The term market refers to the aggregate of all demand for a particular product or service arising from the aggregate of all consumers both existing and potential for the product. Markets vary widely from one another since the consumers who constitute the markets vary widely in their characteristics. Even a specific market for a given product is not totally homogeneous.

In small business marketing, a market is split up into several smaller units, each with homogeneous characteristics; it facilitates the effective tapping of the market. Market segmentation is the process of disaggregating the total market for a given product into a number of sub-markets. The heterogeneous market is broken up in the process into a number of relatively homogeneous units.

The process is based on the recognition that any given market or consumer group is made up of a number of subgroups distinguished by varying needs and buying behavior. Also, it is feasible to disaggregate the consumers into suitable segments in such a manner that the characteristics of the segmented groups would vary significantly among segments but would also be identical within segments.

Market segmentation confers several benefits on the marketing man. In the first place, it helps him distinguish one customer group from another within a given market and thereby enables him to decide which segment of the market should form his target market. It also enables the effective crystallization of the specific needs of the buyers in the target market and facilitates an in-depth study of the characteristics of the buyers.

When the buyers are approached after careful segmentation, responses that are predictable would be forthcoming from them. This would help the marketing person develop his marketing program on a predictable and reliable basis. When the needs and characteristics of the customer group have been brought into a clearer focus, marketing offers that are most suited to the particular customer group can be easily developed.