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Literature Review: Market Segmentation


Organizations may not be able to exceed all the customers’ expectations; because of the varied preference of products from individuals; therefore, one product cannot satisfy everyone. In this regard, many organizations have adopted a market segmentation approach to identify the needs and wants of the target customers. Market segmentation is becoming essential and crucial to all marketers in designing and implementing a solid target marketing strategy. It involves dividing the market into groups (segments) and developing products and services for these segments. For instance, this technique is confirmed in the grocery retail industry where customers purchasing behavior needs to be acknowledged in both specific products and interaction among the whole range of products, thus the importance of appropriate market segmentation. Market segmentation is important because it enables the firms to learn about their consumers, such that they have a better understanding of their consumers; needs and wants. It also helps organizations manage their time and money in a better way by identifying which clients are most likely to make a purchase and which are not. It aids with the product development and tailoring of the products to benefit and appeal to the requirements of the target audience base. In this regard, the marketers will focus their marketing skills on the most valuable consumers, minimizing the number of resources spent on marketing (Dolnicar, 2020). This critique focuses on the research question, market segmentation.

Purpose of Market Segmentation

The competition in many businesses has become more challenging as the day goes by, and consumers’ demand tends to be significant and more intricate. As a result, mass production is becoming less economical compared to customized products. In this regard, current marketing is shifting from products-focus to consumer focus, the same as moving from mass marketing to target marketing. This shift has resulted in the positive impact of market segmentation to design and implement marketing strategies. To follow this trend, market segmentation is customer-oriented, which applies to almost any kind of market, and the purpose of market segmentation is to divide the market into clusters based on different criteria to enable the marketer to understand the potential of consumers regarding their priorities, demographics, interests, professionals, preferences, and behaviors. Understanding the market cluster is the initial phase in generating a profitable marketing strategy; therefore, market segmentation aims to identify the customers’ needs, which will help the organization drive sales by creating a marketing strategy.

In addition, market segmentation supports organizations in meeting and exceeding their clients’ requirements and enabling the firms to analyze the competitors’ strengths and weaknesses. This approach will enhance discovering opportunities in markets that were not tapped, developing strong positions in specialized market segments, expanding the market share, making informed business decisions to keep clients happy, and effective marketing programs to improve business focus. Ineffective market segmentation will render the businesses clueless work to develop marketing strategies that will result in poor marketing campaign performance. However, effective market segmentation will help the marketer target the right audience with the right campaign and messaging. According to Cho (2017), market segmentation enables organizations to develop the best strategies for distributing their goods; for instance, some groups may prefer shopping online while others may prefer shopping in the store. Therefore, organizations can decide where to pitch their services and products based on each market segment.

Review of the Literature

A market segment is a cluster of people or firms with similar interests, characteristics, or traits. The consumer segment may share the same expectations and needs; hence, the organizations should understand the segment they need to serve to meet the expectations of the preferred consumers. Smith first introduced market segmentation in the middle of the 1950s, which defined it as dividing the market into smaller subsets of buyers with distinct needs, characteristics, or behaviors who might need separate products or marketing mixes. Segmentation is the division of a market into clusters of consumers with similar needs, such that the more closely the needs match up, the smaller the segment tends to be. The segmentation process enables the firms to recognize distinct clusters of consumers whose behaviors significantly differ from others, allowing the company to adjust its marketing mix to cater to a specific requirement of different market segments.

Market segmentation has become vital for a marketing technique that orients the organization to utilize their limited capabilities to serve consumers’ demands in the most effective approach. According to Bösehans, G., & Walker (2020), market segmentation significantly depends on bases (criteria and variables) and methods. The bases are selected for the research and marketing queries, while methods relate tightly to defined and distinguished bases among segmentation. The market segmentation bases include; demographic segmentation, geographic segmentation, psychographic segmentation, and behavioral segmentation.

