the top down. They’ll say “healthcare,” “finance,” or “retail.” But those aren’t segments—they’re industries. Inside them, buying behavior varies so widely that lumping them together blurs all insight. Saying your customer is “healthcare” is like saying Spotify sells to “people who listen to music.”

It’s true in one sense, but useless for making strategic choices.

Use This Filter

A better approach comes from Bill Aulet’s Disciplined Entrepreneurship. He defines a market segment as a group of customers who:

1. Buy the same product.

2. Buy it the same way.

3. Influence each other through word of mouth.

It’s a deceptively simple filter. Apply it, and most of the “segments” companies rely on fall apart.

Take software as an example. Defining the market as “startups” is meaningless. But “seed-stage SaaS founders in North America who use Slack as their operating hub” does pass. They all buy lightweight collaboration tools, purchase directly online with a credit card, and trade recommendations constantly in founder communities. That’s a segment you can design for, distribute to, and message against.

Or think consumer packaged goods. “Parents” is not a segment. A new parent buying formula through an auto-ship subscription on Amazon behaves differently than a parent of teenagers shopping at Costco for bulk snacks. Same broad identity, but different product, different channel, different circle of influence. If you ignore those differences, you end up with generic campaigns that don’t land.

The work of tightening until you find homogenous groups is what creates leverage:

• Product clarity. You know what to build—or what not to build.

• Channel clarity. You know where customers buy and where they gather.

• Messaging clarity. You know what language resonates because you understand their context.

This is why segmentation is a forcing function. It’s less about slicing markets thinner and more about aligning your entire business around a customer group you can win with.

A Practical Next Step

Audit your current segments against Aulet’s three-part test. If they don’t pass, refine them until they do. Then pressure-test them with these questions:

• Do they buy the same product, at the same level of specification?

• Do they purchase through the same channels, with the same decision process?

• Do they talk to each other in ways that create influence—online, in professional circles, or in social groups?

If the answer isn’t yes to all three, you don’t have a segment yet—you have a category. And categories don’t drive focus.

Segmentation done right gives you more than a neat chart. It gives you clarity about who your customer really is, how to reach them, and what will get them talking. That clarity is what drives sharper execution in sales, marketing, and product alike.