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These two terms are too often used interchangeably, and too often thought of by the marketer as the same thing. Stereotyping is treating an individual with a certain social trait (race, age, sex, etc.) as representing the whole market group—adult diapers to all old people because all old people are incontinent, cookies to obese, because all fat people eat sweets, etc. (Contrast with Baby diapers because all babies use diapers, or study aids because all students need help studying). Segmentation, on the other hand, is almost its opposite: taking a general marketing group and dividing it up by more discerning differences—Boulder residents are a market group, but segmented marketing would divide the skiers from the snowboarders or bikers, or the environmentally-conscious citizens from the spiritual enlightenment-seekers, etc. Segmentation is the art of aiming your marketing strategies, not at a larger market group but at a smaller, more specific market group. If your product is designed to help mobility in the aged and disabled, target those who live in large, open residences; and avoid spending your marketing budget on small bi-level homes. A good market to research might be retired people, divided by profession—retired professors are different from retired business administers, and both are different from retired laborers. To market to “retired persons” may be a waste of money, if your product is most suitable to one “segment” of that demographic.
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