People or firms within a market can be segmented according to a number of criteria. For sales of goods and services to private buyers, the following are typical segmentation criteria: Gender Socio-economic status Age Lifestyle Frequency of purchase Purpose of purchase
Attitudes towards the product Geographical location.
A number of specific methods of segmenting markets are considered in more detail below. These are not watertight definitions and you will recognise that they show considerable areas of overlap.
(a) Demographic bases for segmentation
Demography can be defined as the study of population characteristics and
demographers have used a number of key indicators in their studies of populations. Typical bases for demographic segmentation include:
Age – many products such as chart music and cruise holidays are quite age specific.
The stage that they have reached in their family life cycle – for example, single adults often have very different needs to adults with dependent children.
Gender – consider how males and females typically have different criteria when choosing a new car.
Household composition – for example, single person households are less likely to buy large ‘economy’ packs of products.
(b) Socio-economic bases for segmentation
It has been traditional to talk about class differences in the way that goods and services are purchased. A person's occupation is often a good indicator of the products they are likely to purchase. You may have come across a number of measures of socio-
economic groups – for example, the frequently quoted terms A, B, C1, C2, D and E which describe groups with different socio-economic circumstances. Marketers find the concept of social class too value laden and imprecise to be of much practical use. Instead, more objective indicators of social class are used, in particular occupation and income.
(c) Psychographic bases for segmentation
So far, most of the bases for segmentation have been reasonably measurable. However, they are often criticised for missing the unique personality factors that distinguish one person from another. Under the heading of psychographic factors, we can identify a number of factors:
Lifestyle – compare the differing lifestyles of your colleagues, expressed in such ways as their need for excitement, status, etc.
Attitudes – compare people's attitudes towards organic food.
Benefits sought – some people may buy a watch for telling the time accurately, whereas others may buy it as a fashion accessory.
Loyalty – some buyers may feel more comfortable sticking with suppliers who they are familiar with, while others may be more adventurous.
(d) Geodemographic bases for segmentation
Marketers have traditionally used geographical areas as a basis for a market segmentation. Very often, there have been very good geographical reasons why product preferences should vary between regions – for example, preferences in beer have traditionally varied between the north and south of England. Many companies have managed to adapt their product offer to meet the needs of different regional segments. National newspapers, for example, produce regional editions to satisfy
readers' needs for local news coverage and advertisers' needs for a regional advertising facility.
More recently, geographical segmentation has been undertaken at a much more localised level, and linked to other differences in social, economic and demographic characteristics. The resulting basis for segmentation is often referred to as
geodemographic, the underlying idea being that where a person lives is closely associated with a number of indicators of their socio-economic status and lifestyle. This association has been derived from detailed investigations of multiple sources of information about people living in a particular neighbourhood.
(e) Situational bases for segmentation
A further group of segmentational variables can be described as situational because an individual may find him/herself grouped differently from one occasion to the next – for example, an individual may seek a relaxing social meal at a restaurant on one
occasion, but a faster business lunch on another occasion.
In practice, companies would use a number of key variables which are most relevant to their product or market. Geodemographic segmentation has become particularly popular because of the close correlation between the postcode of where an individual lives and other
indicators of income, occupation and lifestyle. Companies are also likely to combine subjective approaches to segmentation with more traditional quantifiable techniques.
Target Marketing
Identifying segments of a market is one thing. It is another to decide which of the many available market segments a company should aim at. These chosen segments are commonly referred to as target markets.
The development of segmentation and target marketing reflects the movement of
organisations away from production orientation towards marketing orientation. When the supply of goods is scarce relative to demand (or customers have very little choice of supplier), organisations may seek to minimise production costs by producing one
homogeneous product which satisfies the needs of the whole population (think of the early days of Ford when customers could have "any colour Model T, as long as it is black"). Over time, increasing affluence has increased customers' expectations. Affluent customers are no longer satisfied with a basic car, but instead are able to demand one which satisfies an increasingly wide range of needs. To some, a car is not just for transport, but a symbol of status or an object of excitement. Furthermore, society has become much more fragmented – the "average" consumer has become much more of a myth, as incomes, attitudes and lifestyles have diverged.
Alongside the greater fragmentation of society, technology is today allowing highly specialised goods and services to be tailored to ever smaller market segments. Using computer controlled manufacturing techniques, cars can be tailored to each individual customer's needs as they come down the production line.