Market Segmentation

Market Segmentation

Market Segmentation is the term given to the grouping of customers with similar needs by a number of different variables. Once this has been done, segments can be targeted by a number of targeting strategies. The stage that then follows is known as positioning which is the place that products or services occupy in the marketplace in relation to the competition, as perceived by the target market.

The underlying principle of market segmentation is that individual customers have different product and service needs. Mass marketing, the marketing of a single product to everyone, is rarely a viable strategy, just as it is to customize products to an individual.

The market segmentation process.

The segmentation process is generally regarded as consisting of three stages: segmentation, targeting, and positioning.

Segmentation variables.

The first stage of the segmentation process involves the selection of suitable variables for grouping customers. These are also referred to as base variables or the segmentation basis. There is rarely one best way of segmenting a market and more than one variable can be used. There are a number of segmentation variables that can be used for consumer and business-to-business markets.

Segmentation analysis.

Research plays an important role in segmentation as segmentation analysis requires a range of data form a wide variety of sources on markets, customers’ attitudes, motives, and behaviour as well as competitor information.


Targeting is the next step in the sequential process and involves a business making choices about segment(s) on which resources are to be focused. There are three major targeting strategies: undifferentiated, concentrated, and differentiated. During this process the business must balance its resources and capabilities against the attractiveness of different segments.


Positioning follows on logically from the segmentation and targeting stages. Customer perceptions are central to the product position especially in relation to the competition’s offering. The product or service has to satisfy key customer requirements, and this has to be clearly communicated to customers. A tool that helps marketers understand customer perceptions of their brand is perceptual mapping and a simple 7- step approach can be used to develop a clear positioning strategy. However, a number of positioning problems can arise.

Getting the most out of market segmentation.

Market segmentation, targeting and positioning are not always easy to apply and problems can arise for a number of reasons. There are a number of steps that can be taken to avoid these problems, and, in addition, there are a set of segmentation criteria that can help.

Market segmentation: the future.

The two key factors that will affect segmentation in the future are competitive and technological forces. In addition, there is a rising trend towards one-to-one marketing.


The underlying principle of market segmentation is that the products and services, needs of individual customers differ. Market segmentation involves the grouping of customers together with the aim of better satisfying their needs whilst maintaining economies of scale. It consists of three stages and if properly executed should deliver more satisfied customers, few direct confrontations with competitors, and better designed marketing programmes.

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