Market Segmentation: Meaning, Nature, Bases, Types, Advantages and Disadvantages


Meaning Of Market Segmentation

Market segmentation refers to a process of dividing the whole market of potential customers into small group or segments, containing individuals with certain similar characteristics. It is simply the practice of bifurcating target market into more approachable groups. Market segmentation is a marketing concept focused at creating the subsets of large market on the basis of demographics, common interest, need, priorities, personal traits, income, interests, behaviour or location. It is one of the most effective tools for marketers that help them in catering to their targeted group conveniently. They can easily personalize their marketing campaigns, focusing on what is more necessary and grouping together all consumers that have something in common, in order to handle them in a more effective manner. 

The communication with target audience in large market become problematic for companies, in absence of a proper market segmentation. There are high chances of getting marketing message lost, confused or avoided among large crowds. Larger the company’s audience grows, broader will be their needs, preferences and opinions that may put marketing message at risk, as being irrelevant to most of the people company is attempting to reach. This is exactly where the segmentation of target market becomes crucial. It assists in directing the marketing efforts towards individual consumer segments so that their want and needs can be catered in better way.

Nature of Market Segmentation

The nature of market segmentation is as follows: – 

Systematic process

Market segmentation demands a systematic process to be followed before bifurcating the whole market into small segments. It is an overall process involving distinct steps that needs to be followed in systematic manner for achieving the right results. These steps are: Defining the market, analysing the characteristics of potential customers via data collection, identification of segmentation’s bases, defining and evaluating the market segments, and selecting appropriate market segments.  

Serves many benefits

The market segmentation approach provides distinct benefits via facilitating the right type of market communication among right group of peoples. It helps marketer in easily approaching the target market group and using right combination of four P’s for convincing the customers.

Subject to certain limitations

A process of market segmentation also carries certain limitations in addition to the benefits provided. Firstly, there are lot of difficulties involved in collecting right quality of data from the target market. There may be chances where procured dataset is either incomplete or lacks accuracy. Secondly, it is quite time consuming and expensive process bringing a huge cost to companies. 

Facilitates customer satisfaction

This marketing approach also helps in enhancing the overall satisfaction level of customers. Market segmentation brings all customers of similar choices and interest together under one group. Customers get access to product and services of their choices that eventually boost their satisfaction level with the company.

Operates as a promising marketing strategy

Market segmentation operates like a promising marketing strategy as it brings satisfactory results both for marketing companies and customers. It is far better approach than market aggregation approach where all customers are brought under the same group and treated in similar manner irrespective of their likes and dislikes. The current marketing trend is moving from mass marketing strategy to target marketing strategy to deal with customers appropriately in presence of high market competition. 

Bases of Market Segmentation

There are some bases on which whole target market is segmented into small subgroups. These bases ranges from gender, age, income, etc. to psychological factors such as attitude, values, and interest. 


Gender is one of the most simple and key bases for market segmentation. The males and females differ from each other on many levels such as interest, need and wants. Therefore, a marketer needs to focus on distinct marketing and communication strategy for both in order to derive better results. This type of segmentation is most commonly seen in clothing, jewellery and cosmetics industry.  


Income denotes the purchasing power of target audience in market. It is a crucial factor considered by marketer to decide whether to market the product as need, want or luxury. On the basis of income, marketers generally bifurcate the whole market into three distinct groups such as High-income group, mid income group and low-income group. 

Age Group

Age group serve as key factor to segment the large market for carrying out personalized marketing. There are many products in market that are not universal and are not used by people of every age group. Therefore, segmenting the whole market as per age group facilitates the marketer in developing right marketing and communication strategies, and thereby gets better conversion rates. 


Occupation, similar to income, also influences the buying decision of audience. A need for entrepreneur might be a luxury for government sector employee. There are numerous products that caters to audience engaged in the specific occupation. 


The buying decision of target audience is also affected by the place where they live in. Peoples living in mountain areas will have less demand for ice cream or cold drinks as compared to the peoples living in hot desert areas. 


Lifestyle is also one of the factors considered by marketer for segmenting the whole market in subgroups. The lifestyle comprises of subsets such as interest, hobbies, marital status, values, religion and other psychological factors affecting the decision making of a person. 


Product usage also serve as market segmenting basis. A person can be categorised as heavy, medium or light user of product. In addition to this, the audience can also be divided on the basis of their product awareness. 

Types of Market Segmentation

There are mainly four types of market segmentation that are well-described in points given below: –  

Geographic Segmentation

Geographic segmentation is a segmentation of whole market on the basis of geography. It creates distinct group of consumers based on their geographic boundaries. This type of market segmentation is crucial for marketers as needs and interest of customers vary according to their geographical location, climate and region. Having a proper understanding on all this will help marketer in determining where to sell and market the product, as well as where to expand the business. 

