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Understanding Segmentation

 

DisciplinesMarketing > Understanding Markets > Understanding Segmentation

Description | Example | Discussion | See also

 

Description

A market segment is a subset of a market in which target customers are sufficiently similar for a company to treat them in the same way.

Subsequent company actions can include any or all of:

  • Customizing a standard product for this segment or developing a new product just for them.
  • Marketing to them in the same way, including use of copy, materials and communication channels.
  • Pricing or finance provision to suit their pocket.
  • Various sales approaches, from one-to-one selling to automated websites and outsourced distribution.

Segmentation is an important part of market planning as this shapes many marketing activities, from producing marketing materials to running customer events.

An important decision in segmentation is which segments to address and which not to address. Those addressed may also be prioritized, so investment in the segment is proportional to the potential return.

Segments may be broken down into sub-segments, where the products and marketing are the same or very similar, but with some changes made to target smaller groups within the overall segment.

Segments may be given evocative names to help with communication within the company and with its agencies.

Example

A computer software company includes a segment for students, with special pricing to 'get them hooked', on-campus promotions, etc.

A house-selling agent segments houses by price,  location and, unusually, by state of repair. Market segments then include 'immaculates' and 'improvers'. Marketing material for immaculates include furnishing ideas and furnisher links. Material for improvers include suggestions for improvement and links to local builders and suppliers.

Discussion

All customers are different and the ideal segment size is one person, with all products and marketing customized to the person. In high-end and early markets this may be possible, but for larger markets it is impractical as it would cost far more.

Segmentation is hence an economic compromise. This has a price in that products and marketing may not suit all customers and there will be a customer sacrifice effect.

See also

Understanding Customers

 

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