What Is a Market Segment?

A market segment is a group of people who share one or more common characteristics, lumped together for marketing purposes. Each market segment is unique, and marketers use various criteria to create a target market for their product or service. Marketing professionals approach each segment differently, after fully understanding the needs, lifestyles, demographics, and personality of the target consumer.

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How Market Segments Work

Understanding Market Segments

A market segment is a category of customers who have similar likes and dislikes in an otherwise homogeneous market. These customers can be individuals, families, businesses, organizations, or a blend of multiple types. Market segments are known to respond somewhat predictably to a marketing strategy, plan, or promotion. This is why marketers use segmentation when deciding a target market. As its name suggests, market segmentation is the process of separating a market into sub-groups, in which its members share common characteristics.

To meet the most basic criteria of a market segment, three characteristics must be present. First, there must be homogeneity among the common needs of the segment. Second, there needs to be a distinction that makes the segment unique from other groups. Lastly, the presence of a common reaction, or a similar and somewhat predictable response to marketing, is required. For example, common characteristics of a market segment include interests, lifestyle, age, gender, etc. Common examples of market segmentation include geographic, demographic, psychographic, and behavioral.

Key Takeaways

  • A market segment is a group of people in a homogeneous market who share common marketable characteristics.
  • The criteria for a market segment are that there is homogeneity among the segment's main needs, the segment must be unique, and the segment's members must produce a common reaction to marketing tactics.
  • Common market segment traits include interests, lifestyle, age, and gender.

Examples of Market Segments and Market Segmentation

A good example of market segments and how a company markets to those groups is in the banking industry. All commercial banks service a wide range of people, many of whom have relatable life situations and monetary goals. If, for example, a bank wants to market to Baby Boomers, it conducts research and finds that retirement planning is the most important aspect of their financial needs. The bank, therefore, markets tax-deferred accounts to this consumer segment.

Taking it a step further, if the same bank wants to effectively market products and services to millennials, Roth IRAs and 401(k)s may not be the best option. Instead, the bank conducts in-depth market research and discovers most millennials are planning to have a family. The bank uses that data to market college-friendly savings and investment accounts to this consumer segment.

Conversely, sometimes a company already has a product but does not yet know its target consumer segment. In this scenario, it is up to the business to define its market and cater its offering to its target group. Restaurants are a good example. If a restaurant is near a college, it can market its food in such a way to entice college students to enjoy happy hours rather than trying to attract high-value business customers.