What is Market Segmentation?

What is market segmentation?

Market segmentation is the first step in defining and selecting a target market to pursue. Basically, market segmentation is the process of splitting an overall market into two or more groups of consumers. Each group (or market segment) should be similar in terms of certain characteristics or product needs.


Definitions of market segmentation

The concept of market segmentation was first identified by Smith back in the 1950s. He was one of the first to recognize the importance of market segmentation, as shown in the following quote:

  • “Market segmentation is based upon developments on the demand side of the market and represents a rational and more precise adjustment of product and marketing effort to consumer or user requirements.” (Smith, 1956)

To clarify this statement in simple language, he basically saw market segmentation being an important tool to enable marketers to better meet customer needs. Since that time, market segmentation has become a widely accepted and used marketing approach. Here are some more recent definitions of what is market segmentation:

  • “Market segmentation is the process of splitting customers, or potential customers, in a market into different groups, or segments, within which customers share a similar level of interest in the same, or comparable, set of needs satisfied by a distinct marketing proposition” (McDonald & Dunbar, 2004)
  • “Market segmentation involves aggregating prospective buyers into groups that (1) have common needs and (2) will respond similarly to a market action.” (Kerin, 2011)

Both of these definitions highlight that market segmentation is designed to split customers into similar groups. They also indicate that market segmentation is simply a step in the process of identifying and evaluating potential target markets, which is best achieved by breaking the overall market into smaller, related groups of consumers. Therefore, an alternate definition provided by this market segmentation study guide is:

  • Market segmentation is the process of splitting a market into smaller groups with similar product needs or identifiable characteristics, for the purpose of selecting appropriate target markets.