Market segmentation splits up a market into different types (segments) to enable a business to better target its products to the relevant customers.
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Segments are usually measured in terms of sales value or volume. In the diagram below, segment B is twice the size of segment C

Why do businesses need to segment their markets? Because customers differ in the…
- Benefits they want
- Amount they are able to or willing to pay
- Media (e.g. television, newspapers, and magazines) they see
- Quantities they buy
- Time and place that they buy
Market segmentation offers the following potential benefits to a business:
Better matching of customer needs | Customer needs differ. Creating separate products for each segment makes sense |
Enhanced profits for business | Customers have different disposable incomes and vary in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits |
Better opportunities for growth | Market segmentation can build sales. For example, customers can be encouraged to "trade-up" after being sold an introductory, lower-priced product |
Retain more customers | By marketing products that appeal to customers at different stages of their life ("life-cycle"), a business can retain customers who might otherwise switch to competing products and brands. |
Target marketing communications | Businesses need to deliver their marketing message to a relevant customer audience. By segmenting markets, the target customer can be reached more often and at lower cost |
Gain share of the market segment | Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors |
There are various methods (or "bases") a business can use to segment a market. You'll learn more about the details of these approaches in your later business studies. However, here is a summary:

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