Market segmentation analysis is a business strategy that involves the assignment of different segments of the customer base of a company into specified categories. The purpose of dividing them into categories is to better tailor products and services specific to the needs of the categories. The categories in a market segmentation analysis are assigned according to the needs identified in a particular market. For instance, the categories could be differentiated into lower, middle and upper income. They may also be divided along gender lines. Within a gender, the market may still be subdivided into pre-teen, teen, young adult and older sectors. The categories are identified according to the requirements of the market.
When a company divides the market into segments after performing a market segmentation analysis, it will know how to allocate its resources toward targeting that market. For instance, a company might divide its market into literate and illiterate. It will make its products more appealing to the identified segment by deciding how to package the product, fix the price, and other outreach strategies. The adverts and jingles of the products aimed at the illiterate group will be different from that aimed at the more educated people. The price and packaging of the product will be different too.
An example of the impact of market segmentation analysis can be seen in the way manufacturers and producers market themselves to the lower and upper income segments of their consumer base in developing countries. Most producers of powdered milk package them differently for both markets. The powdered milk meant for the upper class are packaged in well-designed tins, while those meant for the lower class are packaged in smaller sachets. This is a strategy that has paid off very well, because the tinned milks are beyond the reach of most members of the lower class. They can afford to buy the smaller sachets of the product, which are much less expensive than the tinned variety.
As such, market segmentation analysis puts people into groups based on an identified shared common value. The common value could be the fact that they do not have much resource, are teenagers, or any other aspect. Market segmentation allows a company to compete strongly in a highly competitive market by allowing it to device advertising campaigns and other promotional endeavors aimed at its target audience. The opposite of market segmentation is the type of marketing referred to as mass marketing. This type of marketing treats everyone the same without any regard to the preferences or needs of separate segments.