Market Segmentation and Targeting

Segmentation is the process of dividing heterogeneous markets into homogeneous subgroups which display similarities in needs, preferences, and/or behaviors. Effectiveness of the segmentation process is evaluated on the basis of measurability, accessibility, substantiality, and responsiveness of the segments identified. Owing to resource constraints, firms are often unable to pursue all the segments they identify and have to concentrate on selected segment(s). This is known as targeting. The discussion here briefly outlines the bases commonly used to segment consumer and business markets. Consumer segmentation based on geographic, demographic, psychographic, and product-related approaches is discussed. Macrolevel bases (i.e., characteristics of the buying organization and purchase situation, product/service application) and microlevel bases (i.e., key criteria, purchasing strategies, structure of decision-making units) of segmenting business markets are also discussed. The discussion concludes by describing popular strategies for targeting market segments (i.e., undifferentiated marketing, differentiated marketing, macromarketing, and micromarketing).