ARTIFICIAL INTELLIGENCE

“Market segmentation is the strategic process of dividing a broad consumer or business market into smaller, distinct groups (segments) of individuals or organisations that share similar characteristics, needs, and behaviours. It is a foundational element of business unit strategy.” – Market segmentation –

Market segmentation is the strategic process of dividing a broad consumer or business market into smaller, distinct groups (segments) of individuals or organisations that share similar characteristics, needs, behaviours, or preferences, enabling tailored marketing, product development, and resource allocation^1,2,3,5.

This foundational element of business unit strategy enhances targeting precision, personalisation, and ROI by identifying high-value customers, reducing wasted efforts, and uncovering growth opportunities^2,3,5.

Key Types of Market Segmentation

Market segmentation typically employs four primary bases, often combined for greater accuracy:

• Demographic: Groups by age, gender, income, education, or occupation (e.g., tailoring products for specific age groups or income levels)^2,3,5.
• Geographic: Divides by location, climate, population density, or culture (e.g., localised pricing or region-specific offerings like higher SPF sunscreen in sunny areas)^3,5.
• Psychographic: Based on lifestyle, values, attitudes, or interests (e.g., targeting eco-conscious consumers with sustainable products)^2,5.
• Behavioural: Focuses on purchasing habits, usage rates, loyalty, or decision-making (e.g., discounts for frequent travellers)^3,5.

Firmographic segmentation applies similar principles to business markets, using company size, industry, or revenue³.

Benefits and Strategic Value

• Enables more targeted marketing and personalised communications, boosting engagement and conversion^2,3.
• Improves resource allocation, cutting costs on inefficient campaigns^2,3,5.
• Drives product innovation by revealing underserved niches and customer expectations^2,3.
• Enhances customer retention and loyalty through relevant experiences^3,5.
• Supports competitive positioning and market expansion via upsell or adjacent opportunities^3,4.

Implementation Process

Follow these structured steps for effective segmentation^3,5:

1. Define the market scope, assessing size, growth, and key traits.
2. Collect data on characteristics (e.g., via surveys or analytics).
3. Identify distinct segments with shared traits.
4. Evaluate viability (e.g., size of prize, right to win via competitive advantage)⁴.
5. Develop tailored strategies, products, pricing, and messaging; refine iteratively.

Distinguish from customer segmentation (focusing on existing/reachable audiences for sales tactics) and targeting (selecting segments post-segmentation)^3,4.

Best Related Strategy Theorist: Philip Kotler

Philip Kotler, often called the “father of modern marketing,” is the preeminent theorist linked to market segmentation, having popularised and refined it as a core pillar of marketing strategy in the late 20th century.

Biography: Born in 1931 in Chicago to Ukrainian Jewish immigrant parents, Kotler earned a Master’s in economics from the University of Chicago (1953), followed by a PhD in economics from MIT (1956), studying under future Nobel laureate Paul Samuelson. He briefly taught at MIT before joining Northwestern University’s Kellogg School of Management in 1962, where he became the S.C. Johnson Distinguished Professor of International Marketing. Kotler authored over 80 books, including the seminal Marketing Management (first published 1967, now in its 16th edition), which has sold millions worldwide and trained generations of executives. A prolific consultant to firms like IBM, General Electric, and AT&T, and advisor to governments (e.g., on privatisation in Russia), he received the Distinguished Marketing Educator Award (1978) and was named the world’s top marketing thinker by the Financial Times (2015). At 93 (as of 2024), he remains active, emphasising sustainable and social marketing.

Relationship to Market Segmentation: Kotler formalised segmentation within the STP model (Segmentation, Targeting, Positioning), introduced in his 1960s-1970s works, transforming it from ad hoc practice into a systematic strategy. In Marketing Management, he defined segmentation as dividing markets into “homogeneous” submarkets for efficient serving, advocating criteria like measurability, accessibility, substantiality, and actionability (MACS framework). Building on earlier ideas (e.g., Wendell Smith’s 1956 article), Kotler integrated it with the 4Ps (Product, Price, Place, Promotion), making it indispensable for business strategy. His frameworks, taught globally, underpin tools like those from Salesforce and Adobe today^2,4,5. Kotler’s emphasis on data-driven, customer-centric application elevated segmentation from analysis to a driver of competitive advantage, influencing NIQ and Hanover Research strategies^1,3.