The American Marketing Association defines market segmentation as the process of subdividing a large homogenous market into identifiable segments having similar needs, similar behaviours or demand characteristics. Then, every targeted segment will be reached with the right marketing strategy.
There is a market and a target market for practically everything. Very few companies are big enough to supply the needs of an entire market, but most of them appreciate the need to find out who will buy their products.
Not knowing who will buy a product or assuming that everybody will do, can lead to wrong decisions, wrong pricing, wrong messages, and subsequently the downfall of the business is likely.
In order to avoid failing in reaching the business objectives, market segmentation becomes absolutely necessary. Why? In simple terms, because the market is comprised of millions of people and organizations that are so different from each other. This diversity requires dividing the market so that a company can aim its efforts and marketing resources in the most profitable way.
There are mainly three criteria that are used to determine market segments:
- Homogeneity (common needs within a segment)
- Distinction (unique from other groups)
- Reaction (similar response to market)
The concepts to be measured within the criteria above can be: age, gender, education, marital status, lifestyle, income, family life cycle, social class, opinion, attitudes and beliefs, activities and interests.
Once all this information has been compiled a description about potential customers can be written. It may be possible to locate them, or even to estimate how many of them there are where the business is looking for expansion. It is the moment to let prospective customers know that you exist.
Therefore, it is vital that companies and organizations carry out good Market Segmentation. In this way they will enjoy the benefits from showing consistency with their marketing strategy, and –more importantly– become more competitive with their target audience.
Please see the following presentation by Learn Marketing.net for basic introduction.