18.1 Segmentation bases and criteria
4 min read•july 23, 2024
Market segmentation is a crucial strategy for businesses to tailor their offerings to specific customer groups. By dividing the market into distinct segments, companies can better understand and meet the unique needs of different consumer groups, leading to more effective marketing and product development.
There are four main bases for market segmentation: demographic, geographic, psychographic, and behavioral. Each approach offers unique insights into consumer characteristics and preferences, allowing businesses to create targeted marketing campaigns and develop products that resonate with specific customer segments.
Market Segmentation Bases
Bases of market segmentation
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- divides market based on population characteristics
- Age groups (millennials, baby boomers) to tailor products and messaging
- Gender segmentation for products like clothing, cosmetics, and magazines
- Income levels (low, middle, high) to offer products at various price points
- Education level impacts preferences for products like books, newspapers, and online courses
- Occupation influences work-related needs (uniforms, tools) and leisure activities
- Family size and lifecycle stage (single, married, with children) affects housing, vehicle, and grocery choices
- Religion can influence food choices (halal, kosher), clothing, and holiday spending
- Ethnicity shapes cultural preferences for music, food, and media
- divides market based on location
- Region (North, South, East, West) for climate-related products and regional preferences
- Country segmentation for localized products, languages, and cultural norms
- City or metropolitan area for urban planning, transportation, and retail strategies
- Population density (urban, suburban, rural) affects distribution, advertising, and product assortment
- Climate impacts seasonal demand for products (air conditioners, winter coats)
- divides market based on psychological traits
- Personality traits (extroverted, introverted) influence brand preferences and shopping behaviors
- Values (environmentalism, frugality) shape product choices and willingness to pay
- Attitudes (health-conscious, risk-averse) affect interest in new products and technologies
- Interests (sports, music) guide leisure activities and related purchases
- Lifestyles (active, sedentary) impact exercise equipment, travel, and entertainment choices
- divides market based on actions and decisions
- Purchase occasion (regular or special occasion) affects product packaging and promotion
- Benefits sought (quality, price, convenience) determine brand switching and loyalty
- User status (non-user, potential user, first-time user, regular user) guides customer acquisition and retention strategies
- Usage rate (light, medium, heavy) impacts product sizing, frequency of purchase, and customer lifetime value
- Loyalty status (none, medium, strong, absolute) shapes retention efforts and rewards programs
- Buyer-readiness stage (unaware, aware, informed, interested, desirous, intending to buy) aligns marketing communications with the purchase funnel
Segmentation Criteria and Application
Criteria for effective segmentation
- Measurability ensures segment can be quantified and described
- Segment size and purchasing power data is available for market sizing and forecasting
- Data on the segment's demographic, psychographic, and behavioral characteristics is obtainable for targeting
- Accessibility ensures segment can be reached efficiently
- Segment can be effectively reached through available media channels (TV, radio, digital)
- Distribution channels (retail stores, e-commerce) are available to deliver products to the segment
- ensures segment is large and profitable enough to pursue
- Segment represents a sizable portion of the market to generate sufficient sales volume
- Segment has sufficient purchasing power and growth potential to deliver long-term profitability
- ensures segment can be served with tailored marketing
- Segment's unique needs, preferences, and behaviors can be addressed with differentiated products, pricing, and messaging
- Company has the capabilities and resources to develop and execute segment-specific marketing programs
Advantages vs limitations of segmentation
- Demographic segmentation
- Advantages: Demographic data is widely available, easily , and often correlates with purchasing patterns (income and luxury goods)
- Limitations: Demographic variables alone may not fully capture consumer motivations, preferences, or brand affinities (not all millennials have the same tastes)
- Geographic segmentation
- Advantages: Allows for efficient targeting of local market needs and preferences (winter tires in snowy regions), enables localized marketing and distribution strategies
- Limitations: Geographic boundaries may not align with consumer segments that span multiple regions, global brands may struggle to adapt to local market differences
- Psychographic segmentation
- Advantages: Uncovers deep insights into why consumers buy, enables emotionally resonant brand positioning and messaging (eco-friendly values and sustainable products)
- Limitations: Psychographic data can be difficult and costly to obtain, self-reported attitudes may not always predict actual purchase behavior
- Behavioral segmentation
- Advantages: Focuses on actual consumer actions and decisions (brand loyalty, heavy usage), enables precision targeting and personalized offers based on past behavior
- Limitations: Behavioral patterns can be complex to analyze and may change over time, past behavior does not always predict future actions (variety-seeking, situational factors)
Application of segmentation in marketing
- Example 1: Luxury car brand targets affluent, status-driven urban professionals
- Bases: Demographic (high income), geographic (major metropolitan areas), psychographic (prestige-seeking)
- Criteria: Measurable (5+ billion market potential), actionable (concierge services, VIP events)
- Example 2: Organic food brand targets health-conscious millennial parents
- Bases: Demographic (age 25-40), psychographic (natural lifestyle), behavioral (frequent purchases of organic)
- Criteria: Measurable (35 million U.S. millennials), accessible (Instagram influencers, Whole Foods), substantial (15% sales growth rate), actionable (non-GMO ingredients, sustainable packaging)
Key Terms to Review (20)
4Ps of Marketing: The 4Ps of Marketing refers to the four key elements that make up a marketing strategy: Product, Price, Place, and Promotion. These elements help businesses determine how to effectively reach and satisfy their target audience while maximizing profits. Understanding how to balance and integrate these components is essential for successful marketing campaigns.
