what is market segmentation 
market segmentation is a way of aggregating prospective buyers into groups or segments based on demographics geography behavior or psychographic factors in order to better understand and market to them investopedia matthew collinsunderstanding market segmentationcompanies can generally use three criteria to identify different market segments an athletic footwear company for example might have market segments for basketball players and long distance runners as distinct groups basketball players and long distance runners respond to very different advertisements understanding these different market segments enables the athletic footwear company to market its branding appropriately market segmentation is an extension of market research that seeks to identify targeted groups of consumers to tailor products and branding in a way that is attractive to the group the objective of market segmentation is to minimize risk by determining which products have the best chances of gaining a share of a target market and determining the best way to deliver the products to the market this allows the company to increase its overall efficiency by focusing limited resources on efforts that produce the best return on investment roi market segmentation enables companies to better target the customers interested in buying their goods or services if done effectively it should generally result in a higher return from marketing investment and better revenues and profits types of market segmentationthere are four primary types of market segmentation however one type can usually be split into an individual segment and an organization segment demographic segmentation is one of the simple common methods of market segmentation it involves breaking the market into customer demographics such as age income gender race education or occupation this market segmentation strategy assumes that individuals with similar demographics will have similar needs example the market segmentation strategy for a new video game console may reveal that most users are young males with disposable income firmographic segmentation is the same concept as demographic segmentation however instead of analyzing individuals this strategy focuses on organizations and looks at a company s number of employees number of customers number of offices or annual revenue example a corporate software provider may approach a multinational firm with a more diverse customizable suite while approaching smaller companies with a fixed fee more simple product geographic segmentation is technically a subset of demographic segmentation this approach groups customers by physical location assuming that people within a given geographical area may have similar needs this strategy is more useful for larger companies seeking to expand into different branches offices or locations example a clothing retailer may display more raingear in their pacific northwest locations compared to their southwest locations behavioral segmentation relies heavily on market data consumer actions and the decision making patterns of customers this approach groups consumers based on how they have previously interacted with markets and products it assumes that consumers prior spending habits are an indicator of what they may buy in the future example millennial consumers traditionally buy more craft beer while older generations are traditionally more likely to buy national brands 1often the most difficult market segmentation approach psychographic segmentation strives to classify consumers based on their lifestyle personality opinions and interests this approach may yield the strongest market segment results as it groups individuals based on intrinsic motivators as opposed to external data points however it s also difficult to achieve primarily because the traits it focuses on can change easily and there may be a lack of readily available objective data example a fitness apparel company may target individuals based on their interest in playing or watching a variety of sports other less notable examples of types of segmentation include volume i e how much a consumer spends use related i e how loyal a customer is or other customer traits such as how innovative or risk favorable a customer is 