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What are the advantages and disadvantages of market segmentation?

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Quick Answer

Market segmentation allows a company to target its products or services to a specific group of consumers, thus avoiding the cost of advertising and distributing to a mass market. A disadvantage of segmentation is that it sacrifices economies of scale in production, distribution and communication, according to NetMBA. Segmentation is effective for small businesses that match marketing strategies with core customers, according to the Houston Chronicle.

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Some examples of market segments are geographic, demographic, psychographic and behavioralistic groups, according to NetMBA. A geographic segment can be defined by its location or population density, such as urban vs. rural. Demographic segments include baby boomers or highly educated customers. Psychographic segments are divided by activities or interests. Behavioralistic variables include brand loyalty and first-time buyers.

Businesses focused on targeted marketing can overlook other potential customers, the Houston Chronicle points out, such as a cereal company that advertises exclusively to children and neglects a larger group of potential adult consumers. Some market segments are identified by common traits, such as double-income, no kids, or DINK households, according to NetMBA. Segmentation can also be exploitative, as in cases where a fast-food company deliberately targets low-income families unable to afford a nutritional diet, notes the Houston Chronicle.

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