Difference between Market Segmentation vs. Customer Segmentation

Question

Dear all, I'm confused by the definition of market segmentation vs. customer segmentation. Some people say customer segmentation is just one method of market segmentation, while some people say that customer segmentation could include every segmentation types (for instance, the customer segment of airline maintenance could be type of job, type of craft, urgent vs. preventive, etc.)

This links my second question of how to imply the segmentation concept in a market entry case. If I have a bucket called “market attractiveness” (underneath this bucket, the first layer includes market size & growth, competitor, customer, barrier of entry), is it okay to check “market segmentation” under market size, and also check “customer segmentation” under customer? Or it is actually okay just checking the market segmentation, stating that market could be segmented by multiple approaches such as by product / channel / customer, etc?

Answer 1

Hi,

Thanks for your question!

I'll try to be concise as possible.

1) A few definitions

Segmentation is the process of breaking down a complex and heterogenous group into smaller homogenous sub-groups, or put simply how to divide one big piece into several smaller pieces :

- Market segmentation hence means breaking down the market (in volume or value) by product, type of customer, channel, etc. Segments of the coffee market (by product) for example can be ground coffee, roasted beans, capsules, cold brew, etc

- Customer segmentation means breaking down all customers into homogenous subgroups that share similarities typically across at least 2 of the following criteria : geography, age, gender, profession, psychographics, etc. Customer segments on the coffee market for example can be B2B vs B2C. Within B2B you could have offices, restaurants, cafés, etc.

2) Answers to your questions

- To answer your first question, customer and market segmentation are not the same thing, but customer segmentation is indeed one way to segment the market.

- To answer your second question, let's keep it simple, use any ‘non-customer based’ segmentation in your market bucket, and use ‘customer-based’ segmentation in your customer bucket

I hope this helps !

Let me know if you'd like to practice on a real case.

Best,

Mehdi

Answer 2

Hi there,

This is indeed an interesting question which is probably relevant for quite a lot of users, so I am happy to provide my perspective on it:

Generally speaking, market segmentation and customer segmentation are two different operations.
- With market segmentation, you think about meaningful ways how to cluster the market into segments, e.g. by regions, business units, channels. You might as well cluster the market by customer types yet this would mean you segment the whole market (not solely your customer base), e.g. clustering the aviation market into segments of business travelers and leasure travelers.
- With customer segmentation, you think about meaningful ways how to cluster your customer base, e.g. by income, age, gender.
Regarding your second question, I would advise you to do neither. Unless there is any inherent need for it, there is no need to segment any information provided. Moreover, when analyzing market size and growth, the interviewer will most probably inform you about the way to think about this specific industry. Lastly, I would advise you to solely assess the market attractiveness if you have doubts. In a market entry case, the interviewer eventually wants you to assess the attractiveness of the market entry, not the attractiveness of the market in general.

In case you want a more detailed discussion on how to best approach any type of case study questions, please feel free to contact me directly.

I hope this helps,

Hagen

Answer 3

Market segmentation can be any segmentation relevant for the market: it can be based on customers, geographies, product categories, channels, etc. So customer segments is just one of the options.

Regarding the second question, you can ask about relevant segmentation in the first bucker. On the customer analysis, you can ask about customer preferences, key purchase criteria, etc. - if you are breaking down the market into customer segments, assessing their size, growth, profitability, etc., it should be done on the first bucket…

So the market analysis should be about whether the market is attractive, or which segments are attractive.

The customer analysis, in general, should be about how to win the customer (or market) segments you identified in the market analysis and decided to target.

Answer 4

Hi there,

The easiest way to think about it is that customer segmentation is a subset of market segmentation.

By its very name, market segmentation is segmenting the market. This can be by competitor, geography, sub-product, customer etc.

Customer segmentation is about figuring out what are the customer groups in the market and identifying trends/habits (WTP, preferences, size, etc.)

Answer 5

Use Fixed and Variabel instead.

Answer 6

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Answer 7

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