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The Value of Market Segmentation

To compete and stay relevant in the business world today, understanding you customers is powerful. One way to gain this understanding is through market segmentation. Categorizing a broad consumer market can help businesses meet the needs of their customers more effectively. The following shall explore market segmentation and how it can benefit your business. 

What is Market Segmentation?

Market Segmentation is the process of dividing a market into smaller groups with distinct characteristics, needs, or behaviors that may require separate marketing strategies or mixes (Karri, n.d.). To maximize profit the goal of segmentation is to identify the segments that are likely to be the most profitable. For example, in the portrait photography business, family shoots such as fall minis can earn you profit however, headshots are likely to earn you more. These segments of customers look very different and so does how you target them with marketing. 

Types of Market Segmentation

There are four variables of market segmentation: geographic, demographic, psychographic, and behavioral. Often, more than one variable is used to define segments (Karri, n.d.). Geographic segmentation describes the region of the world and country as well as the size, density and climate of the area (Karri, n.d.). Demographic segmentation is easier to measure than other variables (making it the most popular of the four) and defines age, income, gender, occupation, race, religion, education, family size, generation, and nationality (Karri, n.d.). Psychographic segmentation divides the market based on lifestyle, personality characteristics and social class while, behavioral segmentation divides the market based on attitudes, uses or responses to a product and consumer knowledge. (Karri, n.d.). To be effective, market segments must be accessible, measurable, differentiable, substantial and actionable (Karri, n.d.). 

Benefits of Market Segmentation

The benefits of market segmentation are numerous. Businesses that target specific segments experience increased market efficiency due to focusing their efforts on the most profitable segments (Tarver, 2024). They have better product development and increased revenue and customer satisfaction due to better understanding the specific demands of their segments and meeting them (Tarver, 2024). Businesses with effective market segmentation also enjoy a competitive advantage as this allows them to differentiate themselves from their competitors and stand out (Tarver, 2024). Lastly, market segmentation allows for improved customer relationships, brand perception and customer loyalty due to a deeper understanding of the specific preferences, needs and behaviors of the defined customer group or segment (Tarver, 2024).

In conclusion, market segmentation can help businesses better understand and therefore serve their customers. Having a better understanding of your client base can go a long way in improving a business's profits. After dividing the market into more manageable segments, businesses are able to create more targeted and effective marketing strategies that can lead to increased success and higher customer satisfaction (Karri, n.d.). No matter the size of the business, effective market segmentation can provide a significant competitive edge in today's business world.   

Karri. (n.d.). Creating value for target customers. UIS Canvas. https://uispringfield.instructure.com/courses/14103/pages/module-3-lecture-materials-marketing-overview?module_item_id=739737 

Tarver, E. (2024, June 27). Market segmentation: Definition, examples, types, benefits. Investopedia. https://www.investopedia.com/terms/m/marketsegmentation.asp  

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