Definition of 'Market Segmentation'
A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another. Generally three criteria can be used to identify different market segments: 1) Homogeneity (common needs within segment)
2) Distinction (unique from other groups)
3) Reaction (similar response to market)
Investopedia explains 'Market Segmentation'
For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners will respond to very different advertisements.
Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs and applications for the relevant goods and services. Depending on the specific characteristics of the product, these subsets may be divided by criteria such as age and gender, or other distinctions, like location or income. Marketing campaigns can then be designed and implemented to target these specific customer segments. Why Segment?
One of the main reasons for using market segmentation is to help companies to better understand the needs of a specific customer base. Mass marketing assumes that all customers are the same and will respond to the same advertising. By looking at ways in which potential customer groups are different from each other, the marketing message can be better targeted to the needs and wants of those people. Often, dividing consumers by clearly defined criteria will help the company identify other applications for their products that may not have been obvious before. These revelations often help the company target a larger audience in that same demographic classification, improving market share among a specific base. Segmenting the market can also serve to identify smaller groups of people who make up their own, previously unknown subsets, further improving the overall efficiency of the company's marketing efforts.
According to experts, in order to be a good market segment, a group should meet five criteria: 1. It should be possible to identify and measure it,
2. it should be big enough to be worth the effort,
3. it should be easy to reach it,
4. it should not change quickly,
5. and it should be responsive.
Market segmentation strategies that meet these criteria can cover wide range of consumer characteristics. Subsets may be defined by basic demographics like age, race, or gender, for example. Other qualities, like educational background or income can also be used, as can location. Some of the potentially most powerful variables by which to segment a market are behavioral ones, including social class, lifestyle, and interests. In most scenarios, there will be at least a few established customers who fall into more than one category, but marketing strategists normally allow for this phenomenon. In fact, the overlap in criteria among consumers often leads to additional segmentation and requires adjusted marketing strategies. A marketing plan that targets people who fall into several groups — like women over 30 who earn a high income, for example — may be more successful than one that focuses on just one limited characteristic. Other Benefits
Along with playing a role in the development of new marketing approaches, market segmentation can also help a company identify ways to enhance customer loyalty with existing clients. As part of the process of identifying specific groups within the larger client base, the company will often run surveys which encourage customers to suggest ways of improving the company's products or services. This may lead to changes in packaging or...
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