Market Segment

Updated on March 21, 2024
Article byWallstreetmojo Team
Edited byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

What is Market Segment?

Market segment refers to the classification of customers for marketing purposes depending on several factors like their preferences, shopping habits, needs, etc. Segmentation targets improved marketing and delivery of goods or services with the help of research. Grouping of customers is done by lumping customers into groups with similar characteristics.

Market segmentation helps brands to gain a better understanding of the market. It reveals crucial information regarding the positioning and targeting of products and services. Segmentation allows the company to outperform its competitors through research and developmentResearch And DevelopmentResearch and Development is an actual pre-planned investigation to gain new scientific or technical knowledge that can be converted into a scheme or formulation for manufacturing/supply/trading, resulting in a business advantage.read more. Market segment analysis helps in improving the delivery of goods and services along with an increase in profits. 

Key Takeaways

  • A market segment is a group of individual consumers classified based on similar tastes and preferences. Companies and marketers group them to fetch information required to develop a business’s product and services to increase their profit.
  • Segmentation can aid the business in analyzing various factors such as the strength of competitors, consumer preferences, future requirements, the future scope of an opportunity, and finding solutions to existing problems.
  • Behavioral, demographic, geographic, product-related, and psychographic segmentation are some of the major types of market segments. However, each business is unique, and therefore the classifications may differ.

Market Segment Explained

Market Segment

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Market Segment (wallstreetmojo.com)

Market segment strategy focuses on a potential customer base to derive details such as their needs, preferences, and expectations for developing plans for further improvement of its products and services. Businesses do this because they understand that they cannot appeal to all customers in the market, at least not in the same way. Customers come from varied backgrounds with different interests and preferences. The best possible way to capture an audience for their product or services is to identify fragments of the market they can serve best and attain profit in the meantime.

Market segment analysis by dividing the market into homogeneous subgroups can help companies create plans for competitive advantages. They can thus develop marketing strategies and pricing mechanisms to maximize profit. The knowledge derived from these actions can aid in further market researchMarket ResearchMarket research refers to a business strategy wherein an organization analyzes the market trends, competition, and consumer preferences ahead of launching new products or services. It involves collecting and interpreting data during product development or marketing to help businesses make informed decisions. read more. Companies can thus plan for future products years ahead with such analysis. Not being limited to the above, data derived can be used to map out customer requirements and cater to their needs with precision. Thus, market segmentation lays the foundation for target marketing and product positioning to gain the upper hand in identifying buyer needs better than the company’s competitors.

Financial Modeling & Valuation Courses Bundle (25+ Hours Video Series)

–>> If you want to learn Financial Modeling & Valuation professionally , then do check this ​Financial Modeling & Valuation Course Bundle​ (25+ hours of video tutorials with step by step McDonald’s Financial Model). Unlock the art of financial modeling and valuation with a comprehensive course covering McDonald’s forecast methodologies, advanced valuation techniques, and financial statements.

Types of Market Segment

#1 – Demographic Segmentation

Demographic segmentation involves grouping individuals based on age, gender, education, occupation, income, marital status, family size, religion, race, and nationality. It is easy to segregate customer marketing widely using these as they are relatively easy to measure and are inexpensive. In addition, demographic segmentation can be used with other types to better analyze the consumers.

#2 – Geographic Segmentation

Geographic segmentation is based on location. This type of segregation involves taking climate, topography, vegetation, natural resources, population density, etc. These groups can be further classified intp various sub-segments. This can help the brands develop location-based advertisements tailored to a smaller area or for local businesses to form their marketing strategy.

#3 – Psychographic Segmentation

The market segment focuses on individuals’ personality traits, values, ideologies, motives, choices, and lifestyles in psychographic segmentation. Businesses can use the data either by itself or combined with other segmentation criteria for a deeper analysis.

