The purpose for segmenting a market is to allow your marketing/sales program to focus on the subset of prospects that are “most likely” to purchase your offering. If done properly this will help to ensure the highest return for your marketing/sales expenditures. Depending on whether you are selling your offering to individual consumers or a business, there are definite differences in what you will consider when defining market segments.

Why do businesses need to segment their markets? Because customers differ in the…

  • Benefits they want
  • Amount they are able to or willing to pay
  • Media (e.g. television, newspapers, and magazines) they see
  • Quantities they buy
  • Time and place that they buy

Market segmentation offers the following potential benefits to a business:

Better matching of customer needs Customer needs differ. Creating separate products for each segment makes sense
Enhanced profits for business Customers have different disposable incomes and vary in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits
Better opportunities for growth Market segmentation can build sales. For example, customers can be encouraged to “trade-up” after being sold an introductory, lower-priced product
Retain more customers By marketing products that appeal to customers at different stages of their life (“life-cycle”), a business can retain customers who might otherwise switch to competing products and brands.
Target marketing communications Businesses need to deliver their marketing message to a relevant customer audience. By segmenting markets, the target customer can be reached more often and at lower cost
Gain share of the market segment Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors
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