What is Market Segmentation? Know the Definition, Purpose, and Benefits for Business Players

YOGYAKARTA – Market segmentation is an important concept that must be understood by business people so that the business can run smoothly. By understanding market segmentation, businesses can target the most appropriate products or services to potential customers. So, what is market segmentation? Here's the full review!

What is Market Segmentation?

Summarized from various sources, market segmentation is a strategy to know the target consumers better so that the products or services offered can be sold more quickly.

According to Investopedia, market segmentation is defined as an extension of market research that seeks to identify targeted consumer groups. The goal is to minimize risk by determining which products have the best chance of gaining a share in the target market.

From the explanation above, it can be concluded that market segmentation is a strategy for mapping target consumers based on their characteristics, needs, or behavior so that companies are able to better identify consumer groups.

By understanding market segmentation, business people can find out which target consumers are right for their business. So that a business can provide optimal results and have high marketing effectiveness.

The term market segmentation was first echoed by Wendell R. Smith, an academic and economist from the United States.

In 1956, Smith formulated the term in his journal entitled Product Differentiation and Market Segmentation as Alternative Marketing Strategies.

Before the term market segmentation was echoed, competition in the market was not too tight. Products or services circulating in the market are generally still dominated by only 1 or 2 brands. At that time, people had not found many products to be consumed in everyday life.

However, after Wendell R. Smith published his journal, many business people flocked to study market segmentation and create products that were different from competitors.

Business people also adjust the products offered to targeted consumer groups, so that their products or services do not have to compete with the products offered by competitors.

Types of Market Segmentation

In general, market segmentation is divided into four types, including:

Demographic segmentation: Demographic market segmentation is segmenting the target market by their demographics. Demographics here include things like age, gender, income, occupation, education, to race, and religion.
Geographical segmentation: Geographical market segmentation is grouping potential customers based on location aspects.
Behavioral segmentation: Behavioral market segmentation is analyzing the behavior of potential customers when carrying out activities in the market. Some of the variables seen in behavioral segmentation are knowledge, attitudes, reactions, and product usage by a consumer.
Psychographic segmentation: Psychographic market segmentation is an attempt to look at the psychological aspects of prospects. This segmentation allows business people to find out the preferences of the target market for the company and its products, for example, is lifestyle.

What is Market Segmentation? Know the Definition, Purpose, and Benefits for Business Players