#4 – Behavioral Segmentation

Here, the market segment target focus is on the behavioral aspects of an individual’s purchase decisions. For example, the volume of products purchased, the price range of the services requested, their order frequencies, etc., are a few such factors. In addition, with the advent of online shopping, it has become easier to analyze the consumer’s preferences like app usage, website actions, usage rates, search habits, etc.

Product-related segmentation concentrates on the products and services that have to be marketed to the target group. Brands and businesses analyze the needs and requirements for specific purposes to conclude the target group for marketing. 

Market Segment Examples

The following examples can give readers a basic understanding of segmentation.

#1 – Behavioral Segmentation 

Social media companies usually opt for this segmentation. When the TikTok application became popular among all age groups, particularly teenagers, Instagram introduced a similar feature called reels to gain more traction, especially in those countries where governments banned the former application. Accordingly, Instagram analyzed the prevailing trend and considered the short span of attention people possess, and it took advantage of the opportunity.

#2 – Demographic Segmentation

Suppose there is a travel company and a market for destination weddings waiting to be explored. In this case, the target segment for the same will be majorly belonging to 22-35 years of age as they will be employed with substantial income and willing to get married.

#3 – Geographic Segmentation

Suppose a car company wants to manufacture a new line of productsLine Of ProductsProduct Line refers to the collection of related products that are marketed under a single brand, which may be the flagship brand for the concerned company. Typically, companies extend their product offerings by adding new variants to the existing products with the expectation that the existing consumers will buy products from the brands that they are already purchasing.read more. Geographical segmentation can be a crucial factor here. For example, suppose the market they want to explore is rocky terrain, the ideal choice would be a “Jeep” as they offer a compact mode of transportation compared to other variety of road transport.

A clothing company will look into this aspect while manufacturing clothes. For example, kids require soft materials that are not harmful, while a person working in a hazardous occupation needs special clothing. If the company wants to cater to people in such fields, that is their market segment.

#5 – Psychographic Segmentations

Clothing companies can be taken as examples here, too. Suppose a company wants to introduce a clothing line. Firstly, they can investigate different groups of individuals. If they are affluent business class people, their clothing requires high standards and comfort. Their clothes should also look affluent and suit their lifestyle and preferences. Whereas, if the target group is common individuals who like to travel with comfortable yet stylish pieces of clothing under subsidized rates, the company will select employed and young people.

Benefits

The benefits of a market segment are listed down below:

  • Businesses can better understand their target consumers’ needs, wants, and requirements. 
  • Enables businesses to let out “tailor fit” solutions to the target group by carefully analyzing the problem.
  • Market segment analysis reveals critical information about the existing services and products, the missing factors in their competitors, or the positive factors that need to be incorporated to succeed. Analysis of competitors’ strengths and weakness opens doors for new business opportunities.
  • Companies can derive market segment strategy through data available from existing research. Thus, segmenting gives the route map for a more systematic approach to reaching their business goals.
  • It helps businesses focus on creating a brand identity through thorough analysis and implementation of feedback by making informed business decisions.

Frequently Asked Questions 

What are the four main market segments?

Behavioral, demographic, geographic, and psychographic segmentation are the four main market segments.

What is a market segment example?

In their daily lives, health-conscious people make a conscious effort to avoid junk foods and limit their carbohydrate intake. These decisions are made to improve their health. Companies analyze if new products or services can contribute better to the situation. Organic food is one way in. It’s especially useful for young people who meet certain income requirements. Companies group such people and market the products exclusively for this particular market segment of individuals.

How do you identify market segments?

Generally speaking, businesses need to know the products and services they want to research on; it shall then categorize people into homogenous sub-groups with identifiable characteristics. They shall then analyze the responses accordingly.

What makes a good market segment?

Businesses should have a clear goal in unity with the segments. They should be identifiable, yet differential from other segments shall be a large sample, accessible for feedback, stability of the segment chosen (e.g., fashion is dynamic across countries, so analysis on a global scale will be difficult).

This has been a guide to Market Segment and its Definition. Here we explain the market segment types, examples, and its benefits. You can learn more about accounting from the articles below –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *