Businesses can't sell everything to everyone — segmentation is how they slice a huge market into groups small enough to actually target, and market mapping is how they spot exactly where the gaps are.
Market segmentation is when a business divides its potential customers into smaller groups based on similar needs or characteristics. This is the natural next step after 1.2.2's market research: once a business has genuine evidence about its customers, segmentation is how it organises that evidence into groups worth targeting specifically.
Think of a market like a large pizza — trying to serve the whole thing to everyone at once rarely works well. Cutting it into slices lets a business design a product, price and message that fits one specific group far more precisely than a single generic offer ever could.
Climate, culture and local demand can vary hugely by region — a shop in a snowy mountain resort sells heavy coats, while a shop on a sunny beach sells swimwear and ice cream.
Factors such as gender or religion can shape demand — some hair salons specifically target men (barbershops), while others target women.
A business might target people who love extreme sports, or environmentally-conscious customers who specifically seek out plastic-free products.
Higher-income segments can be targeted with premium pricing — luxury brands such as Rolex or Ferrari are built almost entirely around this segment.
Age affects spending power and priorities — Saga, for example, targets travel and insurance products specifically at customers aged 50 and over.
A business can combine several of these at once. A premium ski jacket brand might target customers by income (able to pay a high price), lifestyle (people who ski regularly) and location (colder climates) all at the same time, building a genuinely precise picture of exactly who it's selling to.
A market map plots existing businesses or products on a diagram using two characteristics that matter to customers — commonly price and quality — to visually show where competitors cluster, and where a genuine gap in the market might exist for a new business to target.
This market map for a local bicycle retailer shows Budget Bikes offering low price and low quality, City Cycles sitting in the middle of the market, and Elite Bikes charging a high price for high quality. The gap identified sits between City Cycles and Elite Bikes — high quality, but at a more moderate price than Elite Bikes charges — a segment none of the three existing competitors currently serves well.
Market mapping serves two purposes at once: it helps identify a genuine gap in the market worth targeting, and it shows a business exactly where its competition sits, making it easier to judge how a new product would actually compare once launched.
Drag each example into the segment type it best illustrates.
Standalone questions below are typical of Section A — no case study needed. The 6 and 9-mark questions are built around a Source Booklet–style case study, matching how Section B and C actually work in the real exam.
Using the market map above, identify which existing business offers the highest quality bicycles.
Answer: Elite Bikes.
Outline one way a business can segment its market.
Structure guide: two linked points — eg "A business can segment by income (1), targeting higher-earning customers with a premium-priced product (1)." Points must connect; unlinked points cap the mark at 1.
Explain one benefit to a business of using market mapping.
Structure guide: 1 mark identifying a benefit, plus 2 further marks developing it — eg "Market mapping helps identify a gap in the market (1), by showing visually where existing competitors are positioned (1), allowing a new business to target an area of the market that isn't currently being well served (1)."
Using the market map, analyse the impact on Bramwell Bikes of entering the gap identified between City Cycles and Elite Bikes.
Structure guide: application (AO2) and analysis (AO3a) together — eg identify that the gap offers higher quality than City Cycles at a lower price than Elite Bikes (AO2), then analyse how this could attract customers from both existing competitors, but also requires Bramwell Bikes to genuinely deliver on that quality promise, since failing to do so could see customers switch straight back to Elite Bikes instead (AO3a).
Bramwell Bikes is considering two options: entering the gap in the market for high-quality bikes at a moderate price, or directly competing with Elite Bikes at the premium end of the market. Justify which option Bramwell Bikes should choose.
Structure guide: apply knowledge to Bramwell Bikes' specific situation (AO2), analyse points on both sides (AO3a) — the identified gap avoids direct competition with an already well-established premium brand, while directly challenging Elite Bikes risks a difficult fight against an established, trusted competitor — then reach a clear, justified choice (AO3b).