What is meant by 'market segmentation'?

Market segmentation refers to the process of dividing a broad consumer or business market into sub-groups based on shared characteristics or traits. This concept is fundamental in marketing, as it allows businesses to tailor their strategies effectively for different groups, enhancing customer engagement and satisfaction. By identifying segments that exhibit common needs, preferences, or behaviors, companies can design and implement more targeted marketing campaigns, product developments, and pricing strategies.

This targeted approach enables businesses to allocate resources efficiently and focus their marketing efforts on specific audiences, ultimately leading to increased relevance and effectiveness of their strategies. For instance, a company might segment its market based on demographics, psychographics, geographic, or behavioral factors, allowing for personalized communication that resonates more strongly with each subgroup.

In contrast to this, options that suggest combining markets into one or exclusively targeting high-income consumers do not reflect the principle of market segmentation, which specifically focuses on creating distinct segments rather than oversimplifying or narrowing the target audience inappropriately.