Segmentation

Introduction

Market segmentation is best known for its use in marketing: customer acquisition, retention, and migration to higher value; and choosing the right location for a given facility, be it a retail store, library, or other type of outlet. Over the last decade, however, the success of market segmentation has expanded its application across other business functions. Market segmentation can be applied to a range of business or organizational functions including:

• Strategic and tactical functions ranging from strategy development to customer acquisition and retention

• Core business practices and initiative-based activities including planning and forecasting and development of new products and services

• Customer management at the portfolio level and in one-to-one sales and services, including media and distribution choices.

Segmentation strategies

There are many ways in which a market can be segmented. A marketer will need to decide which strategy is best for a given product or service. Sometimes the best option arises from using different strategies in conjunction. Approaches to segmentation result from answers to the following questions: where, who, why and how? Jon Weaver, Marketing Manager at Bournemouth Borough Council applies a multi-strategy approach to identify segments.

1.       Geographic segmentation: Where? A market can be divided according to where consumers are located. On a trip abroad you might have noticed that people enjoy more outdoor activities than back home. You could also be surprised by the amount of people that like drinking hot coffee at the beach in Rio de Janeiro. If you visit this website you will see differences in food preferences around the world.

Understanding cultural differences between countries could be pivotal for business success, consequently marketers will need to tailor their strategies according to where consumers are.

Geographic segmentation is the division of the market according to different geographical units like continents, countries, regions, counties or neighborhoods. This form of segmentation provides the marketer with a quick snapshot of consumers within a delimited area.

Geographic segmentation can be a useful strategy to segment markets because it:

·         Provides a quick overview of differences and similarities between consumers according to geographical unit;

·         Can identify cultural differences between geographical units;

·         Takes into consideration climatic differences between geographical units;

·         Recognizes language differences between geographical units.

But this strategy fails to take into consideration other important variables such as personality, age and consumer lifestyles. Failing to recognise this could hinder a company's potential for success.

For example some youth groups across the world appear to be somewhat similar. Youth groups will tend to listen to similar music and follow similar fashion trends. If you were to do a quick check of people's nationalities in a 18s-30s club in Mexico, you would find a very international clientele. You might have found that you can befriend foreign people of your same age easily because you share common interests.

2.       Demographic segmentation: Who?

A very popular form of dividing the market is through demographic variables. Understanding who consumers are will enable you to more closely identify and understand their needs, product and services usage rates and wants.

Understanding who consumers are requires companies to divide consumers into groups based on variables such as gender, age, income, social class, religion, race or family lifecycle.

A clear advantage of this strategy over others is that there are vast amounts of secondary data available that will enable you to divide a market according to demographic variables

3.       Psycho-demographic segmentation: Why?

Unlike demographic segmentation strategies that describe who are purchasing a product or service, psycho-demographic segmentation attempts to answer the 'why's' regarding consumer's purchasing behaviour. Through this segmentation strategy markets are divided into groups based on personality, lifestyle and values variables.

1.       Behavioral segmentation: Why?

Behavioral segmentation divides consumers into groups according to their observed behaviors. Many marketers believe that behavioral variables are superior to demographics and geographics for building market segments and some analysts have suggested that behavioural segmentation is killing off demographics. Typical behavioral variables and their descriptors include:

·         Purchase/Usage Occasion: e.g. regular occasion, special occasion, festive occasion, gift-giving

·         Benefit-Sought: e.g. economy, quality, service level, convenience, access

·         User Status: e.g. First-time user, Regular user, Non-user

·         Usage Rate/ Purchase Frequency: e.g. Light user, heavy user, moderate user

·         Loyalty Status: e.g. Loyal, switcher, non-loyal, lapsed

·         Buyer Readiness: e.g. Unaware, aware, intention to buy

·         Attitude to Product or Service: e.g. Enthusiast, Indifferent, Hostile; Price Conscious, Quality Conscious

·         Adopter Status: e.g. Early adopter, late adopter, laggard