Market segmentation is the practice of dividing consumers into groups based on shared needs, desires and preferences. Using these categories, a business can adjust its product lines and marketing techniques to appeal to each group more effectively by addressing their specific needs. This strategy is called targeted marketing. Conversely, mass marketing is when a business uses one advertising and marketing campaign to sell the same product to everyone.

Market segmentation enables businesses to tailor their product development and advertising to key demographics to meet their specific needs more effectively.

What Types of Businesses Use Market Segmentation?

Numerous types of businesses use market segmentation to optimize their ability to sell to a wide variety of consumers.

  • Skin care, hair care and beauty product manufacturers
  • Car companies
  • Clothing and apparel suppliers
  • Banks and other financial institutions
  • Television networks and media outlets

Businesses often segment the market based on key demographics such as age, gender, income level or marital status, but they also use more precisely defined categories to target specific groups.

For example, the Whole Foods chain of high-end grocery stores (now owned by Amazon) targets high-income, educated city-dwellers who are health- or eco-conscious or want to appear to be.

Marketing Products to Different Groups of Customers

One group of businesses that uses market segmentation to great effect are manufacturers of hair care, beauty and other grooming products. For example, the razors marketed to men and women are fundamentally the same, but they have very different packaging and advertising messages. This is a perfect example of market segmentation. Based on research, companies devise different ways to sell products to men and women by using different colors, music, spokespeople and verbiage.

Walk into any drugstore, and you quickly notice that women's skin care, hair care and grooming products are packaged in soft, gentle colors – most often in pink. The messaging used often refers to freshness, softness or a carefree lifestyle. The women featured on the packaging are generally laughing or playfully smiling, embodying the effortless beauty to which many women aspire.

Conversely, the packaging for men's products is predominated by blacks, grays, reds and oranges. The messaging focuses on strength, durability and ruggedness. If a photograph is included, the subject is often a close-up of a granite-featured model with the perfect amount of stubble, looking fiercely independent and brooding.

You may also notice the price difference between male and female products. Market segmentation theory is not just about how to sell products, but also about how valuable those products are to different groups. In general, women are willing to spend more on self-care products due to a higher premium put on female beauty in today's society. Knowing this, companies can confidently tack on an extra dollar or two to products aimed at women, knowing that many women consider it a small price to pay for beauty.

Of course, companies have to be very careful not to be seen as charging higher prices to one group over another based on race, religion, ethnicity or gender. Since anyone can easily purchase the cheaper, male-targeted product instead of the more-expensive pink product, women pay a premium for choosing pink over black – not for being female. This subtle distinction allows companies to avoid accusations of price discrimination without endangering the bottom line.