A market segmentation strategy is a method of creating products specifically for target markets. Product segmentation strategy refers to the design of the product itself. A company performs a product differentiation strategy to distinguish a product in one market segment from competitors' products, as well as its own products available in other market segments. According to the University of North Carolina, product differentiation includes emphasizing product differences as well as designing product differences.
A mass market strategy is one type of product segmentation strategy. Soft drinks, such as Coca Cola, Pepsi and Dr. Pepper, are sold to a global market. There is no difference between the soda cans and bottles available in different geographic locations, or very little. The benefit of this strategy is that the company receives great economy of scale advantages since its factories are manufacturing the same product with the same materials.
Large segment strategies are slightly more specific. These require a significant investment to compete successfully in every available market at the same time. A company can specialize in making one type of product, such as compact cars, sedans, motorcycles or trucks. This can also allow a company to eliminate an unprofitable segment or target the segment where it has the greatest advantage.
An adjacent segmentation strategy allows the company to consistently grow its market. Toyota initially targeted subcompact cars as these vehicles are small and cheaper to make. Using an adjacent segmentation strategy, Toyota could then switch to a slightly larger car, such as a station wagon. Following the example, it is easier for Toyota to make products that are slightly different rather than making subcompacts then picking large luxury sedans as its second expansion market.
A multi-segment strategy applies when a company targets more than one segment. A manufacturer, such as Dow Chemical, can make many brands of detergent, changing the concentration and ingredients for each specific market. The company runs a separate advertising campaign for each product, and customers may not even know that products in different sectors are made by the same company. Some companies intentionally use this method to protect the reputation of their higher end brands.
Niche marketing is another strategy. According to the City University of New York, this is one of the most effective methods for a smaller firm, such as Snapple, to compete with larger competitors, such as Coca Cola. The niche contains a small fraction of the market although a niche where the company can sell high end products compensates for this factor. Sub Zero refrigerators have 70 percent of the high end market even though they only have 2 percent of the overall refrigerator market, according to Duke University.