Accessible: In market research, 'accessible' refers to the extent to which a target segment can be reached or engaged with through marketing efforts. It is crucial for marketers to identify segments that are not only distinct and measurable but also reachable through effective channels. The accessibility of a segment influences how easily companies can communicate their messages and provide products or services to those potential customers.
Actionability: Actionability refers to the degree to which information, insights, or data can be transformed into practical steps or strategies that lead to effective decision-making and outcomes. In market research, actionable insights are those that directly inform marketing strategies, product development, and customer engagement efforts, making them essential for driving business success.
Behavioral segmentation: Behavioral segmentation is the process of dividing a market into distinct groups based on consumer behaviors, such as their purchasing habits, brand loyalty, usage rates, and responses to marketing strategies. By understanding these behaviors, marketers can create tailored strategies that resonate more effectively with specific segments, leading to increased customer satisfaction and loyalty.
Buying behavior: Buying behavior refers to the decision-making processes and actions of consumers when they purchase goods or services. This term encompasses the various factors that influence how and why consumers make purchasing choices, including psychological, social, and cultural aspects. Understanding buying behavior helps businesses identify their target markets and tailor their marketing strategies to effectively meet consumer needs.
Concentrated Strategy: A concentrated strategy involves targeting a specific market segment with a tailored marketing mix. This approach allows businesses to focus their resources on a narrow segment of the market, maximizing the effectiveness of their marketing efforts and often leading to a stronger competitive advantage within that niche.
Customer Needs: Customer needs refer to the essential requirements and desires that consumers have regarding a product or service. Understanding these needs is crucial for businesses to ensure that their offerings align with what customers are seeking, thus driving satisfaction and loyalty. Customer needs can influence various aspects of a business, including decision-making, market segmentation, and new product development processes, as they serve as a guiding force for tailoring strategies to meet consumer expectations.
Demographic segmentation: Demographic segmentation is a marketing strategy that divides a target market into distinct groups based on demographic factors such as age, gender, income, education, and family size. This approach allows marketers to tailor their products and marketing efforts to specific consumer characteristics, making their campaigns more effective.
Differentiated strategy: A differentiated strategy is a marketing approach that focuses on offering unique products or services to distinct customer segments, allowing a business to stand out in the marketplace. This strategy leverages the differences in consumer preferences, enabling companies to cater to the specific needs of various segments by creating tailored offerings that appeal to their targeted audiences.
Focus Groups: Focus groups are a qualitative research method where a small group of participants engages in a guided discussion about a specific topic, product, or service. This method allows researchers to gather in-depth insights and perceptions from consumers, helping to understand their attitudes, motivations, and preferences.
Geographic Segmentation: Geographic segmentation is the process of dividing a market into different geographical units, such as countries, regions, cities, or neighborhoods. This method allows businesses to tailor their marketing strategies based on the distinct characteristics, preferences, and needs of consumers in specific locations. By understanding local demographics and cultural factors, companies can better meet the demands of diverse markets.
Measurable: In the context of market research, 'measurable' refers to the ability to quantify characteristics or behaviors within a target market segment. This concept is crucial for ensuring that segments can be analyzed and compared effectively, allowing for informed decision-making in marketing strategies. Being measurable means that the criteria used for segmentation must yield data that can be collected, assessed, and interpreted reliably.
Niche market: A niche market is a specific, defined segment of a larger market that has its own unique needs, preferences, or identity. Businesses often target niche markets to cater to specialized demands that larger companies might overlook, leading to less competition and the opportunity for higher profit margins. Understanding the characteristics of a niche market helps businesses develop tailored products and marketing strategies that resonate with these distinct consumer groups.
Psychographic segmentation: Psychographic segmentation is a marketing strategy that divides consumers into groups based on their psychological attributes, such as personality traits, values, interests, and lifestyles. This method helps marketers understand consumer motivations and tailor their messages to resonate deeply with specific segments, leading to more effective targeting and engagement.
Qualitative Research: Qualitative research is a method of inquiry that focuses on understanding the underlying reasons, motivations, and emotions that influence consumer behavior. It emphasizes collecting non-numerical data, such as interviews and observations, to explore complex phenomena and generate insights that can guide decision-making.
Quantitative research: Quantitative research is a systematic investigation that primarily focuses on quantifying relationships, behaviors, or phenomena through statistical, mathematical, or computational techniques. This approach often involves the use of structured tools like surveys or experiments to collect numerical data, which can then be analyzed to identify patterns, test theories, and make predictions.
STP Model: The STP Model stands for Segmentation, Targeting, and Positioning, a strategic framework used in marketing to identify and reach specific consumer groups. It helps marketers break down a diverse market into smaller segments, choose the most suitable segments to target, and position their products or services effectively to meet the needs of those segments. This approach ensures that marketing efforts are more focused and efficient.
Substantiality: Substantiality refers to the importance and significance of a market segment in terms of its size, growth potential, and profitability. A segment is considered substantial if it can effectively support a marketing strategy that justifies the resources allocated to target it. This concept helps businesses prioritize their efforts towards segments that are not only large enough but also likely to generate a return on investment.
Surveys: Surveys are systematic methods for collecting data from respondents to gather insights about their opinions, behaviors, and characteristics. They are crucial in understanding market trends, customer satisfaction, and demographic information, which can influence various research designs and methodologies.
Target Market: A target market refers to a specific group of consumers that a business aims to reach with its products or services. Identifying the target market is crucial as it helps in tailoring marketing strategies and product development to meet the needs and preferences of that particular group, ensuring efficient use of resources and maximizing the effectiveness of marketing efforts.