Question:What is a "customer segment?"

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Segmentation has been used to signify many things, not all of which are accurate. Typically, you'll find the term segmentation applied to demographics and lifestyles in consumer markets, and to size, industry, and geography in business markets. On the Internet, people use age, gender, etc. for segmentation. Worst of all, many confuse segmentation with terms like one-to-one marketing, as though people share little commonality.

There is a way to make this clearer, and this is the way marketing academics have found it makes the most sense. The answer lies in the work of Russell Haley (Journal of Marketing, July 1968), who first used the term "benefit segmentation." Also known as needs-based segmentation, benefit segmentation is essentially the idea that customers should be segmented on the basis of their needs. Simply put, customers in different benefit segments have different needs.

This is confusing to some people because they think that benefit segmentation is just one of many ways to segment a market. But it is the only way that is correct, since it is simply based on the idea that people differ only to the extent that the money they give you for your product is based on the benefits your product provides. No other way of segmenting the market does this. For a more concrete example of segmentation, see our tutorial on the subject.

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