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What is Market Segmentation

Market segmentation is the process of dividing the population of possible customers into distinct groups. Those customers within the same segment share common characteristics that can help a firm in targeting those customers and marketing to them effectively (adapted from Lovelock and Wirtz 2011).

Segmentation is one of the most important concepts in marketing.  Firms vary widely in their abilities to serve different types of customers. Hence, rather than trying to compete in an entire market, firms should segment the market. Through the process of market segmentation, firms will identify those parts, or sections of the market, that they can serve best.

"The process of defining and subdividing a large homogenous market into clearly identifiable segments having similar needs, wants, or demand characteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment."
Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle. Four basic factors that affect market segmentation are (1) clear identification of the segment, (2) measurability of its effective size, (3) its accessibility through promotional efforts, and (4) its appropriateness to the policies and resources of the company. The four basic market segmentation-strategies are based on (a) behavioral (b) demographic, (c) psychographic, and (d) geographical difference.

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