Market Segmentation - the process of dividing a market into smaller sections which contain customers with similar needs and wants

Market segmentation splits up a market into different types of segments to enable a business to better of target it's products to the relevant customers.

Segments are usually measured in terms of sales volume or value

Segmentation is possible because in almost all markets there are differences in factors such as:
• Customers needs and wants
• How customers buy
• Location of customers
• Knowledge & experience of customers

Recognising and understanding these differences are the first Steps in an effective approach to market segmentation.

MAIN BASES OF SEGMENTATION

DEMOGRAPHIC: dividing a market into segments based on demographic variables such as age, gender, family, lifestyle, religion, nationality, ethnicity, occupation, Socio-economic group.

BEHAVIORAL: dividing a market into segments based on the different ways customers use or respond to a product and the benefits they seek. E.g. customers wanting a value for money impulse buy. Other variables are loyalty status, readiness to purchase and rate of usage.

GEOGRAPHICAL: dividing a market into different geographical units such as nations, regions, cities, neighbourhoods or other territories.

PSYCHOGRAPHIC: involves dividing your market into segments based upon different personality traits, values, attitudes, interests and lifestyles of consumers and class.

Benefits and Drawbacks of Market Segmentation

Benefits

• Focuses resources on parts of a market where a business can succeed

• Allows a business to grow share in market or "ride the wave" of fast-growing segments

• Helps with new product development where it focuses on needs of customers in the segment

• Helps to make the marketing mix more effective,

• Better matching of customer needs.

• Better opportunities for growth.

• Retain more customers.

• Targeting marketing communications.

• Enhanced profits for business.

Drawbacks

• data about each market segment is not always available, up-to-date or reliable

• Just because you can identify segment doesn't mean you can reach the customers in it\

• Markets are increasingly dynamic and so are the segments

• segmentation is attempting to group potential customers together which are similar so you can use common strategies to attract and retain them.  It can backfire if done with little discrimination.