Market segmentation is the process a company uses to categorise its potential customers into distinct groupings based on similar characteristics, wants and needs. By doing this, a company can design specific and detailed marketing campaigns for a segment, thus leading to more successful marketing outcomes.
For example, the market for calculators is made up of segments including "scientific users," "office users," and "general users." Each will not only have a preference of a different price point, but the calculators different features will attract distinct user groups. Thus campaigns are based around these groupings to appeal to the scientific user for advanced functions, the office user for its durability and the general user for its simplicity of operation.
The distribution channels (or purchase points) will also vary in this example, along with the advertising message and choice of media used to attract different customers.
Market segmentation can be based on many variables including:
Understanding the concept of segmentation is central to marketing because each customer group requires a different marketing strategy. Each segment will also offer differing growth and profit opportunities, which may impact on the marketing budget.
The secret to successful marketing is to have the best possible offering to satisfy each segment.
Market segmentation can take place on the target market(s) has been defined and should form part of the Marketing Plan.
Visit the marketing module of the Small Business Tool Kit for further information, quizzes, case studies and interactive market planning tools.