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What is market segmentation?

Market segmentation is a strategy that businesses use to ensure that their products or services are properly targeting the right consumer base.  Experts say that market segmentation, when applied correctly, is mainly about understanding customer needs, and therefore, how they decide between one product (or offer) and another.

The basic concept behind market segmentation is that there are consumers who may want the same product but have different needs, and companies are able to focus on the needs of each individual through employing different strategies.

Companies that use market segmentation strategies are essentially able to divide a total market into individual market groups and focus on targeting these groups.

Market SegmentationMarketing segmentation experts say they can help companies increase sales.

ft.com/lexicon says the following about market segmentation:

“Technically, market segmentation is the process of dividing the population of possible customers into distinct groups.”

“Those customers within the same segment share common characteristics that can help a firm in targeting those customers and marketing to them effectively.”



 

Maynard Robison highlights the importance of market segmentation in her article titled Market Segmentation: One Method, Four Examples:

“At a more tactical level, market segmentation can make the choices a company faces in developing products, services, and marketing messages easier. Often, market segmentation shows that many conceivable combinations of interest in product features, combinations of service needs, or combinations of attitudes are actually very rare in the marketplace.”

There are four major market segmentation strategies: geographic, demographic, psycho-demographic, and behavioral.

Geographic market segmentation

There are cultural differences between people in different geographic locations – marketers can tailor their strategies according to these cultural differences. 

Geographical market segmentation makes divisions based on geographical units, including:

  • continents
  • nations
  • regions
  • neighborhoods

Demographic market segmentation

Marketing experts can also use demographic variables.

Basing strategies on the characteristics of consumers gives companies a better opportunity to meet the needs and wants of specific people in the market.

Demographic variables include:

  • gender
  • age
  • income
  • socio-economic status
  • religion
  • race

Psycho-demographic segmentation

Psycho-demographic segmentation is based on the belief that a person’s personality can influence what products they are in interested in.

According to Bournemouth University, UK, psycho-demographic segmentation works well for ‘image-based products’ such as cosmetics, jewelry, clothing, cigarettes, alcohol, mobile phones, etc.

Psycho-demographic segmentation  divides markets based on:

  • personality
  • lifestyle
  • values

Market segmentation case example – Demandware

The video below provides a very informative presentation from Demandware’s Senior Vice President of Marketing, Jamus Driscoll.

Demandware is a leading on-demand digital commerce solutions provider.


Example of market segmentation:

A car manufacturer adopts a psycho-demographic segmentation approach in their marketing campaign based on the belief that cars are a reflection of someone’s lifestyle and are often bought as a symbol of wealth.