Market segmentation

In marketing, market segmentation or customer segmentation is the process of dividing a consumer or business market into meaningful sub-groups of current or potential customers, known as segments. The objective is to identify profitable and growing segments that a company can target with tailored marketing strategies.

When segmenting markets, researchers typically examine common characteristics such as shared needs, interests, lifestyles, or demographic profiles. The goal is to identify high-yield segments—those likely to be the most profitable or exhibiting growth potential—so they can be prioritized as target markets.

Different approaches to segmentation exist depending on the market context. Business-to-business (B2B) marketers may segment markets based on company type, industry, or geographic location, while business-to-consumer (B2C) marketers often segment customers by demographic, behavioral, lifestyle, or socioeconomic criteria.

Market segmentation assumes that different market segments require different marketing programs – that is, different offers, prices, promotions, distribution, or some combination of marketing variables. Market segmentation is not only designed to identify the most profitable segments but also to develop profiles of key segments to better understand their needs and purchase motivations. Insights from segmentation analysis are subsequently used to support marketing strategy development and planning.

In practice, marketers implement market segmentation using the S-T-P framework, which stands for Segmentation → Targeting → Positioning. That is, partitioning a market into one or more consumer categories, of which some are further selected for targeting, and products or services are positioned in a way that resonates with the selected target market or markets.