Market Segmentation: 

Market segmentation is a strategy in which a larger market is divided into subsets of consumers who use the goods and services offered in the market. One of the main reasons for engaging in market segmentation is to help the firm understand the needs of the customer base. Often the task of segregating consumers by specific criteria will help the firm to recognize other applications for their products that may or may not have been self evident before. Uncovering these other ideas for use of goods and services may help the firm target a larger audience in that same demographic classification and thus increase market share among a specific sub-market base.

Market segmentation strategies can be developed over a wide range of characteristics found among consumers. One group within the market may be identified by gender, while another group may be composed of consumers within a given age group. Location is another common component in market segmentation, as is income level and education level. Generally, there will be at least a few established customers who fall into more than one category, but marketing strategists normally allow for this phenomenon.

Along with playing a role in the development of new marketing approaches to attract a certain demographic within the market base, market segmentation can also help a firm understand ways to enhance customer loyalty with existing customers. As part of the process of identifying specific groups within the larger client base, the firm will often ask questions that lead to practical suggestions on how to make the products more desirable to customers. This activity may lead to changes in packaging or other similar changes that do not impact the core product. However, making a few simple changes in the appearance of the product sends a clear message to consumers that the firm does listen to customers. This demonstration of good will can go a long way to strengthen the ties between consumer and vendor.