What is market segmentation?
A market is all the people who might buy a product. They differ in age, income, place and taste.
Market segmentation = dividing the market into smaller groups, called segments, whose members have similar needs and buying behaviour.
Selling one product the same way to everyone is mass marketing. Segmentation lets a firm make offers that fit each group better. It is the first step of STP: Segmentation → Targeting → Positioning.
Bases of segmentation
- Geographic: country, region, city or village, climate. (Heaters sell in cold places; small packs in rural areas.)
- Demographic: age, gender, income, family size, education, occupation, religion. The most used base because it is easy to measure.
- Psychographic: lifestyle, interests, values, personality, social class. (Fitness lovers, eco-conscious buyers.)
- Behavioural: how often people buy (heavy/light users), brand loyalty, the benefit they want (whiteness, sensitivity, price), occasion (festival, exam season).
Firms often combine bases, e.g. "young city professionals who care about fitness".
A good segment is
Measurable (size and spending can be estimated), substantial (big enough to be profitable), accessible (can be reached by promotion and distribution), and different from other segments in what it needs.
Benefits and limits of segmentation
Benefits
- Understand customers better and meet their needs.
- Design products, prices and promotions that fit; higher sales and loyalty.
- Spend marketing money efficiently (less waste on the wrong people).
- Spot gaps and niche opportunities; compete better.
- Charge higher prices to segments that value extra features.
Limits: more products and campaigns cost more; segments may be too small; customer tastes change; data can be wrong or out of date.
Targeting: choosing the market
After segmenting, the firm judges each segment (size, growth, profit, competition, fit with its own strengths) and selects its target market.
- Undifferentiated (mass) marketing: one offer for the whole market. Cheap, but weak fit. (Salt, basic sugar.)
- Differentiated marketing: several segments, a different marketing mix for each. Strong fit, but costly.
- Concentrated (niche) marketing: one small segment served very well. Good for small firms, but risky if that segment shrinks.
Positioning and the positioning map
Positioning is deciding the clear, distinct place a brand should hold in the target customer's mind compared with competitors, for example "safest car", "cheapest airline", "most premium phone".
A positioning (perceptual) map plots brands on two features customers care about (price and quality, healthy and tasty). It shows where rivals are crowded and where gaps may exist. A gap must be checked with research; it may exist because no one wants it.
The position is supported by the marketing mix (product, price, place, promotion) and summed up in a clear value proposition. A firm may reposition a brand when tastes or competition change.
Try it
Pick a product you use, like a school bag or a soft drink. List three brands. For each, write its likely target segment (age, income, lifestyle) and its position in one sentence. Draw a positioning map with price and style as axes. Where is the gap? Then use the 3D buttons to regroup the same customers by different bases.
Key formulas and definitions
- STP = Segmentation → Targeting → Positioning
- Bases: geographic, demographic, psychographic, behavioural
- Good segment: measurable, substantial, accessible, different
- Targeting: undifferentiated (mass), differentiated, concentrated (niche)
- Segment share (%) = customers in segment ÷ total customers × 100
- Segment value = number of buyers × average spend per buyer
Worked examples
1. A shoe company makes school shoes for children, running shoes for athletes and formal shoes for office workers. Name the bases used.
Demographic (age, occupation) and psychographic/behavioural (sporty lifestyle, benefit wanted: performance). It is differentiated marketing.
2. A town has 20,000 phone buyers. 4,000 are students who spend about ₹12,000 each. Find the segment share and the segment value.
Share = 4,000 ÷ 20,000 × 100 = 20%. Value = 4,000 × ₹12,000 = ₹4,80,00,000 (₹4.8 crore).
3. A small bakery wants to compete with big supermarket bread brands. Recommend a targeting strategy and position.
Concentrated (niche) marketing: target health-conscious, higher-income local customers who value freshness. Position as "freshly baked every morning with natural ingredients" at a premium price, sold in its own shop and nearby cafés. It avoids head-on price competition with big brands.
Common mistakes
- Thinking segmentation means selling only to rich people. Any group can be a segment.
- Mixing up targeting (choosing the segment) and positioning (the image in customers' minds).
- Choosing a segment that is too small to make a profit.
- Treating every gap on a positioning map as an opportunity without checking demand.