Market segmentation

Market segmentation is the process of dividing a larger market into smaller groups of consumers who share similar needs and wants. Each group is called a market segment, and a segment is always a group of customers with something in common, not one individual shopper.

A target market is the customer group a business decides to serve with its product or service. Once a market has been split up, a business chooses the segment it can serve best and aims its product and its marketing at those people.

Why businesses target a segment

No single product can suit every shopper. A drink that is cheap enough for a student, sweet enough for a young child and low in sugar for a gym-goer will probably please nobody. Focusing on one group lets a business understand that group's needs properly and build something that fits closely.

Segmentation also protects the marketing budget. An advert reaches whoever sees it, so a business aiming at everyone pays to reach thousands of people who would never buy. Narrowing the target means money goes on customers who are likely to say yes.

For example, Bright Bags sells backpacks. Rather than one plain bag for everyone, it sells sturdy 20-litre bags with padded laptop sleeves for 11 to 16 year olds who carry a laptop to school, and advertises on the video apps they use. Shoppers wanting a leather briefcase would not buy one, so the business does not pay to reach them.

The main ways to segment a market

Customers in the same group often share similar needs, so a business can target them together:

• Location — where customers live, such as a region, a town or a city centre.
• Demographics — characteristics of the population, such as gender or family size.
• Lifestyle — how people spend their time and what interests them.
• Income — how much customers have to spend.
• Age — the age group a product suits.

Segmentation is not the same as market research. Research collects information about customers; segmentation sorts those customers into groups.