Market segmentation (also called micromarketing) involves identification of key groups or segments within a market that have common characteristics, and appeal to certain target consumer groups. Identification of market segments allows a business to develop advertising or marketing strategies for each segment ...a more efficient application of resources.
An example of the use of market segmentation would be an auto parts company who, instead of sending a large catalogue of all parts to all customers, prints small catalogues such as one for Corvette parts, mailing only to Corvette owners. The advantage of such a focused approach is obvious.
Product differentiation is a means of limiting smaller firms from gaining market share as rapidly as expected within a concentrated market. This is explained in the paper in the first reference.
When planning Market Segmentation, the business should consider the four bases for segmentation: demographic, geographic, psychographic and behavioristic.
The second reference is a clear and detailed treatise on market segmentation.
The third reference is an excellent chapter in “Principles of Marketing and Management”. It covers marketing segmentation and positioning. It is centered on a bus company in the UK, but is applicable to any business. The chapter refers to and explains the “STP process” of Marketing Segmentation: Segmentation, Targeting and Positioning. This is lengthy, detailed and well written discussion of segmentation. It includes charts, tables and graphs depicting statistical aspects of the subject.