Definition: Market segmentation is the process of evaluating and categorizing customer groups to enable targeted marketing efforts. Businesses of every size undergo market segmentation to better understand and satisfy the needs of different consumers, also called target demographics, to improve marketing efforts and offer the best products.
Mass marketing, conversely, treats the entire market as homogenous. The business offers the same marketing mix to everyone, scaling efforts and saving costs through a single mass production, distribution and communication strategy. Mass marketing was a much more common business practice before consumer data became more widely accessible.
The marketplace today is fragmented by a plethora of choices that grows by the day. People have more options for goods and services than ever before, and they've become accustomed to personalizing products that cater to their individual tastes. Streaming music services and cellphone apps are a great example of this.
As this trend toward "product personalization" grows, market segmentation is an indispensable tool for creating brand awareness and loyalty. Businesses must use data to focus on narrower slices of the marketplace, identifying shared attributes in a group of people and using it to reach them on a more personal, and hopefully profitable, level.
Customers can be segmented by many values or criteria. The following four categories include hundreds of various dimensions which can be used to pinpoint specific customer groups.
In order for a market segment to be useful, it must have measurable characteristics. If a business owner wants to effectively target a specific market segment, he or she needs to carefully evaluate those characteristics to ensure money is not wasted on trying to reach the wrong people.