Market Segmentation – Definition

Cite this article as:"Market Segmentation – Definition," in The Business Professor, updated January 14, 2020, last accessed October 25, 2020,


Market Segmentation Definition

Market segmentation is a marketing practice. It involves separating potential customers or clients into a group or segment based upon identified characteristics.

The objective is to be able to develop marketing and sales plans that will address the needs or wants of the customer.  If done correctly, the group will have common needs or wants that relate common demographic characteristics.

Academic Research on Market Segmentation

Product differentiation and market segmentation as alternative marketing strategies, Smith, W. R. (1956). Journal of marketing, 21(1), 3-8. The aim of this paper is to conduct market segmentation of Arab banks and suggest a model to classify them into cohesive segments on the basis of their financial ratios as a guideline for future consolidation. Results of this study should provide insight for future researchers. Also, this piece of research bridges the gap between financial ratio analysis and multivariate statistical analysis for Arab banks.

A theory of labor market segmentation, Reich, M., Gordon, D. M., & Edwards, R. C. (1973). The American Economic Review, 63(2), 359-365. This paper summarizes an emerging radical theory of labor market segmentation. The theory in this study argues that political and economic forces within American capitalism have given full rise to and perpetuated segmented labor markets, and that it is incorrect to view the sources of segmented markets as exogenous to the economic system.

A probabilistic choice model for market segmentation and elasticity structure, Kamakura, W. A., & Russell, G. J. (1989). Journal of marketing research, 379-390. In this chapter, the authors propose a flexible choice model that partitions the market into consumer segments differing in both brand preference and price sensitivity. The approach is applied in a study of competition between national brands and private labels in one product category.

Market segmentation, product differentiation, and marketing strategy, Dickson, P. R., & Ginter, J. L. (1987). The Journal of Marketing, 1-10. This paper attempts to lessen the confusion of the use of the terms ‚Äúmarket segmentation‚ÄĚ and ‚Äúproduct differentiation‚ÄĚ by the use of traditional and contemporary economic theory and product preference maps.

The effects of market segmentation and investor recognition on asset prices: Evidence from foreign stocks listing in the United States, Foerster, S. R., & Karolyi, G. A. (1999). The Journal of Finance, 54(3), 981-1013. This paper shows how unusual share price changes are robust to changing market risk exposures and are related to an expansion of the shareholder base and to the amount of capital raised at the time of listing for non-U.S firms cross listing shares on the U.S exchanges.

Customer satisfaction cues to support market segmentation and explain switching behavior, Athanassopoulos, A. D. (2000). Journal of business research, 47(3), 191-207. In this paper, customer satisfaction cues in retail banking services in Greece are examined. The study proposes an instrument of customer satisfaction that contains service quality and such other attributes as price, convenience, and innovation. The proposed framework of customer satisfaction was verified empirically yielding four distinct facets for business customers and five for individual customers.

Market segmentation, self-selection, and product line design, Moorthy, K. S. (1984). Marketing Science, 3(4), 288-307. The purpose of this paper is to develop a theory of market segmentation based on consumer self-selection. The extant theory is based on the third-degree price discrimination model of Pigou, central assumptions of which are that the firm can directly address individual segments and isolate them.

Market segmentation of an international cultural-historical event in Italy, Formica, S., & Uysal, M. (1998). Journal of travel research, 36(4), 16-24. This study explores the existing markets of a unique annual event, the Spoleto Festival in Italy, that blends internationally well-known cultural exhibitions with historical settings. Marketing and management implications for effectively targeting the two market segments are discussed.

Market segmentation and willingness to pay for organic products in Spain, Gil, J. M., Gracia, A., & Sanchez, M. (2000). The International Food and Agribusiness Management Review, 3(2), 207-226. This paper explores how  higher cost of production and retailer margins create gaps between real prices and what consumers are willing to pay for organic food. In this article, consumer willingness to pay for organic food in two Spanish regions is analyzed.  Markets in both regions are segmented considering consumers lifestyles. Results show that consumers that are concerned about healthy diets are more likely to pay for organic food, and are willing to pay a high premium.

Market segmentation, McDonald, M., Christopher, M., & Bass, M. (2003). In Marketing (pp. 41-65). Palgrave, London.

A new approach to market segmentation, Green, P. E. (1977). Business Horizons, 20(1), 61-73. This paper comprehends the belief that understanding the concept of market segmentation is likely impossible. The author speaks contrary to this belief. In this paper, the author discusses the role that segmentation can play in the formulation of marketing strategy for either products or services. The paper also suggests the complexity of segmentation methods is more apparent than real.

Market segmentation and the cost of the capital in international equity markets, Errunza, V. R., & Miller, D. P. (2000). Journal of Financial and Quantitative analysis, 35(4), 577-600. While theoretical models predict a decrease in the cost of capital from depositary receipt offerings, the economic benefits of this liberalization have been difficult to quantify. Using a sample of 126 firms from 32 countries, this study documents a significant decline of 42% in the cost of capital.

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