Market segmentation

Market segmentation is a marketing strategy which involves dividing a broad target market into subsets of consumers, businesses, or countries that have, or are perceived to have, common needs, interests, and priorities, and then designing and implementing strategies to target them. Market segmentation strategies are generally used to identify and further define the target customers, and provide supporting data for marketing plan elements such as positioning to achieve certain marketing plan objectives. Businesses may develop product differentiation strategies, or an undifferentiated approach, involving specific products or product lines depending on the specific demand and attributes of the target segment.

It could be useful in:

• Product design: make a different product for the different needs (product differentiation). Sometimes could be driven by economic reasons. That creates the market strategy of price discrimination in which the product designed segmentation is price-driven.
• Marketing: target marketing in order to sell the same product in a differentiate way or to different market segments.

There are two main types of market segmentation:

• Uni-variable segmentation. By a specific features. The more used ones are:
  • Geographically
  • Demographically
  • Behavior
  • Psychographic segmentation
  • Ocasional segmentation
  • By benefits
  • Cultural
• Multi-variable segmentation. Using general combination of features and machine learning algorithms. There are clustering algorithms and unsupervised methods to tackle that problem.

The main decisions to take are the 4 p’s:

• Product
• Price
• Promotion
• Place

See also

Papers

• Anderson E.T. and James D.(2006) Integrating Models of Price Discrimination. Kellog School of Management. Northwestern University.
• Wei, X., & Nault, B. (2005). Product differentiation and market segmentation of information goods. Haskayne School of Business Working Paper.
• Moorthy, K., and I. P. L. Png (1992). Market Segmentation, Cannibalization, and the Timing of Product Introductions. Management Science, 38(3), 345-359
• Frank, R. E., Massey, W. F., & Wind, Y. (1972). Market segmentation. Prentice Hall.
• Kamakura, W. A., & Russell, G. (1989). A probabilistic choice model for market segmentation and elasticity structure. Journal of marketing research, 26, 379-390.
• Dickson, P. R., & Ginter, J. L. (1987). Market segmentation, product differentiation, and marketing strategy. The Journal of Marketing, 1-10.
• Goodman, A. C., & Thibodeau, T. G. (1998). Housing market segmentation. Journal of housing economics, 7(2), 121-143.
• Moorthy, K. S. (1984). Market segmentation, self-selection, and product line design. Marketing Science, 3(4), 288-307.
• Reich, M., Gordon, D. M., & Edwards, R. C. (1973). A theory of labor market segmentation. The American Economic Review, 63(2), 359-365.

Books

• Wedel, M., & Kamakura, W. A. (2012). Market segmentation: Conceptual and methodological foundations (Vol. 8). Springer Science & Business Media.