What is market segmentation?

The process of segmenting a market into distinct groups of people with similar needs or desires is known as market segmentation. Segmenting a market allows businesses to target their marketing and advertising efforts more effectively, leading to increased sales and profits.

What are the bases for market segmentation?

The most common methods include using geographic criteria, demographic criteria, psychographic criteria, or behavioral criteria. Businesses can also segment their markets based on product type, customer need, or other defining characteristics.

Geographic segmentation 

Geographic segmentation divides a market into various geographical regions, like countries, states, or cities. This segmentation is useful for businesses that want to target a specific region or area.

Demographic segmentation

Demographic segmentation divides a market based on characteristics like age, gender, income, education, and occupation. This segmentation is often used by businesses that sell products or services targeted at a specific demographic group.

Psychographic segmentation

Psychographic segmentation divides a market based on psychological factors like values, attitudes, and lifestyles. This segmentation can be useful for businesses that want to target consumers with similar values or lifestyles.

Behavioral segmentation 

Behavioral segmentation divides a market based on consumer behavior, such as purchase history, product usage, and brand loyalty. This segmentation is often used by businesses that want to target consumers who are likely to purchase their products or services.

Product segmentation 

Product segmentation divides a market based on the type of product or service being offered. This segmentation can be useful for businesses that sell different types of products or services.

Customer need segmentation

Customer need segmentation divides a market based on the customer's specific needs. This segmentation can be useful for businesses that want to target customers with specific needs.

Businesses can use one or more of these methods to segment their market. The most effective market segments are those that are well defined and easily accessible.

For example, an e-commerce business might use geographic segmentation to target urban-dwelling, young adults, or middle-aged with high income. Or, a digital marketer might use psychographic segmentation to target potential customers interested in health and fitness. The key is to select the right method (or combination of methods) for the business and then use it to identify and target potential customers.

Effective market segmentation

A marketer needs to have a clear understanding of the target audience. By segmenting the market, one can promote the product or service to the right people more effectively. There are various methods to segment a market. Some common methods include using demographic information, such as age, income, or location. Other options include looking at customers' buying habits or their psychographic profiles.

Once the target market or audience is identified, a marketing strategy that is tailored to them can be developed. This may include using specific social media channels or targeting ads to a specific location.

Small businesses, in particular, can benefit from market segmentation. Understanding the target audience can build a strong brand and a better connection with customers.

Additionally, new opportunities can be identified by segmenting the market. When developing a market segmentation strategy, it is important to consider the industry and customer base. Segmentation can be a powerful tool for any business, big or small.

Strength, Weakness, Opportunity, and Threat, also known as SWOT analysis, should be considered when developing a market segmentation strategy. Understanding these factors can help develop a strategy that will help achieve business goals more effectively.

Importance of market segmentation

It is important to remember that segmenting a market does not guarantee success. A business must still offer a product or service that meets the needs of the market segment it is targeting. Additionally, a business must have the resources to reach and communicate with its target market effectively.

Market segmentation can be a powerful tool that businesses can use to increase sales and profits when done correctly. Benefits of market segmentation include the following:

• Allowing businesses to target their marketing efforts better: By understanding which segments of the market are most likely to be interested in their products or services, businesses can more effectively target their marketing campaigns and allocate their resources.
• Helps businesses develop more tailored products or services: By understanding the specific needs and wants of different market segments, businesses can develop products or services that are better suited to the needs of those segments.
• Facilitating more effective and efficient marketing: By targeting specific market segments, businesses can avoid wasting time and money marketing to individuals who are not interested in their products or services.
• Increasing customer satisfaction: By tailoring products and services to the specific needs of market segments, businesses can meet the demands of their customers and increase customer satisfaction.
• Generating new business opportunities: By segmenting the market, businesses can identify new opportunities for growth and expansion.

Overall, market segmentation is an important tool that businesses can use to improve their marketing efforts and better meet the needs of their customers. When used correctly, it can result in increased sales, higher levels of customer satisfaction, and more efficient marketing.

Common Mistakes

One of the most common mistakes students make when studying market segmentation is failing to correctly understand and identify the different types of market segments. There are four primary types of market segments, which are: geographic, demographic, psychographic, and behavioral. Each type of segment has its own distinct characteristics and targeting criteria. Not understanding the different kinds of market segments is a major mistake that can lead to poor targeting and inefficient marketing campaigns.

Context and Applications

Market segmentation is a fundamental topic of marketing and is important for other courses of study like:

• Marketing Managers
• Masters of Business Administration in Marketing
• Sales and Marketing Team

Related Concepts

• Marketing mix
• Marketing strategy
• Types of marketing

Practice Problems

1. Which of the following option signifies the market segmentation based on the products offered?

1. Product
2. Demographic
3. Psychographic
4. Behavioral

Answer: a

Explanation: Under product segmentation, companies must bifurcate a market among the different products or services provided.

2. Which of the following is not the goal of market segmentation?

1. To identify new opportunities for growth.
2. To better target marketing efforts.
3. To develop more tailored products or services.
4. To expand the business.

Answer: d

Explanation: The goal of market segmentation is not to expand a business. The other three goals of market segmentation are to identify new opportunities for growth, better target marketing efforts, and develop more tailored products or services.

3. Demographic segmentation includes which of the following?

1. Age
2. Location
3. Lifestyle
4. Purchase history

Answer: a

Explanation: Demographic segmentation includes age.

4. Psychographic segmentation includes which of the following?

1. Values
2. Interests
3. Opinions
4. Personality traits

Answer: a

Explanation:  Psychographic Segmentation includes values.

5. Customer need segmentation aims at dividing the market based on ________.

1. What customers are looking for
2. The price of the product
3. The brand of the product
4. The delivery time of the product

Answer: a

Explanation: Customer need segmentation aims at dividing the market based on what customers are looking for.