Market segmentation is a strategy that involves dividing a larger market into subsets of consumers who

have common needs and applications for the goods and services offered in the market. These subgroups
of consumers can be identified by a number of different demographics, depending on the purposes
behind identifying the groups. Marketing campaigns are often designed and implemented based on this
type of customer segmentation.

One of the main reasons for engaging in market segmentation is to help the company understand the
needs of the customer base. Often the task of segregating consumers by specific criteria will help the
company identify other applications for their products that may or may not have been self evident
before. Uncovering these other ideas for use of goods and services may help the company target a
larger audience in that same demographic classification and thus increase market share among a specific
sub market base.

Market segmentation strategies can be developed over a wide range of characteristics found among
consumers. One group within the market may be identified by gender, while another group may be
composed of consumers within a given age group. Location is another common component in market
segmentation, as is income level and education level. Generally, there will be at least a few established
customers who fall into more than one category, but marketing strategists normally allow for this
phenomenon.

Along with playing a role in the development of new marketing approaches to attract a certain
demographic within the market base, market segmentation can also help a company understand ways to
enhance customer loyalty with existing customers. As part of the process of identifying specific groups
within the larger client base, the company will often ask questions that lead to practical suggestions on
how to make the products more desirable to customers. This activity may lead to changes in packaging or
other similar changes that do not impact the core product. However, making a few simple changes in the
appearance of the product sends a clear message to consumers that the company does listen to customers.
This demonstration of good will can go a long way to strengthen the ties between consumer and vendor.

Requirements of Market Segments

In addition to having different needs, for segments to be practical they should be evaluated against the
following criteria:

 Identifiable: the differentiating attributes of the segments must be measurable so that they can be
identified.
 Accessible: the segments must be reachable through communication and distribution channels.
 Substantial: the segments should be sufficiently large to justify the resources required to target
them.
 Unique needs: to justify separate offerings, the segments must respond differently to the different
marketing mixes.
 Durable: the segments should be relatively stable to minimize the cost of frequent changes.

A good market segmentation will result in segment members that are internally homogenous and
externally heterogeneous; that is, as similar as possible within the segment, and as different as
possible between segments.
Bases for Segmentation in Consumer Markets

Consumer markets can be segmented on the following customer characteristics.

 Geographic
 Demographic
 Psychographic
 Behavioralistic

Geographic Segmentation

The following are some examples of geographic variables often used in segmentation.

 Region: by continent, country, state, or even neighborhood

Demographic Segmentation

Some demographic segmentation variables include:

 Age
 Gender
 Family size
 Family lifecycle
 Generation: baby-boomers, Generation X, etc.
 Income
 Occupation
 Education
 Ethnicity
 Nationality
 Religion
 Social class

Many of these variables have standard categories for their values. For example, family lifecycle often is
expressed as bachelor, married with no children (DINKS: Double Income, No Kids), full-nest, empty-
nest, or solitary survivor. Some of these categories have several stages, for example, full-nest I, II, or III
depending on the age of the children.

Psychographic Segmentation

Psychographic segmentation groups customers according to their lifestyle. Activities, interests, and
opinions (AIO) surveys are one tool for measuring lifestyle. Some psychographic variables include:

 Activities
 Interests
 Opinions
 Attitude
  Values

Behavioralistic Segmentation

Behavioral segmentation is based on actual customer behavior toward products. Some behavioralistic
variables include:

 Benefits sought
 Usage rate
 Brand loyalty
 User status: potential, first-time, regular, etc.
 Readiness to buy
 Occasions: holidays and events that stimulate purchases

Behavioral segmentation has the advantage of using variables that are closely related to the product itself.
It is a fairly direct starting point for market segmentation.

Bases for Segmentation in Industrial Markets

In contrast to consumers, industrial customers tend to be fewer in number and purchase larger quantities.
They evaluate offerings in more detail, and the decision process usually involves more than one person.
These characteristics apply to organizations such as manufacturers and service providers, as well as
resellers, governments, and institutions.

Many of the consumer market segmentation variables can be applied to industrial markets. Industrial
markets might be segmented on characteristics such as:

 Location
 Company type
 Behavioral characteristics

Location

In industrial markets, customer location may be important in some cases. Shipping costs may be a
purchase factor for vendor selection for products having a high bulk to value ratio, so distance from the
vendor may be critical. In some industries firms tend to cluster together geographically and therefore may
have similar needs within a region.

Company Type

Business customers can be classified according to type as follows:

 Company size
 Industry
 Decision making unit
 Purchase Criteria

Behavioral Characteristics
In industrial markets, patterns of purchase behavior can be a basis for segmentation. Such behavioral
characteristics may include:

 Usage rate
 Buying status: potential, first-time, regular, etc.
 Purchase procedure: sealed bids, negotiations, etc.