Market Segmentation

Definition

Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers (segments) based on their shared characteristics, needs, and behaviors. This allows companies to better target their marketing efforts and products to meet the unique demands of different customer groups.

5 Must Know Facts For Your Next Test

1. Effective market segmentation allows companies to better understand their customers and develop more targeted marketing strategies.
2. Segmentation can be based on a variety of factors including demographics, geography, behavior, and psychographics.
3. Companies often use multiple segmentation criteria to create detailed customer profiles and personas.
4. Market segmentation enables firms to allocate resources more efficiently by focusing on the most promising and profitable customer groups.
5. Segmentation can also help companies identify unmet needs and develop new products or services to address them.

Review Questions

• How does market segmentation help companies improve their advertising efforts?
  • Market segmentation allows companies to develop more targeted and effective advertising campaigns. By understanding the unique characteristics, needs, and behaviors of different customer groups, firms can craft messaging, imagery, and media placements that resonate better with their target audiences. This helps improve the efficiency and return on investment of advertising spend, as the ads are tailored to the specific preferences and pain points of each segment.
• Explain how companies use multiple segmentation criteria to create detailed customer profiles.
  • To develop a comprehensive understanding of their target customers, companies often employ a combination of segmentation approaches. For example, they may segment the market based on demographic factors like age and income, as well as psychographic factors such as values, interests, and lifestyle. By integrating these different segmentation variables, firms can create detailed customer personas that capture the nuances of each target group. This allows them to develop highly personalized products, services, and marketing strategies that address the unique needs of each segment.
• Evaluate how market segmentation enables companies to identify and address unmet customer needs.
  • Through the process of market segmentation, companies can gain valuable insights into the unmet needs and pain points of different customer groups. By closely analyzing the characteristics, behaviors, and preferences of each segment, firms can identify gaps in the market where current products or services fall short. This knowledge then allows them to develop innovative new offerings tailored to the specific requirements of underserved segments. By addressing these unmet needs, companies can gain a competitive advantage, attract new customers, and strengthen their position in the market.

Related terms

Target Market: The specific group of consumers that a company has decided to aim its marketing and sales efforts towards based on the results of market segmentation.

Demographic Segmentation: Dividing the market based on characteristics such as age, gender, income, education, occupation, and family status.

Psychographic Segmentation: Dividing the market based on consumers' attitudes, values, interests, lifestyles, and personality traits.