3. Market Segmentation

The process of grouping potential buyers with common characteristics and needs.

Market segmentation is a process. Markets can be segmented based on various characteristics including:

DEMOGRAPHIC

(Population statistics such as:)

  • Age - groups, e.g. retirees, young couples etc

  • Marital status - Married couples, divorced, widowed or single all have distinctly different purchasing behaviours.

  • Social class - set of hierarchical categories, the most common being the upper, middle and lower classes dictate affordability.

  • Education - the level of education (primary, secondary, tertiary) will influence lifestyles, buying patterns and behaviours.

  • Race and ethnicity - different races have different cultures, which influence their needs and wants.

  • Gender – males, females or non-binary have distinctly different buying behaviours, especially in the areas of fashion.

  • Family lifecycle - marketers categorise households in terms of their stage in the family lifecycle, because purchasing behaviour influenced by priorities in life.

GEOGRAPHIC

(Geographic segmentation refers to where people live.)

Obviously, different countries will have significantly different lifestyles, economies, cultures, languages, climates, traditions; all of which will significantly influence purchasing behaviours. For example, those living in colder countries will be more interested in warm clothing and heating appliances, whereas those in warmer climates would prefer air conditioning.

In addition, buying behaviour will be influenced by the nature of the environment, whether it is urban or rural, high rise or suburban. Consumers who live in flats, for example, will clearly not require gardening products.

  • Urban

  • Rural

  • High Rise

  • High Density

  • Low Density

PSYCHOGRAPHIC

Psychographics is concerned with people’s lifestyle, their attitudes, emotions, personality, drive and values.

Lifestyle

There are many lifestyle choices that will influence purchasing behaviour. One of the most significant areas of the last few years is environmentalism and the desire to lower one's carbon footprint. This lifestyle choice has produced a whole array of products choices such as organics and low energy innovations. Other lifestyle choices relate:

  • concern for animals, have led to cosmetics retailers marketing that they their products have not been tested on animals

  • sports and hobbies

  • care for others - giving to charities or buying their products

  • status goods e.g. yachts, jewellery and fast cars

  • technologist - individuals who look to have the latest gadgets

Behavioural

Behavioural segmentation divides the market into groups based on their knowledge, attitudes, uses and responses to the product. The following are commonly applied behavioural segments

  1. Occasions: Groups individuals according to the occasions when they purchase, use or think of buying a product.

  2. Benefits Sought: Groups individuals according to the benefits they seek from the product.

  3. Usage Rate: Groups individuals according to the level of usage they make of the product, be it Heavy, Medium or Light usage.

  4. Loyalty Status: Groups individuals according to their level of loyalty to the product. 'Hard core loyal' always purchase the product / brand in question. Whilst 'Soft core loyal' will sometimes purchase another brand, and 'Switchers' will not specifically seek out a particular brand, but rather purchase the brand available to them at time of need, or that which was on sale.

Explain Market Segmentation

Market segmentation enables businesses to determine which segments their product would suit best and then direct any marketing efforts distinction to that targeted segment. By doing this the business is more likely able to satisfy these selected consumers.

 

It is about a business 'knowing their customers'. Each segment will share certain characteristics, which bind them together while at the same time distinguishing them from other segments. Some segments may be quite small, so firms will be marketing to a niche market, where the level of demand is limited. Some businesses many be able to offer a range of products to cover more than one determined segment, such as in the car industry they offer a base model and a premium model.

 

Market segmentation is the technique used to enable a business to better target its products at the right customers. It is about identifying the specific needs and wants of customer groups and then using those insights into providing products and services which meet customer needs. This helps the business to direct resources where they are more likely to produce results (sales).

Benefits and Drawbacks of Market Segmentation

BENEFITS

Effective marketing efforts by:

  • Efficient targeted advertising: Allows businesses to create better-target advertising according to age, interests, and spending patterns, among other things.

  • Creating clear and specific marketing messages: Marketing segmentation helps businesses understand the needs and expectations of their targeted group; this lets them communicate directly with their target audience.

With better marketing decisions that are directed and satisfy customers businesses can:

  • Increasing profits: The process can ensure resources/money are directed to marketing campaigns that are more likely to be successful and ultimately enhance a business’s profitability.

  • Differentiate from the competition: Clear marketing messages can make the brand stand out in the market.

  • Increasing brand loyalty: Understanding the target customers can help businesses connect with their clients and build brand loyalty.

DRAWBACKS

#1 Cost

  • Segmentation is an investment. Splitting the market into groups means businesses will need to spend the time conducting research and analysing their markets.  Once the market segments have been determined a business may decide to cater for multiple target segments (markets) which will means more than one marketing campaign, multiple times in different ways. This can be more time-consuming and expensive than running a single campaign aimed one market.

 

#2 Understanding segments

  • It’s easy to fall into the trap of thinking that each potential customer belongs solely in one specific segment. However, this is an oversimplification. Imagine you’re selling a brand of car. One of your segments might be drivers who enjoy off road trip and another might be those that what comfort and luxury. One person could fall into both segments.

  • Consumers needs and wants are constantly changing. This means that consumers may change market segments over time. For example, young people may enjoy off road activities but as they get older this may change as they want more comfort and can afford it. Now that the younger generation is earning more money and can afford luxury models with all the accessories, this may now need to include Apple Play and other technology.

  • Consumers are individuals, and their habits and desires can change based on their environment and mindset.

 

#3 Unprofitable Segments

  • Smaller market segments means cost in adapting marketing strategies to fit segments may not be feasible (worth the investment).