Definition of 'Market Segmentation'
A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will 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. Generally three criteria can be used to identify different market segments:
1) Homogeneity (common needs within segment)
2) Distinction (unique from other groups)
3) Reaction (similar response to market)
Investopedia explains 'Market Segmentation'
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 will respond to very different advertisements.