Market segmentation represents an effort to increase a company's targeting precision. It can be carried out at four levels: segments, niches, local areas, and individuals. Before we discuss these levels, however, we need to say a word about mass marketing.

MASS MARKETING. In mass marketing, the seller engages in the mass production, mass distribution, and mass promotion of one product for all buyers. Henry Ford epitomized this marketing strategy when he offered the Model-T Ford to all buyers; they could have the car "in any color as long as it is black." Coca-Cola also practiced mass marketing for many years when it sold only one size Coke in a 6.5-ounce bottle.

The traditional argument for mass marketing is that it creates the largest potential market, which leads to the lowest costs, which in turn can translate into either lower prices or higher margins. However, many critics point to the increasing splintering of the market, which makes mass marketing more difficult. According to Regis McKenna:

[Consumer]. . . have more ways to shop: at giant malls, specialty shops, and superstores; through mail-order catalogs, home shopping networks, and virtual stores on the Internet. And they are bombarded with messages pitched through a growing number of channels: broadcast and narrow-cast television, radio, on-line computer networks, the Internet, telephone services such as fax and telemarketing, and niche magazines and other print media.

The proliferation of advertising media and distribution channels is making it difficult to practice "one size fits all" marketing. No wonder some have claimed that mass marketing is dying. Not surprisingly, many companies are retreating from mass marketing and turning to micromarketing at one of four levels.

SEGMENT MARKETING. A market segment consists of a large identifiable group within a market. A company that practices segment marketing recognizes that buyers differ in their wants, purchasing power, geographical locations, buying attitudes, and buying habits. At the same time, though, the company is not willing to customize its offer/communication bundle to each individual customer. The company instead tries to isolate some broad segments that make up a market. For example, an auto company may identify four broad segments: car buyers seeking basic transportation, those seeking high performance, those seeking luxury, and those seeking safety.

Thus segmentation is a midpoint between mass marketing and individual marketing. The consumers belonging to a segment are assumed to be quite similar in their wants and needs. Yet they are not identical. Some segment members will want additional features and benefits not included in the offer, while others would gladly give up something that they don't want very much. For example, Ritz-Carlton Hotels target affluent guests and provide many amenities and a lower price. Thus segment marketing is not as precise as individual marketing but is much more precise than mass marketing.

Segment marketing offers several benefits over mass marketing. The company can create a more fine-tuned product/service offer and price it appropriately for the target audience. The choice of distribution channels and communications channels becomes much easier. And the company may face fewer competitors if fewer competitors are focusing on this market segment.

NICHE MARKETING. Market segments are normally large identifiable groups within a market—for example, nonsmokers, occasional smokers, regular smokers, and heavy smokers. A niche is a more narrowly defined group, typically a small market whose needs are not being well served. Marketers usually identify niches by dividing a segment into subsegments or by defining a group with a distinctive set of traits who may seek a special combination of benefits. For example, the sema, and heavy smokers with emphysema who are overweight.