A market segment is defined in terms of clearly distinct requirements for obligatory product properties with a minimum of overlap to other segments. This concept is fundamental in Life Cycle Assessment for understanding product substitution and market dynamics when modelling consequential changes in production systems.
Within a given market segment, all products targeted for that segment are considered substitutable by the customers of this segment. This substitutability reflects that the products meet the same essential functional requirements and can therefore fulfil the same customer needs. The obligatory product properties that define a segment represent the minimum specifications that products must meet to be considered viable alternatives within that market.
A critical aspect of market segmentation is the boundaries between segments. There should be a low probability that a product targeted for another segment would be considered substitutable for products within a different segment. This clear delineation means that product substitution from segment to segment can be neglected in LCA modelling. For example, premium and economy product variants may serve different market segments even if they provide similar basic functions, because customers in each segment have distinct requirements regarding quality, performance, or other obligatory properties.
Understanding market segments is particularly important in consequential Life Cycle Assessment, where identifying which products are displaced by changes in production is essential for accurate modelling. By recognising the boundaries of market segments, LCA practitioners can better predict which activities will change in response to altered demand for a product, ensuring that only genuinely substitutable products are considered in displacement scenarios.
The concept of market segments helps avoid the methodological error of assuming that all functionally similar products compete directly, when in reality customer requirements and product properties create distinct, non-competing market spaces.
