Though it is possible to encompass the entire market by selling one product to potential consumers, this is not the only marketing approach. Market segmentation is another widely used marketing method that addresses the subgroups within the grand economic market. Basically, the market is broken up into smaller target markets, grouped by similar factors such as industry type and company size, purchase and usage behavior, and demographics. This market tactic is extremely useful since it allows the company to adapt its product to best suit each consumer sector.

Segmentation studies use two main statistical techniques, factor analysis and cluster analysis, to organize data into specific groups or segments. Factor analysis involves "analyzing interrelationships among a large number of variables and explaining these variables in terms of their common underlying factor" (Hair et al). Similarly, cluster analysis uses algorithms and other methods to group similar objects into respective categories. Both methods allow the company to gain a greater understanding of specific changes in consumer wants and needs along each target market. In order for a target market to be successful, it should be: measurable, accessible by communication and distribution channels, different in its response to a marketing mix, stable (not changing too quickly), and substantial enough to be profitable (Schewe and Hiam).

Market segmentation studies have many advantages to the businesses using this tactic. Dividing the market into "homogenous subgroups" allows better strategy formulation and tactical decision making. In order for the company to have an edge over its competition, it needs to be in tune with consumer wants. Segmentation studies allow each marketing campaign or product to target each group according to their tastes and needs.