A good example of market segmentation is something like this:
- People living on retirement income generally have less spending money than mid-career professionals.
- Companies recognize this so they offer "Senior discounts" for those over 65 years old.
- The old people who have less money save money by presenting an ID proving their age.
- Boom, you can now choose a different (profit maximizing) price for the groups of older and younger consumers.
Basically, if you can check membership in a group or get people to self select into different groups (based on features, pricing, convenience, etc), you can charge different prices to each group. This is a great way to increase profit.
Hope that helps with the basic idea. Source: I am getting a PhD in economics.
- People living on retirement income generally have less spending money than mid-career professionals. - Companies recognize this so they offer "Senior discounts" for those over 65 years old. - The old people who have less money save money by presenting an ID proving their age. - Boom, you can now choose a different (profit maximizing) price for the groups of older and younger consumers.
Basically, if you can check membership in a group or get people to self select into different groups (based on features, pricing, convenience, etc), you can charge different prices to each group. This is a great way to increase profit.
Hope that helps with the basic idea. Source: I am getting a PhD in economics.