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Term: Market Segmentation

28 Feb 2024

Orange segments

Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, interests, or characteristics. The purpose of segmentation is to better understand and meet the specific needs of different customer groups, thereby improving targeting, product development, and overall marketing effectiveness.

Benefits of Market Segmentation:

  1. Targeted Marketing: By segmenting the market, companies can tailor their marketing strategies and messages to specific groups, leading to more relevant and effective campaigns.
  2. Improved Customer Satisfaction: Understanding the unique needs of different segments allows companies to provide products and services that better meet customer expectations.
  3. Enhanced Profitability: Targeted marketing efforts often result in higher conversion rates and increased customer loyalty, ultimately boosting profitability.
  4. Resource Optimization: Segmenting the market helps companies allocate resources more efficiently by focusing on the most profitable customer segments.
  5. Competitive Advantage: Effective segmentation can help differentiate a company’s offerings from competitors, leading to a more competitive position in the market.

Types of Market Segmentation:

  1. Demographic Segmentation: Dividing the market based on demographic factors such as age, gender, income, education, occupation, etc.
  2. Psychographic Segmentation: Grouping consumers based on lifestyle, values, attitudes, interests, and personality traits.
  3. Behavioral Segmentation: Classifying consumers based on their purchasing behavior, usage patterns, brand loyalty, and buying motives.
  4. Geographic Segmentation: Segmenting the market by geographic regions, such as countries, states, cities, or neighborhoods.

Market Segmentation Formulas:

  1. Segmentation Index: (Percentage of total segment / Percentage of total population) * 100 – Helps quantify the relative importance of a segment compared to the total market.


  1. Kotler, P., & Armstrong, G. (2017). Principles of marketing. Pearson Education.
  2. McDonald, M., & Dunbar, I. (2012). Market segmentation: How to do it, how to profit from it. John Wiley & Sons.

By effectively implementing market segmentation, businesses can gain a deeper understanding of their customers and develop targeted strategies to drive growth and success in today’s competitive marketplace.

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