There is never one correct method to segment a market into smaller more identifiable pieces. Different ways to segment a market will be chosen depending on the type of the good or service that the business tries to offer to the market.
Car companies can segment a market based on income and lifestyle while holiday businesses based on family size and social status. Different consumer groups will be looking for a completely different car or type of holidays. Specific benefits are offered to customers as it helps to target people and satisfy their specific needs and wants.
Bases of market segmentation
The key task is to find the variable, or variables that split the market into actionable segments.
There are two types of market segmentation variables:
- Needs. The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.
- Profilers. Profilers are the descriptive and measurable customer characteristics such as location, age, gender, income, etc. These factors can be used to inform a segmentation exercise. Broadly, consumer characteristics can include geographic characteristics, demographic characteristics, behavioral characteristics and psychographic characteristics.
It is widely thought in marketing that market segmentation is an art, not a science. It is not that easy.
Different ways to segment a market
The whole market can be segmented in a number of different ways.
The most common profilers used in customer segmentation include the following four: behavioral market segmentation, geographic market segmentation, demographic market segmentation and psychographic market segmentation.
1. Geographic market segmentation
Geographic market segmentation divides the market into different geographical units. It assumes that people who live in one place will be different, have different needs and wants, from consumers living in other areas. Geographic factors include location, climate and population density.
Geographic market segmentation is important for firms with business activity in many areas around the country and around the world. Global multinational businesses will modify their products, prices, promotion activities and distribution networks in order to meet local needs of different geographical units.
2. Demographic market segmentation
Demographic market segmentation divides the market according to the study of population data, trends in the society and demographic characteristics of the human population. It assumes that people have different characteristics as human beings. Demographic factors include age, gender (sex), race and ethnicity, marital status, family size, occupation (job), income, language and religion.
Demographic market segmentation variables are amongst the most popular bases for segmenting customer groups because most of the customer needs and wants are closely linked to two variables such as income and age. For practical reasons, lots of data is available to help with the demographic segmentation process, hence different combinations of demographic factors are used for marketing purposes to devise appropriate Marketing Mix towards different market segments.
3. Behavioral market segmentation
Behavioral market segmentation divides the market into groups of customers based on the way they respond to the product. It assumes that people know about the product from different sources, shop for the product in different ways and use the product differently from others. Behavioral factors include outlet type, occasions, usage, loyalty and benefits sought.
Behavioral market segmentation variables help marketers to gain deeper practical knowledge about the customers actually using the product. Based on customer behavior, firms will be able to modify and improve current products as well as invent new products based on detailed feedback from real product users.
4. Psychographic market segmentation
Psychographic market segmentation divides the market considering people’s lifestyles, values and worldviews. It assumes that people have different personalities and emotions and attitudes will influence how to perceive certain products, hence whether they are willing to spend their money or not. Psychographic factors include lifestyle, hobbies and interests, values and attitudes, social status, culture and personality.
Psychographic market segmentation variables help to determine whether certain groups of people can become potential customers for the firm’s products. Based on hobbies, interests and social status, the business will make sure whether this is the right type of customer it is trying to sell its products to.
Segmentation leads to targeting
After the market segmentation is done, these different factors are often combined into one to devise a very specific target market. For instance, independent wealthy world travelers from the UK aged 25 to 34 who work in multinational corporations.
Once a market has been segmented, targeting becomes the next stage in marketing planning process. Targets refers to the market segment or market segments that a business wishes to sell to.
Appropriate marketing strategies are then developed for these target markets.
