Market segmentation is the division of the market place into distinct subgroups or segments, each characterised by particular tastes and requiring a specific marketing mix.
The population of a country is not homogeneous; consisting of millions of individuals with different wants and needs. By dividing a market into segments it is easier for the firm to research the needs and wants of customers in a cost-effective manner and then to meet these in a targeted way. In short it is about a business 'knowing their customers'. Each segment will share certain characteristics, which bind them together while at the same time distinguishing them from other segments. Some segments may be quite small, e.g. specialist sports such as archery, so firms will be marketing to a niche market in this case, where the level of demand is limited.
Segmentation is the first stage of a three stage process:
Targeting is the selection of potential customers to whom the firm wishes to sell products or services. The targeting strategy involves segmenting the market, choosing which segments of the market are appropriate, and determining the products that will be offered in each segment.
Targeting is used to develop a specific marketing mix for each distinct marketing mix. A business offering multiple products can determine if the various segments should receive one generic product (such as in mass marketing), or if each segment should receive a customized product (multi-segment), based upon the market's diversity, maturity, the level of competition and the volume of sales expected
Positioning is the creation of a distinct image for a product or service in the minds of customers, both specifically to that item and in relation to competitive offerings.
Firms apply positioning strategies by emphasizing either the distinguishing features of their brand (what it is, what it does and how, etc.) or by creating a suitable image (inexpensive or premium, utilitarian or luxurious, entry-level or high-end) through relevant promotion. Once a brand is positioned in the eyes of its consumers, it is very difficult to reposition it without destroying its credibility.