HomeMARKETINGWhat Is Market Segmentation?

What Is Market Segmentation?

Companies often use targeted marketing to select market segmentation, which includes identifying key market segments, selecting one or more attractive segments, developing the right product, and marketing programs that meet specific customer needs and desires in that market segment.

By market segmentation we mean the division of the overall market into several smaller market segments. It is a method of marketing management of a company, where the marketer analyzes the market in which the company wants to operate. The aim of market analysis is to know the structure of a particular market and identify potential customers who have similar requirements.

The company can then address individual groups of customers in a more targeted manner with its products or services. Instead of a broad production and marketing program, the company adapts the product and marketing to the requirements of target customers. For most products or services, it is not possible to focus on satisfying the requirements of all customers. Marketing segmentation groups customers whose needs the company then satisfies with its products and addresses with its marketing.

How To Segment The Market In Practice?

Market segmentation involves several steps.

  1. Market research and creation of criteria for segmentation
  2. Profiling customers based on segmentation criteria into relatively homogeneous groups, determining the size of segments and creating their profiles
  3. Select the target segment of the company to focus on

Segmentation Criteria

The company can choose from a large number of different criteria when segmenting. The most common companies distinguish these criteria:

Geographical – spatial distribution of customers (states, regions, cities)
Demographic – breakdown by age, gender, ethnicity, religion, marital status, etc.
Socio-economic – division by economic status, education, occupation, income, etc.
Psychological – division according to psychological profile (life interests, attitudes, values)
Purchasing behavior – division according to the frequency and extent of purchases, loyalty, etc.

The most frequently used segmentation criteria are psychological criteria and purchasing behavior, as the purpose of market segmentation is usually to try to identify purchasing habits and assumptions of the company’s future customers. Customers with different psychological characteristics or lifestyles usually have different preferences regarding products or services.

The created market segments must group customers with the most similar characteristics possible, so that they are as homogeneous as possible and at the same time the individual segments should differ from each other as much as possible, so that there is no overlap of customers in individual segments.

The benefits of segmentation

The benefit of market segmentation for a company is that it can focus on a specific target market and thus better prepare a targeted marketing strategy, which can generate more revenue at lower costs than targeting the strategy to the entire market. The company can also differentiate its products according to the requirements of specific segments and thus improve its products over the competition.

Segmentation can also help companies identify market opportunities and threats and develop a new product that is of interest to the market. In this way, the company can gain the advantage of a faster response to market demands over the competition.

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