Review of Market Segmentation
Market segmentation is a fundamental marketing strategy that divides a broad market into smaller, more defined groups with similar characteristics, needs, or behaviours. This review session will consolidate your understanding of how businesses identify and target specific customer groups to maximise their marketing effectiveness.
Key Definitions:
- Market segmentation: The process of dividing a market into distinct groups of buyers who have different needs, characteristics, or behaviours.
- Target market: The specific segment(s) of consumers a business decides to focus its marketing efforts on.
- Market positioning: How a business wants its products to be perceived by customers relative to competitors.
✓ Why Segment Markets?
Segmentation allows businesses to:
- Better understand customer needs
- Develop products that match specific requirements
- Create more effective marketing messages
- Allocate marketing resources efficiently
- Identify gaps in the market
- Gain competitive advantage
☆ Benefits of Effective Segmentation
When done properly, segmentation leads to:
- Higher customer satisfaction
- Improved customer loyalty
- More efficient use of marketing budget
- Better product development
- Increased sales and profits
- Stronger brand positioning
Types of Market Segmentation
Remember that there are four main ways to segment consumer markets. Each approach offers different insights into customer behaviour and preferences:
♥ Demographic
Based on: Age, gender, income, education, family size, occupation, religion, nationality
Example: A clothing retailer creating different collections for teenagers, young adults and middle-aged customers.
♦ Geographic
Based on: Country, region, city, urban/rural, climate, population density
Example: A food company offering different flavours in northern and southern regions based on local taste preferences.
♣ Psychographic
Based on: Lifestyle, personality, values, attitudes, interests, opinions
Example: A car manufacturer targeting environmentally conscious consumers with hybrid or electric vehicles.
♠ Behavioural
Based on: Purchase occasion, benefits sought, usage rate, loyalty status, readiness to buy
Example: A hotel chain offering different packages for business travellers versus holiday-makers.
⇒ B2B Segmentation
Business markets can be segmented by:
- Industry type
- Company size
- Geographic location
- Purchase volume
- Decision-making unit
Market Targeting Strategies
After segmenting the market, businesses must decide which segments to target. There are three main targeting strategies:
1 Undifferentiated (Mass) Marketing
Treating the entire market as one segment with a single marketing mix.
Example: Basic household products like salt or sugar.
Advantages: Economies of scale, simpler production
Disadvantages: Doesn't address specific needs, vulnerable to competitors who target segments
2 Differentiated (Segmented) Marketing
Targeting multiple segments with different marketing mixes for each.
Example: Unilever with different shampoo brands for different hair types.
Advantages: Higher sales volume, stronger market position
Disadvantages: Higher costs, more complex management
3 Concentrated (Niche) Marketing
Focusing on one specific segment with a tailored marketing mix.
Example: Rolex focusing on the luxury watch segment.
Advantages: Specialisation, efficient resource use
Disadvantages: Higher risk if segment shrinks, limited growth potential
Case Study Focus: Nike's Segmentation Strategy
Nike effectively uses multiple segmentation approaches:
- Demographic: Different product lines for men, women and children
- Behavioural: Products for different sports and activity levels (running, basketball, casual wear)
- Psychographic: Appeals to competitive athletes and fashion-conscious consumers
- Geographic: Designs for different climates and regional preferences
This multi-dimensional approach has helped Nike become a global leader in sportswear, with products that appeal to various customer segments while maintaining a consistent brand identity.
Evaluating Segmentation and Targeting
For segmentation to be effective, the segments must meet certain criteria:
✓ Effective Segments Are:
- Measurable: Size and purchasing power can be measured
- Substantial: Large enough to be profitable
- Accessible: Can be effectively reached and served
- Differentiable: Respond differently to marketing efforts
- Actionable: Effective programmes can be created to serve them
× Common Segmentation Mistakes:
- Over-segmenting the market (too many small segments)
- Using irrelevant segmentation variables
- Not updating segmentation as markets change
- Ignoring segment profitability
- Failing to link segmentation to the overall marketing strategy
Applying Segmentation to Marketing Mix
Once a business has identified its target segments, it must develop a marketing mix (4Ps) tailored to each segment's needs:
§ Product
How segmentation affects product decisions:
- Features and benefits designed for specific segments
- Quality levels aligned with segment expectations
- Packaging designed to appeal to target customers
- Brand positioning that resonates with the segment
£ Price
How segmentation affects pricing decisions:
- Premium pricing for luxury segments
- Value pricing for price-sensitive segments
- Discount strategies based on purchase behaviour
- Price discrimination between different segments
⊕ Place
How segmentation affects distribution decisions:
- Channel selection based on where segments shop
- Online vs offline presence
- Exclusive distribution for premium segments
- Geographic coverage aligned with target markets
» Promotion
How segmentation affects promotional decisions:
- Message content tailored to segment interests
- Media selection based on segment media habits
- Promotional offers aligned with segment motivations
- Timing of promotions to match segment buying patterns
Exam Preparation Tips
When answering exam questions on market segmentation and targeting:
→ For Knowledge Questions:
- Define key terms accurately
- Identify the four main types of segmentation
- Describe the three targeting strategies
- Explain criteria for effective segmentation
- Link segmentation to the marketing mix
→ For Application Questions:
- Use the business context provided
- Identify which segments the business is targeting
- Explain how their marketing mix is tailored to these segments
- Suggest appropriate segmentation variables for the business
- Use real business examples to support your answers
Assessment Checklist
Make sure you can:
- Define market segmentation and explain its importance
- Identify and explain the four main types of segmentation
- Compare and contrast the three targeting strategies
- Evaluate the effectiveness of segmentation using appropriate criteria
- Apply segmentation principles to real business scenarios
- Explain how segmentation affects marketing mix decisions
- Analyse the advantages and disadvantages of different targeting approaches
- Use business examples to illustrate your understanding