Market Segmentation

men shaking hands in warehouse
Olaf Tiedje/The Image Bank/Getty Images

Companies that want to gain an advantage over their competitors need to understand their customers and their unique requirements. By servicing their customers at a higher level than their customers, businesses are able to maintain a competitive advantage and target new customers. Market segmentation is the identification of parts of the market that are different. Segmentation gives a company a greater ability to better satisfy the needs of its customers.

However, not all customers are the same and each has unique characteristics and requirements that may not be found in any other customer.

Requirements Of Market Segmentation

Some companies ignore market segmentation and just treat customers the same. When marketing to their customers, these companies do not target specific groups or market segments, but just have one message.

For companies to be able to target their marketing, they must identify unique segments. To identify the segments companies must determine what makes up a market segment. There are several criteria that can be used such as accessibility, homogenous, differentiable and measurable. Good market segmentation will result in segment where customers are similar as possible within the segment, and as different as possible between segments.

Geographic Segmentation

Businesses can create a market segment based on geography. Geographical segmentation is very beneficial to any business.

It helps a company to identify and segregate the market into segments based on language, population, climate and lifestyles.

Demographic Segmentation

Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality.

Psychographic Segmentation

Psychographic segmentation divides the market into groups based on social class, lifestyle and personality characteristics. It is based on the assumption that the types of products and brands an individual purchases will reflect that persons characteristics and patterns of living. Activities, interests, and opinions surveys are one tool for measuring lifestyle.

Behavioral Segmentation

Behavioral segmentation is based on the actual customer knowledge of particular products, their uses of products, and their responses to certain products. This has the advantage of using variables that are closely related to the product itself.

Industrial Market Segmentation

Unlike retail consumers, industrial consumers can be segmented based on fewer characteristics. Industrial markets might be segmented on characteristics such as location, company type and buying characteristics.

When segmenting industrial customers, the location of a customer can be used to define a segment. This may be important for shipping and deliveries. Customers within a certain geographical region may have similar requirements.

Customers can be segmented by the type of company. For example, segments can be created based on company size, type of industry or purchasing criteria.

The buying characteristics of customers can define a segment. Characteristics such as purchasing volume or purchasing history.