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Market segmentation splits up a market into different types (segments) to enable a business to better target its products to the relevant customers.

Segments are usually measured in terms of sales value or volume. In the diagram below, segment B is twice the size of segment C

Why do businesses need to segment their markets? Because customers differ in the…

  • Benefits they want
  • Amount they are able to or willing to pay
  • Media (e.g. television, newspapers, and magazines) they see
  • Quantities they buy
  • Time and place that they buy

Market segmentation offers the following potential benefits to a business:

Better matching of customer needs

Customer needs differ. Creating separate products for each segment makes sense

Enhanced profits for business

Customers have different disposable incomes and vary in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits

Better opportunities for growth

Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being sold an introductory, lower-priced product

Retain more customers

By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands.

Target marketing communications

Businesses need to deliver their marketing message to a relevant customer audience. By segmenting markets, the target customer can be reached more often and at lower cost

Gain share of the market segment

Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors

There are various methods (or "bases") a business can use to segment a market. You'll learn more about the details of these approaches in your later business studies. However, here is a summary:

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