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How to Segment Markets

Perhaps the most important analytical process of marketing is segmentation. By segmenting the market, one obtains a very clear understanding of customers and ultimately provides a basis for clear and precise targeting and positioning. But segmentation is also very difficult and, especially without customer data, is what I would admit as an art form in marketing.

You can become quite confused about segmentation by reading the popular press, most marketing textbooks, and tons of Internet companies because the term has been used to signify many things.

Typically, you'll find the term segmentation applied to demographics and lifestyles in consumer markets and size, industry, and geography in business markets. On the internet, people use age, gender, etc. for segmentation (or worse yet, confuse segmentation with terms like one-to-one marketing as though people are so unique and share little commonality).

It's all very confusing, but there is a way to make this clearer and 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.

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