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Market Segmentation

MARKDOWNS market is viewed as being made up of several smaller seg-
ments, each different from the other. This approach
SEE Pricing
enables businesses to identify one or more appealing seg-
ments to which they can profitably target their products
and marketing efforts.
MARKET ECONOMICS The market-segmentation process involves multiple
steps (Figure 1). The first is to define the market in terms
SEE Economic Systems
of the product’s end users and their needs. The second is
to divide the market into groups on the basis of their char-
acteristics and buying behaviors.

MARKET Possible bases for dividing a total market are different
for consumer markets than for industrial markets. The
SEGMENTATION most common elements used to separate consumer mar-
Market segmentation is one of two general approaches to kets are demographic factors, psychographic characteris-
marketing; the other is mass-marketing. In the mass-mar- tics, geographic location, and perceived product benefits.
keting approach, businesses look at the total market as Demographic segmentation involves dividing the mar-
though all of its parts were the same and market accord- ket on the basis of statistical differences in personal char-
ingly. In the market-segmentation approach, the total acteristics, such as age, gender, race, income, life stage,

The market segmentation process

Step 1 Step 2 Step 3

A
B
C
F
D E

Defining the Finding Narrowing down
market segments the choices

Step 4 Step 5

A A

F F
D D

Picking the Developing the
winners plan of attack

SOURCE: Compiled from Croft, Michael J. (1994). Market Segmentation: A Step-by-Step Guide to Profitable New Business. London: Routledge.

Figure 1

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 487