For example, water might be scarce in some places that increase the demand for bottled water at such places, and at the same time, it might be in abundance in other regions where demand is quite low.

Demographic Segmentation

Demographic segmentation involves segmentation of target market on the basis of demographic variables such as age, gender, family size, income, occupation, race, religion, nationality, marital status, education, etc. It is most commonly used form of market segmentation practice by marketers. This market segmentation is found almost in every industry such as automobile, mobile phones, apparels, beauty products etc. Demographic segmentation is mainly set on premises that the buying behaviour of customers is largely influenced by their demographics.  

Behavioural Segmentation

The behavioural segmentation is one based on behaviour, preference, choices, usage and decision making of audience. Public attitude towards the brand, their way of usage and awareness about product are examples of behavioural segmentation. The audience is segmented here as one who knows about product, one who does not know about product, potential users, first time users, current users, ex users, etc. Peoples can be labelled as brand loyal, brand neutral and competitor loyal. They can also be labelled as per their usage of product like a sport person can be labelled as heavy user of energy drink, whereas not so sporty person can be labelled as light/medium user of energy drink.  

Psychographic Segmentation

Psychographic segmentation bifurcates the target audience on the basis of their personality, attitude, lifestyle, values and opinion. This process of segmentation works on premises that the buying behaviour of consumers is influenced by their personality and lifestyle. Personality is the combination of characteristics that forms distinctive character of individual and comprises of habits, attitude, traits, temperament, etc. Lifestyle define manner in which person lives his life. 

Both personality and lifestyle influence the buying decision and habits of individual to a larger extend. A person living a lavish life may consider air conditioner as basic need, whereas person having a conservative lifestyle might consider it as luxury. 

Advantages of Market Segmentation

The advantages of market segmentation are as follows: –

Better matching of customer needs

The concept of market segmentation helps in better matching of customer needs. Different customers have different needs. Market segmentation via dividing the total market into homogenous groups make it easy for marketer to cater to the needs of customers in better way. 

Increased ROI

Market segmentation approach contribute towards increasing the ROI for companies. It helps in serving customers in better way thereby improves their satisfaction level with the brand. It not only decreases the unnecessary spendings of company but also raise repeated sales, and happy customers too return the favour to their brands in the form of word of mouth, referrals, etc.

Increase market share

This marketing approach helps in building strong completive advantage in market. All customers in market are deal in accordance with their preference and interests, and personalized messages are communicated to them for better response. Companies with targeted communications are easily able to attract more and more customers that eventually raises the sales volume and increase market share.  

Customer retention

Customer retention is a primary goal of every business enterprise. In today’s time, customers stay only with those brands that fulfil their needs in most satisfactory manner. Segmentation helps businesses to segregate customers of same likes and dislikes under one group that helps in focusing on their needs in better way. When customers get good services from brand, they will tend to continue with the same brand for a longer period of time. 

Gaps identification in the market

Market segmentation helps in identifying gaps existing in market. It recognizes the target groups that are not targeted well by other competitors in market. This opens up new opportunities for business to target such group and generates high profits from them.

Differentiate brand from competitors

It assist companies in standing out from their competitors via creating messages specific to their value proposition. It allows brand to differentiate themselves by paying attention on specific customer needs and characteristics in right manner.

Disadvantages of Market Segmentation

Various disadvantages of market segmentation are: –

Extensive research and development

Market segmentation require companies to do extensive research in market for collecting the required data. It is quite time-consuming process and might not be feasible for some of the businesses.

Expensive process

It is an expensive process that requires lot of money as well as time. Businesses need to spend a lot for identification of distinct groups and then market them differently as per their needs. 

Limited production

Business enterprises after performing the market segmentation need to stick to limited production as there are limited customers in each specific segment. The company cannot take advantage of mass scale production, i.e., scale of economy is not possible. Product might become expensive and influence the sales adversely. 

Difficulty in distribution

Market segmentation pose difficulty for companies in carrying out distribution activities. They need to make a separate arrangement for every product demanded by distinct classes of customers. Recruitment of salesman, selection, training, pay and incentives are costly and difficult. Companies need to maintain separate channels and services for satisfying the varied customer groups. 

Promotion problems

The concept of market segmentation pose difficulties to promotional activities of company. Distinct segments are made on the basis of distinct characteristics of buyers. Every group differ from one another in terms of message, advertising media and appeal. Therefore, company need to prepare separate advertising strategy for influencing the distinct segments of buyers. Also, in same manner, sales promotional activities and personal selling becomes more complex in nature. Overall, the company need to incur more expenses in order to take benefits of specialization.