A market segment is a subgroup of people or organizations sharing one or more characteristics that cause them to have similar product needs. A true market segment meets all of the following criteria: it is distinct from other segments (heterogeneity across segments), it is homogeneous within the segment (exhibits common attributes); it responds similarly to a market stimulus, and it can be reached by a market intervention.

Market segmentation is the process of classifying a market into distinct subsets (segments) that behave in similar ways or have similar needs. The segmentation process in itself consists of segment identification, segment characterization, segment evaluation and target segment selection. If each segment is fairly homogeneous in its needs and attitudes, it is likely to respond similarly to a given marketing strategy. That is, they are likely to have similar feelings and ideas about a marketing mix comprising a given product or service, sold at a given price, and distributed and promoted in a certain way.

Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private sector. Generally segmentation is conducted using demographic, geographic, attitudinal or behavioral data. Small segments are often termed niche markets or specialty markets. However, all segments fall into either consumer or industrial markets. Although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives.

The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behaviour; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved.

Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness (Porter). With the right segmentation, the right lists can be purchased, advertising results can be improved and customer satisfaction can be increased.

Successful Segmentation

Successful segmentation requires the following

• homogeneity within the segment
• heterogeneity between segments
• segments are measurable and identifiable
• segments are stable over time
• segments are accessible and actionable
• target segment is large enough to be profitable

Variables Used for Segmentation

• Geographic variables
• region of the world or country, East, West, South, North, Central, coastal, hilly, etc.
• country size/country size : Metropolitan Cities, small cities, towns.
• Density of Area Urban, Semi-urban, Rural.
• climate Hot, Cold, Humid, Rainy.
• Demographic variables
• age
• gender Male and Female
• family size
• family life cycle
• education Primary, High School, Secondary, College, Universities.
• income
• occupation
• socioeconomic status
• religion
• nationality/race (ethnic marketing)
• language
• Psychographic variables
• personality
• life style
• value
• attitude
• Behavioral variables
• benefit sought
• product usage rate
• brand loyalty
• product end use
• readiness-to-buy stage
• decision making unit
• profitability
• income status