Market Segmentation

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Segmentation is the act of subdividing a market into smaller groups, who can be targeted by a specific Marketing Mix*. These clusters are likely to have common preferences and needs and are likely to react to market stimuli in much the same way.

Segmentation is driven by a set of variable or bases that are distinct enough to slice the market up in many different ways.

Psychographic

The market is divided by psychological differences, based on lifestyle, values, personality, interests and personal preferences. It is about the person not the product:

  • Activities: What a person does – work, hobbies, membership, sports, holiday…
  • Interests: Preoccupations – family, home job, community, recreation, fashion…
  • Opinions: Self beliefs – politics, religion, economics, education, culture, future…
  • Demographics: Objective social criteria – Age, sex, income occupation family size…

Based on the analysis of the above preferences, it is possible to make generalisations in terms of four clusters:

  1. Upwardly mobile and ambitious: want better lifestyle and will try new products
  2. Traditional and sociable: Purchasing patterns are conformist
  3. Security and safety seeking: Well established products are preferable. New products are unlikely to be well received
  4. Hedonistic preference: wants instant gratification and products to match

 

Behavioural

The market is divided by the observable purchasing patterns of behaviour:

  • Usage: Amount of use, manner of use, benefits sought
  • Purchase Occasion: Gift, holiday, seasonal
  • Brand Loyalty: Loyalty to one brand indicates receptiveness to others#
  • Responsiveness to Price & Promotion: Some groups respond better to the marketing effort than others. Housewives use more coupons than single people.

Geodemographic:

The market is divided by the area that they live in and people who live in the same neighbourhood exhibit similar buying patterns:

  • Wealthy Suburbs
  • Average-income areas
  • Flats – luxury
  • Low income inner city
  • Sink/housing estates
  • Industrial communities
  • Dynamic families
  • Low income families
  • Farming/rural
  • Holiday/retirement

Others

There are other market is divisions:

  • Benefit segmentation: recognizes that different people get different satisfaction from the same product. It works on the appetite for a bargain or impulsive buy.
  • Industrial segmentation: looks at the target market in terms of their business size, location, buying policies, principal business activity.
  • Multivariant segmentation: where more than one variable are used to increase precision.
  • Segments of one: Direct marketing to one entity based on their purchase habits (Tesco’s club card & Amazon recommendations –  future purchases based on past purchases)

Segment Validity

Marketers must not only select the right group of variables but also decide how many to use. Choosing the ‘right’ group of variables will identify the most accessible and receptive market. There are criteria which decides whether or not the segment can be used for developing marketing plans:

  • Measurability: is there a tangible measure to apply – can a segment market with a conservative outlook be valid and can conservatism be measured by market research?
  • Accessibility: Can you reach the segment via promotion and distribution channels or is targeting hill farmers with and e-flyer a sensible proposition?
  • Substantiality: Is the segment big enough to bother with?
  • Profitability: is there margin in this?
  • Compatibility: Are your competitors interested or indeed already in this segment?
  • Stability: Will the segment exist next year and can the marketing and operations machine move swiftly enough to capitalise on it before it disappears?
  • Defendability: Can you defend this segment against customer attack
  • Effectiveness: Does your business have the adequate resource to serve this segment?

Example demographic profile based on the above is for a gourmet coffeee buyer that marketers actually use:

25-54 yrs old

College educated

Professional or business executive employment

Childless Household

Household income in excess of $50K

*Marketing mix is the variable factors that are used to entice a customer into purchasing a unit. Think of the 4P’s, 5P’s or 7P’s.

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