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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.

BREAKING DOWN 'Market Segment'

A market segment is a segmented category of customers who have similar likes and dislikes in an otherwise homogenous 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.

The Main Characteristics of Market Segments

To meet the most basic criteria of a market segment, three characteristics must be present. First, there has to be homogeneity among the common needs of the segment. Second, there needs to be a distinction that makes the segment unique from other groups. And third, 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.

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 a majority of 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 located 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.

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