Perhaps the most important marketing decision a firm makes is the selection of one or more
market segments on which to focus. A market segment is a portion of a larger market
whose needs differ somewhat from the larger market. Since a market segment has unique
needs, a firm that develops a total product focused solely on the needs of that segment will
be able to meet the segment’s desires better than a firm whose product or service attempts
to meet the needs of multiple segments.
To be viable, a segment must be large enough to be served profitably. To some extent,
each individual or household has unique needs for most products (a preferred color
combination, for example). The smaller the segment, the closer the total product can
be to that segment’s desires. Historically, the smaller the segment, the more it costs
to serve the segment. Thus, a tailor-made suit costs more than a mass-produced suit.
However, flexible manufacturing and customized media (including online) are making
it increasingly cost effective to develop products and communications for small segments
or even individual consumers. Behavioral targeting, in which consumers’ online
activity is tracked and specific banner ads are delivered based on that activity, is another
example of how technology is making individualized communication increasingly cost
effective.