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Market segmentation involves dividing and identifying the potential segments in the population which can serve as potential customers or target market for the firm. For example, if a company sells candies, its potential market segment include all the kids in various regions of the country. A company has to do pros/cons of each and every segment in order to determine which segment is the most profitable potential segment. On the basis of analysis done in market segmentation, firms select one or two most promising segments and targets their products to those segments. Segmentation can be done on the basis of income level, age group, demographic segmentation, life style, behavioral segmentation etc. For example Mercedes targets its luxury cars only to the segment which has higher income and has higher life style. Market segmentation is important because it allows the firms to evaluate which segments the firm is catering to. If a company targets wrong segments, it owing to the fact that marketing strategies are made on the basis of market segmentation and any mistake in the beginning can cause organization to incur losses in millions.
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