Market segmentation is a fundamental part of marketing as it helps marketers break broad and diverse markets into smaller, more focused groups with similar needs and/or behaviors. These groups, known as market segments, can then be selected to be targeted with specific marketing strategies and mixes in order to more efficiently compete and to better meet market needs.
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Academic Definitions of Market Segmentation
There are multiple variations of formal academic definitions of market segmentation, but they all share a similar core idea. Here are some key examples:
- Smith (1956) = Market segmentation involves “viewing a heterogeneous market (one characterized by divergent demand) as a number of smaller homogeneous markets.”
- Grey Advertising Inc., cited in Haley (1985) = “Market segmentation means cutting markets into slices.”
- Littler (1995) = “Market segmentation—the disaggregation of markets into clusters of buyers with similar tastes, preferences, and purchasing behavior.”
- Tynan and Drayton (1987) = “Market segmentation is a crucial marketing strategy. Its aim is to identify and delineate market segments or ‘sets of buyers,’ which would then become targets.”
- Schlager (2022) = “Market segmentation describes the practice of grouping consumers that are alike concerning specific characteristics.”
Common Elements Across the Academic Segmentation Definitions
While the wording of each definition varies, several key similarities emerge across these formal descriptions of market segmentation. These shared elements include:
- Dividing Broad Markets into Groups:
Each definition highlights that market segmentation involves breaking down a heterogeneous market into distinct, homogeneous groups or “slices” (Smith, Grey, Littler). - Grouping Based on Similar Characteristics:
The focus is on identifying consumer clusters with shared traits, such as tastes, preferences, purchasing behavior, or other specific characteristics (Littler, Schlager). - Purpose of Targeting Specific Groups:
The ultimate goal is to identify and define these segments so they can be effectively targeted with tailored marketing strategies (Tynan and Drayton, Schlager). - Strategic Relevance:
Market segmentation is described as a crucial element of marketing strategy, underlining its importance in helping organizations efficiently meet market needs and achieve success (Tynan and Drayton).
Other Definitions of Market Segmentation
If we search across the web, we will find many other, yet quite similar, definitions of market segmentation. As we can see, unlike some other marketing terms, there is general widespread agreement on how to define market segmentation, as follows:
- Investopedia = Market segmentation is a way of aggregating prospective buyers into groups with common needs and who respond similarly to a marketing action.
- Adobe Business = Market segmentation is the process of dividing a target market into smaller, more defined categories.
- Qualtrics = Market segmentation is the practice of dividing your target market into approachable groups.
- Wikipedia = Market segmentation is the process of dividing mass markets into groups with similar needs and wants.
- Shopify = Market segmentation is the dividing of a firm’s target market into groups and subgroups.
As can be seen above, the definitions sourced from websites are very aligned with the formal academic definitions of market segmentation. Both sets of definitions emphasize the core concept of dividing a broad, diverse market into smaller groups or segments with shared characteristics, needs, or behaviors.
Summary Definition of Market Segmentation
Based on the above list of definitions, we can summarize it as being:
- Market segmentation is the process of dividing a broad market into smaller, well-defined groups of consumers with similar characteristics, needs, or behaviors.
You should note the following elements of this summary definition:
- Market segmentation is a process – it is something that we (marketers and analysts) do – as we work through data and information to construct suitable and relevant market segments
- It involves splitting (or breaking or dividing) a larger market into smaller parts, which we refer to as market segments
- Each resulting market segment is defined and clear and distinct from the other market segments
- The consumers in each resulting market segment are similar in some regard – characteristics, needs, or behaviors – that is, a common factor that is helpful for constructing a suitable marketing mix
Reminder: The Purpose of Market Segmentation
It is important to remember that market segmentation is not an end goal in itself but a step in the overall STP process.
Its primary goal is to enable businesses to progress toward targeting and positioning decisions. By dividing a broad market into smaller, more manageable groups with similar needs, behaviors, or characteristics, segmentation enables the identification of which consumer segments are most viable and valuable for the brand to target.
Once segments are identified, the next step is targeting. Targeting involves selecting one or more of these segments as the focus of marketing efforts. At this point, the market segment becomes a target market for the firm. This target market selection decision is strategic and based on factors such as segment size, profitability, accessibility, and alignment with the organization’s goals and capabilities.
In addition, the information gained during the segmentation process also helps guide the development of positioning and marketing mix decisions, as the process itself should generate substantial consumer insights.
FAQs About Market Segmentation
What is the definition of market segmentation?
Market segmentation is the process of dividing a broad market into smaller, well-defined groups of consumers with similar characteristics, needs, or behaviors. These segments help businesses target specific groups effectively and develop tailored marketing strategies.
What are examples of formal definitions of market segmentation?
Here are some examples of formal academic definitions:
- Smith (1956): Market segmentation involves “viewing a heterogeneous market (one characterized by divergent demand) as a number of smaller homogeneous markets.”
- Grey Advertising Inc., cited in Haley (1985): “Market segmentation means cutting markets into slices.”
What are the common elements across definitions of market segmentation?
Key elements shared across definitions include:
- Dividing a large, diverse market into smaller, more manageable groups or “slices.”
- Grouping consumers based on shared traits, such as needs, behaviors, or preferences.
- Enabling tailored marketing strategies to target specific consumer groups effectively.
What is the purpose of market segmentation?
Market segmentation is not an end goal but a step in the STP process (Segmentation, Targeting, and Positioning). Its purpose is to:
- Identify viable and valuable consumer groups.
- Guide the selection of target markets.
- Support effective positioning and tailored marketing mix decisions.
This ensures businesses allocate resources efficiently and meet consumer needs more effectively.
What are the key elements of market segmentation?
Market segmentation includes several important elements that define its process and purpose:
- It is a process: Market segmentation is an active process carried out by marketers and analysts. It involves examining data and insights to construct relevant and actionable market segments.
- Dividing the market: It involves breaking a larger, diverse market into smaller, more focused groups, referred to as market segments.
- Defined and distinct segments: Each market segment is clearly defined and distinct from others, ensuring no overlap or confusion between groups.
- Similarity within segments: Consumers in each segment share common characteristics, needs, or behaviors. These shared traits make it easier to develop tailored marketing mixes that resonate with the specific segment.