When I did business studies back in secondary school, the teacher explained market segments as “like an orange” which is about the most useless analogy I ever came across because it tells you nothing about segments. A market segment is not like an orange. Here’s why:
- Segments are not a symmetrical, even division of market share.
- Customers overlap between lots of different segments. People who buy cars also buy clothes and vice versa.
- There’s not a finite number of market segments out there. In 2002, there was no cryptocurrency market. Now it commands about 1% of global assets.
- They don’t smell of anything.
- If a market segment (e.g. mining) occupied 50% of the market share, you wouldn’t count the number of segments in half an orange and say “mining has 6 segments”. It’s still only one segment; the mining segment.
So… what is a market segment?
It’s just a category for businesses. Business people have their own language and they call categories segments. Each category has its own valuation and this is known as its market share. The market share is usually expressed as a percentage of “the market”. When we say “the market” it means all the goods and services being bought and sold worldwide. This can be categorized into more manageable concepts, like “the US market” or “the market in 2020” (or “the US market in 2020”), depending on what you want to know about it.
Segmentation in marketing is a slightly different but related concept. Segmentation is how you group your customers by their behaviors. In newsletter segmentation, you might group some of your customers into “deal clickers” (people who click on deals) and “full-price clickers” (people who click on things that are full price).
Market segments are not complicated and teachers and textbooks should stop over-complicating them by banging on about oranges (or chocolate oranges…) which have literally nothing to do with anything and just distract the ADHD kids down a thought spiral all about oranges or chocolate. I’m all for a good metaphor when it’s useful, but this one needs to die. I hope this article helps business students and anyone else trying to understand segments.