Next video:
Loading the player...

Market segmentation is a process used by marketers to group similar consumers together.  This helps them better target their marketing efforts by sending the right messages to the right consumers.

A market segment usually features three aspects: 

  • First is homogeneity – the consumers in the segment have common needs. 
  • Second, each segment is distinctive – this implies the consumers in the group are different, in some way, from consumers in other groups.
  • Third is reaction –  which implies that consumers in the segment will have similar responses to the marketing and advertising they see.

One way to use market segmentation is by demographic. This refers to dividing consumers by aspects including age, gender, income, needs or a combination thereof. 

Market segmentation can also be based on consumer behavior. This involves grouping consumers according to how they feel about a certain product or their knowledge of those products. Consumers who are very interested in gourmet cooking are likely grouped together for firms focused on the sale of exotic spices, rare wines, fine cookware and sophisticated appliances.

Consider a manufacturer of snow blowers. This company would use geography and homeownership as part of their approach to focus marketing and sales strategies. Their target consumers would be suburban and rural homeowners in countries like Canada, Sweden and the northern US, rather than tropical countries like Brazil or Colombia.

 

 

Related Articles
  1. Small Business

    How Market Segments Work

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

    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.
  5. Investing

    The Importance Of Segment Data

    Key financials often fail to provide insight into large cap companies.
  6. Insights

    Why Consumer Confidence Matters

    As consumer spending is a dominant component of the U.S. economy, how consumers feel about the economy can become self-fulfilling.
  7. Insurance

    How Index Universal Life Insurance Works

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

    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.
  9. Insights

    Consumer Confidence Index

    The Consumer Confidence Index is the result of a monthly survey of 5,000 U.S. households by the Conference Board that measures how optimistic or pessimistic consumers are about the economy's ...
  10. Investing

    Consumer Reports to Create IoT Devices Standards

    CR will create a rating system to help protect consumers' personal data and security.
Hot Definitions
  1. Free Cash Flow - FCF

    A measure of financial performance calculated as operating cash flow minus capital expenditures. Free cash flow (FCF) represents ...
  2. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  3. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  4. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  5. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  6. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
Trading Center