Anova used an example to explain what segmentation is

Market segmentation

Market segmentation is a central part of marketing. After a definition, the theory is illustrated with an example. You will learn which criteria are used to form the market segments and why market segmentation is so important for companies.

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Market segmentation definition

Basically, all consumers in a market have individual needs and requirements. As part of the market segmentation, all these heterogeneous consumers are analyzed and grouped into individual market segments according to certain buyer characteristics. There are then homogeneous consumers within the segments. Editing the segments is much easier because specific marketing tools can be used. Put simply, the target groups in a submarket can be better understood and more easily encouraged to buy with the right advertising.

In summary, the market segmentation consists of three steps:

  • Market coverage (information page)
  • Market sharing process (action page)
  • Market cultivation with the help of suitable marketing instruments (campaign page)

If a company is now committed to a segment, it is called a concentrated marketing strategy. If, on the other hand, it is present in several sub-markets, this is referred to as a differentiated marketing strategy.

Market segmentation criteria

But how do consumers actually differ? The sensible division, description and processing of market segments can take place according to different criteria:

Demographic segmentation

The demographic segmentation divides the market according to characteristics such as age, educational level, income, occupation and household size. This is the simplest and most common form of market segmentation. Because mostly demographic factors separate consumers and thus their needs and willingness to pay very clearly. Students, for example, make up a demographic market segment. These are roughly the same age, the same level of education and will later have an above-average income.

Geographic segmentation

Depending on the region, needs, preferences and interests can vary greatly. Geographical boundaries create market segments that need to be addressed differently. In the soft drink industry, the sweetness differs depending on the country-specific preferences. Have you ever had an American cola? It's much cuter!

Psychographic segmentation

In psychographic segmentation, consumers are divided according to their attitude to life, habits, values, interests, opinions and personality. A psychographic market segment, for example, is made up of people who opt for a healthy lifestyle and do a lot of sport.

Behavior-based segmentation

Consumers also differ in their purchasing behavior and decision-making patterns. Consumers shop with different frequencies, use products differently and do not all have the same price awareness. These differences enable a behavior-based segmentation of the overall market. In the U.S., supermarkets are often open 24 hours a day, 7 days a week. American customers shop more often and expect 24/7 service from a supermarket.

In practice, these criteria often build on one another. For example, two people can be in the same demographic group but have completely different lifestyles. Then the demographic segmentation is insufficient and the psychographic segmentation is used. The formation of the psychographic segments leads to two sub-markets that are homogeneous in terms of their lifestyle.

Market segmentation example

A manufacturer of care products would like to further subdivide the market for young consumers in order to be able to meet their preferences even better. As an intern in the marketing department, you will be tasked with researching new trends in the market and creating appropriate market segments.

  1. You start to analyze the market with the help of a qualitative survey. After a short time you will realize that the choice of shampoo is particularly dependent on the lifestyle of the customer. So there are heterogeneous consumer groups within the demographic group “young”. The difference arises from different activities, interests and opinions. It is therefore a psychographic segmentation.
  2. This trend is most evident in the difference between luxury and nature. Some of the consumers feel particularly drawn to nature. In general, these consumers do more outdoor sports, are more environmentally conscious and are focusing on a simpler lifestyle. The other part, on the other hand, places more emphasis on aesthetics, comfort and status.
  3. These heterogeneous lifestyles require adapted marketing strategies and products. In order for the two groups to accept new shampoos, the brand experience must match their environment. You therefore recommend two different campaigns: "Love Nature" and "Diamond Hair". These address the two segments in a targeted manner and increase sales through adapted products.

If you had not carried out the market segmentation, the products would not have been accepted in both segments and growth opportunities would remain hidden.

Goals of market segmentation

Overall, the market segmentation is the basis for marketing. Only then can a company meet individual customer needs through specific marketing instruments. This gives a company a competitive edge and new competitor launches are recognized more quickly. In addition, previously undiscovered sub-markets with potential are identified and served accordingly.

All of these sub-goals lead to the main goal of market segmentation: increasing profits and sales. However, segmenting the markets also leads to costs. Defining too many segments can result in costs that exceed the additional benefits of a segment.