Marketing Principles » Market Segmentation

What you'll learn this session

Study time: 30 minutes

The concept of market segmentation and why it's important
Different types of market segmentation (demographic, geographic, psychographic, behavioural)
How tourism businesses use segmentation to target customers
Benefits and limitations of market segmentation
Real-world examples of segmentation in the travel and tourism industry

Introduction to Market Segmentation

Market segmentation is one of the most important concepts in tourism marketing. It's about splitting a big market into smaller groups of customers who have similar needs, wants, or characteristics. Instead of trying to appeal to everyone (which rarely works!), travel and tourism businesses can focus their marketing efforts on specific groups who are most likely to buy their products or services.

Key Definitions:

Market Segmentation: The process of dividing a broad consumer market into sub-groups of consumers who have common needs, interests and priorities.
Target Market: The specific group of customers a business aims its products and marketing efforts at.
Market Segment: A group of customers who share similar characteristics and are likely to respond to similar marketing approaches.
Mass Marketing: Treating the entire market as one group and using the same marketing approach for everyone.

Why Segment Markets?

Imagine you run a travel agency. Would you try to sell luxury cruises to university students on a tight budget? Or backpacking adventures to elderly couples looking for relaxation? Probably not! Market segmentation helps you identify who your actual customers are, so you can create products they want and marketing messages that speak directly to them.

Types of Market Segmentation

There are four main ways to segment tourism markets. Most successful businesses use a combination of these approaches:

👥 Demographic Segmentation

This involves dividing the market based on measurable population characteristics such as:

Age: Children, teenagers, young adults, middle-aged, seniors
Gender: Male, female, non-binary
Income: Budget travellers, mid-range, luxury market
Family status: Singles, couples, families with young children, empty nesters
Education level: Secondary school, university, postgraduate
Occupation: Students, professionals, retirees

Example: A tour operator might create special packages for families with children that include kid-friendly activities and accommodation.

🌎 Geographic Segmentation

This divides customers based on where they live:

Country: Domestic vs international tourists
Region: North, South, East, West
Urban/Rural: City dwellers vs countryside residents
Climate: People from cold regions might seek sunny destinations

Example: A UK beach resort might target people from rainy northern cities during winter months, offering them "sunshine escape" packages.

💡 Psychographic Segmentation

This looks at customers' lifestyles, values, attitudes, interests and personalities:

Lifestyle: Adventure-seekers, luxury-lovers, eco-conscious travellers
Social class: Working class, middle class, upper class
Personality: Outgoing vs reserved, spontaneous vs planners
Values: Environmentally conscious, culturally respectful, status-oriented

Example: An eco-tourism company might target environmentally conscious travellers who value sustainability and authentic experiences.

🛠 Behavioural Segmentation

This focuses on how customers interact with products and services:

Buying occasion: Regular holidays, special occasions, last-minute getaways
Benefits sought: Relaxation, adventure, cultural immersion, status
User status: First-time visitors vs repeat customers
Usage rate: Frequent travellers vs occasional travellers
Loyalty status: No loyalty, some loyalty, absolute loyalty

Example: A hotel chain might have special rewards for frequent guests and different promotions for first-time visitors.

Market Segmentation in Action: Tourism Examples

🏩 Hotels & Accommodation

Hotels often segment by purpose of travel:

Business travellers: Need good Wi-Fi, work spaces, convenient locations
Families: Need connecting rooms, kid-friendly facilities, entertainment
Couples: Seeking romantic settings, privacy, special experiences

✈ Airlines

Airlines segment their market by:

Price sensitivity: Budget travellers vs premium customers
Purpose: Business vs leisure
Loyalty: Frequent flyers vs occasional travellers

🏠 Tour Operators

Tour operators often segment by:

Age: Youth tours, family tours, senior tours
Interest: Adventure, cultural, gastronomic, wildlife
Group size: Individual travellers, couples, large groups

Benefits of Market Segmentation

When done properly, market segmentation offers many advantages to tourism businesses:

More effective marketing: Messages can be tailored to specific audience needs
Better use of resources: Marketing budgets can be focused on the most promising segments
Improved customer satisfaction: Products and services can be designed to meet specific needs
Competitive advantage: Businesses can find and dominate niche markets
Higher profits: Better targeting often leads to higher conversion rates and customer loyalty
Product development: Understanding segments helps create new products that customers actually want

Case Study Focus: TUI Group

TUI, one of the world's largest tourism companies, segments its market in multiple ways. They have different brands targeting different segments:

TUI Blue: For lifestyle-oriented travellers seeking authentic local experiences
Robinson: For active holidaymakers who enjoy sports and wellness
TUI Magic Life: All-inclusive clubs for families and active holidaymakers
TUI Family Life: Specifically designed for families with children of different ages

By creating these distinct brands, TUI can target different market segments with tailored products and marketing messages, rather than trying to make one brand appeal to everyone.

Limitations and Challenges of Market Segmentation

While market segmentation is powerful, it's not without challenges:

Cost: Researching segments and creating tailored marketing campaigns can be expensive
Complexity: Managing multiple segments requires more resources and coordination
Accuracy: Segments may be based on assumptions that aren't always accurate
Changing preferences: Customer preferences can change quickly, especially in tourism
Overlap: Customers might belong to multiple segments, making targeting difficult

How to Implement Market Segmentation

For tourism businesses looking to implement market segmentation, follow these steps:

Research your market: Gather data about your current and potential customers
Identify potential segments: Look for groups with similar characteristics
Evaluate segment attractiveness: Consider size, growth potential and accessibility
Select target segments: Choose which segments to focus on
Develop positioning strategy: Decide how you want to be perceived by each segment
Create marketing mix: Develop products, pricing, promotion and distribution strategies for each segment
Monitor and adjust: Regularly review your segmentation strategy and make changes as needed

Real-World Example: Center Parcs

Center Parcs holiday villages in the UK are a great example of successful segmentation. They target:

Families with young children: Safe, traffic-free environment with child-friendly activities
Multi-generational groups: Variety of accommodation sizes and activities for all ages
Couples seeking relaxation: Spa facilities and adult-oriented dining
Domestic tourists: UK locations easily accessible by car
Nature lovers: Forest settings with outdoor activities

By understanding these segments, Center Parcs can create targeted marketing campaigns and tailor their facilities to meet specific needs, resulting in high occupancy rates throughout the year.

Summary: The Power of Market Segmentation

Market segmentation is essential for tourism businesses to effectively target their marketing efforts and develop products that meet specific customer needs. By dividing the market into segments based on demographics, geography, psychographics and behaviour, businesses can create more personalised experiences and marketing messages.

Remember that effective segmentation should result in groups that are:

Measurable: You can identify and measure the size of the segment
Substantial: The segment is large enough to be profitable
Accessible: You can reach the segment through marketing channels
Differentiable: The segment responds differently to marketing efforts than other segments
Actionable: You can develop effective products and marketing for the segment

In today's competitive tourism industry, understanding and applying market segmentation principles is not just helpful it's essential for success.