Demographic segmentation

This market segmentation involves dividing a larger market into smaller groups depending on the physical and factual data. The demographic segmentation variables include; income, age, gender, education, social class, profession, and families. It is the most typical base for segmenting client markets because the wants differences and usage rates are often significantly related to demographic variables and relatively easy to measure. For instance, the age variable divides the market based on age as under 15 years, 15-25 years, 25-35 years; in terms of gender, the segment has been applied in clothing, cosmetics, perfume, and accessories. Education provides a segment for the professional class of customers, postgraduate, highly educated, and illiterate. The income variable determines the capability to purchase, therefore, forms the segmentation criteria (Venter, 2015).

Geographic segmentation

This kind of segmentation divides the market according to where they are located. The variables include; region by continent or country, population density, climate, and terrain, among other recognized variables. For instance, organizations that require natural resources will tend to locate close to the source for convenient supplies of resources. Regarding geographic segmentation marketing, it is essential to consider the consistency of public utilities, quality of transportation, distribution structure in deciding where to expand its operations.

Psychographic segmentation

It is a segmentation process that selects the market according to personality traits, motives, interests, social class, values, and lifestyle. This segmentation can be used independently or combined with another segmentation for criteria purposes. For instance, a business traveler who is used to a high standard of living will expect an airline service that reflects such a lifestyle (Venter, 2015).

Behavioral segmentation

It is based on the customer response to the requirement that is individual purchase behaviors termed as purchasing pattern. The purchasing pattern is deduced by purchasing portfolios that include a list of categories, which certain customer purchases, and the consumption behavior on the categories. This category includes need motivation, perception, learning involvement, attitude, occasions, benefits, and usage rate (Venter, 2015).

Criteria for Effective Segmentation

Selecting the market is beneficial when the group is used to enhance different marketing strategies for each cluster and implement effective market segmentation. The criteria for effective segmentation include; identifiable, where the segment on the customer group must be recognized who is in the cluster and who is not. It must be measurable such that the efficiency of segmentation is based on the measurability of the variables on which the market is segmented. For segmentation to be effective, it has to be accessible and responsive, with that former enhancing the segment, which is recognized for suitable distribution and communication from firms and later fostering the response to change in any element of the marketing mix. Significant is a vital criterion because it emphasizes the willingness to purchase on the ability to pay. The segment needs to be sustainable to justify the market’s investment for the product and should be large enough to be profitable. The effectiveness of segmentation would result in potential savings on marketing cost, economies of scale in producing, better positing, and organizations becoming susceptible to competition.

Practical Application of Market Segmentation

In the retail industry, most marketers of retail items such as e-readers, video games, and tablets computers have typically tried to recognize their target customers based on vital demographic information such as age and life cycle, education level, and income. This has been the initial step for enhancing the marketing campaign; however, it fails to offer brands any data about why a customer would want to buy a given item. To improve on this, psychographic segmentation would provide a good platform for psychological differences between buyers, making the organizations innovate granular customer profiles that outline the various priorities and motives behind purchasing the items. For instance, one household may enable their kid to spend more time using the technology device since it is essential to expose their kids to the digital world. In the psychographic segmentation, this example falls under the variable of enabler. Contrary to other households who may limit their kids to technology devices, they feel technological devices should be solely used for educational purposes and not entertainment. This falls under limiter in the psychographic segmentation; however, with the given an example, the result for each household would be the same: both will purchase the technology device. Therefore, with different psychographic motives, psychographic segmentation is powerful because it enables the marketer to fine-tune their messaging to appeal to the values and priorities of each segment (Venter, 2015).


It is not easy to satisfy every consumer; therefore, the organization needs to segment a particular market that will offer the best its services. This paper has detailed the purpose, criteria, and benefits of market segmentation. It has highlighted the benefits of segmentation with clear examples in really practical.


Bösehans, G., & Walker, I. (2020). Do supra-modal traveler types exist? A travel behavior market segmentation using Goal framing theory. Transportation47(1), 243-273.

Cho, M., Bonn, M. A., & Brymer, R. A. (2017). A constraint-based approach to wine tourism market segmentation. Journal of Hospitality & Tourism Research41(4), 415-444.

Dolnicar, S. (2020). Market segmentation for e-tourism. Handbook of e-tourism, 1-15.

Venter, P., Wright, A., & Dibb, S. (2015). Performing market segmentation: a performative perspective. Journal of Marketing Management31(1-2), 62-83.


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