Market Segmentation

Loading the player...

What is 'Market Segmentation'

Market segmentation is a marketing term referring to the aggregating of prospective buyers into groups, or segments, that have common needs and respond similarly to a marketing action. Market segmentation enables companies to target different categories of consumers who perceive the full value of certain products and services differently from one another.

BREAKING DOWN 'Market Segmentation'

Three criteria can generally be used to identify different market segments: homogeneity, or common needs within a segment; distinction, or being unique from other groups; and reaction, or a similar response to the market. For example, an athletic footwear company might have market segments for basketball players and long-distance runners. As distinct groups, basketball players and long-distance runners respond to very different advertisements.

Market segmentation is an extension of market research that seeks to identify targeted groups of consumers for the purpose of tailoring products and branding in a way that is attractive to the group. The objective of market segmentation is to minimize risk to the company by determining which products have the best chances for gaining a share of a given target market, and determining the best way to deliver the products to the market. This allows the company to increase its overall efficiency by focusing its limited resources on efforts that produce the best return on investment.

Markets can be segmented in a number of ways: geographically by region or area; demographically by age, gender, family size, income or life cycle; psychographically by social class, life style or personality; or behaviorally by benefit, uses or response. The objective is to enable the company to differentiate its products or message according to the common dimensions of the market segment.

Examples of Market Segmentation

Examples of market segmentation can be found in the products, marketing and advertising that people use every day. Auto manufacturers thrive on their ability to correctly identify market segments, and then create products and advertising campaigns that appeal to those segments. Cereal producers market actively to three or four market segments at a time, pushing their traditional brands that appeal to older consumers and their healthy brands to health conscious consumers, while building brand loyalty among the youngest consumers by tying their products to popular movie themes.

A sports shoe manufacturer might define several market segments that include elite athletes, frequent gym-goers, fashion-conscious women and middle-aged men who want quality and comfort in their shoes. In all cases, the manufacturer's marketing intelligence about each segment enables it to develop and advertise products with high appeal more efficiently than trying to appeal to the broader masses.

RELATED TERMS
  1. Market Segment

    A group of people that share one or more characteristics. Each ...
  2. Business Segment Reporting

    Giving separate accounts of a company's individual divisions, ...
  3. Segment

    A component of a business that is or will generate revenues and ...
  4. Segment Margin

    The amount of profit or loss produced by one component of a business. ...
  5. Intersegment Sales

    The transfer or exchange of goods for monetary compensation from ...
  6. Late Majority

    The last sizable segment of a population to adopt an innovative ...
Related Articles
  1. Investing

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
  2. Investing

    Market Segmentation

    Market segmentation is a process marketers us to group similar consumers together. Why do they do this?
  3. Investing

    Money Market

    Learn more about this segment of the financial market and how it can cater to your short-term investment needs.
  4. Investing

    Three Disney Business Segments Investors Should Watch

    The Walt Disney Company (DIS) reported fourth quarter and full year earnings for fiscal 2014 on November 5th and the house that the mouse built turned in some fairly outstanding result, pointing ...
  5. Markets

    Johnson & Johnson's 3 Most Profitable Lines of Business (JNJ)

    Learn about the key drivers of Johnson & Johnson's profitability. The company is organized in three segments, with pharmaceuticals producing the largest profit.
  6. Personal Finance

    How Index Universal Life Insurance Works

    Understanding how Equity Index Universal Life Insurance policies work and if you should buy a policy.
  7. Markets

    Apple's 5 Most Profitable Lines of Business (AAPL)

    Learn about how Apple generates its profits. It breaks its results by geographic region, with all showing year-over-year improvement.
  8. ETFs & Mutual Funds

    EWG iShares Germany ETF: Top 5 Holdings (BAYR, SAP)

    Find out what the top five holdings are in the iShares MSCI Germany ETF. These stocks range in sectors and make up a large percentage of total assets.
  9. Markets

    Thermo Fisher Scientific: A Growth Story (TMO)

    TMO has a history of making successful acquisitions to accelerate its growth while achieving strong organic growth. Will that strategy drive future earnings?
  10. Managing Wealth

    An Introduction To Exchange-Traded Funds (ETFs)

    Exchange-traded funds (ETFs) offer investors the ability to diversify over an entire sector or market segment in a single investment. Find out how they are created and what they can do for your ...
RELATED FAQS
  1. What are some examples of businesses that use market segmentation?

    Find out what types of businesses use market segmentation and how this strategy helps companies market their products more ... Read Answer >>
  2. What is the average annual dividend yield of companies in the food and beverage sector?

    Examine the average annual dividend yield for the food and beverages sector as a whole, along with considering variations ... Read Answer >>
  3. What category of retailers will perform most strongly when the economy is doing well?

    Learn why volatile market segments such as automotive and building supplies tend to perform the best among the retail sector ... Read Answer >>
  4. What options strategies are best suited for investing in the chemicals sector?

    Understand why different options strategies yield more auspicious results for investors in the chemicals sector, depending ... Read Answer >>
  5. Which stage of the economic cycle is most favorable for the chemicals sector?

    Learn how and why shrewd investors rotate into the chemicals sector during the expansionary stage of the economic cycle and ... Read Answer >>
  6. How does the risk of investing in the chemicals sector compare to the broader market?

    Learn how the three segments of the chemicals sector compare to the broader market in terms of the risks they present to ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center