Market Segmentation

Market segmentation is the process of dividing a market into distinct subgroups (segments) based on specific characteristics. It serves as a foundation for marketing analysis, enabling companies to concentrate on the segment of the market that aligns with their product or service offering and to craft a more effective marketing strategy. Through segmentation, businesses can tailor their marketing approach for each product line. For instance, an automaker may produce compact cars, convertibles, and station wagons. Although these are all automobiles, they address different consumer needs and therefore represent separate segments within the automotive market. Well-defined market segments typically exhibit the following attributes:

• Homogeneity. Each segment is internally consistent in terms of certain product features or customer traits, according to the chosen segmentation criteria.
• Distinctiveness. Each segment must be clearly differentiated from the others to prevent overlap and market confusion.

Segmentation can be based on product characteristics, customer demographics and behavior, or purchase motivations. Selecting the right segmentation variables is critical to the success of the company’s marketing objectives. The depth of segmentation can vary depending on the company’s strategic goals. When segmentation is conducted at a highly granular level, this is referred to as micro-segmentation, which divides the market into very specific subgroups to uncover niche opportunities. At its most advanced level, segmentation can evolve into one-to-one marketing (or personalization), where individual customer needs drive fully customized offerings.