Market segmentation consists of identifying sections of the market that are differ from the others. This allows a company to cater to the needs of customers in a more satisfactory way. But before delving deeper into this concept, we need to refer to two related yet opposing terms, mass marketing and target marketing.

In mass marketing, the market is seen as a homogeneous group and the same marketing mix is offered to all customers. Mass marketing allows economies of scale to achieve their full potential by means of mass production, mass distribution, and mass communication. The disadvantage of mass marketing is that customers have different needs and wants, so a single offer is not likely to please each and every single customer. When the customer’s different needs are not recognized by established companies, a new one is likely to offer a product ti supply a specific market segment, in a classic example of market penetration.

By contrast, target marketing acknowledges the customers’s diversity and accordingly offers a supply varied enough to appeal to as many market segments as possible. Therefore, he first step in target marketing is to determine distinct segments and their particular needs. In order for market segmentation to produce meaningful results, some conditions are required. For example, the factors that differentiate each segment should be measurable, the segments must be accessible through communication and distribution channels and be large enough to justify an investment. Also, a particular segment should have unique needs that justify a separate offer. Finally, the segments should be stable so as to reduce the risk of costs that frequent changes might elicit. A smart segmentation will lead to segments that are very similar internally while at the same time being as different from other segments as possible.

Markets can be broken down into different segments geographically (by region, size of population, density of population, and climate), demographically (by age, gender, family size, family lifecycle, generation, income, occupation, education, ethnicity, nationality, religion, social class, etc), psychographically (by activities, interests, opinions, attitudes and values) and bevavioralistically (by benefits sought, usage rate, brand loyalty, user status, readiness to buy, and occasions such as holidays and events that stimulate purchases).

As opposed to consumers, industrial customers such as manufacturers, service providers, resellers, institutions and the government, are usually fewer in number and buy larger quantities. However, some of the market segmentation mentioned before can be applied to them as well. Industrial markets may be segmented based on traits such as location (in some industries companies tend to bundle together and share similar needs), company type (company size, industry, purchase criteria) and behavioral characteristics (usage rate, buying status, purchase procedure).