Segmentation is the process of dividing a company’s target market into groups of potential customers with similar needs and behaviours. Doing so helps the company sell to each customer group using distinct strategies tailored to their needs.
Segmentation helps a business identify and choose the most potentially profitable customer groups to focus on. This depends not only on customer needs, behaviour and likelihood to pay, but also on which groups the company is best suited to serve given its brand, products and differentiators. For these reasons, market research is critical to proper segmentation.
When they segment well, companies benefit from sharper focus on their customers, better internal alignment and more effective marketing plans, all of which contribute to stronger business results.