Market segmentation

In order to make decisions about who to sell their product to, marketers try to identify distinct groups of consumers with similar wants and habits who together form a “segment” of the market.

How it works

Marketing departments use a strategy of market segmentation to find the potential customers who are most likely to buy a particular product, thereby increasing the chances of a successful product launch. They divide a broad group of consumers into subgroups based on many factors, including age, lifestyle preferences, location, family structure, household income, and occupation. This process narrows down a potentially huge market into segments, allowing marketers to identify the ones more inclined to buy a given product. For example, after applying this strategy, a company trying to launch premium-price organic baby food realizes that instead of marketing to all women who have young children, it should aim its product at working mothers with children under six months, above-average incomes, and an interest in healthy eating.

Defining market groups

To establish different consumer groups, marketers create five segments and focus on each individually. Besides identifying groups by geography and demographics, marketers also explore psychology to ascertain how consumers behave, so that they gain a better idea of which products might appeal to which consumer groups.

Behavioral

Focuses on behavioral patterns when it comes to
shopping. Understanding this helps marketers adapt campaigns to target specific groups. Potential focus areas include:

• ❯ Brand loyalty
• ❯ Regularity of purchases
• ❯ Credit card usage
• ❯ Typical expenditure
• ❯ On- or offline shopping
• ❯ Heavy product user

Sociographic

Identifies individuals’ connections on social media, or membership of political and other groups, helping marketers learn about consumers’ passions and interests. Potential focus areas include:

• ❯ Group memberships
• ❯ Number of friends on social media

Psychographic

Focuses on consumer’s interests, values, and opinions to help marketers develop relevant messages and find the right media channels to target a segment. Potential focus areas include:

• ❯ Risk taker
• ❯ Charitable
• ❯ High achiever
• ❯ A tendency towards expensive tastes
• ❯ A preference for email contact

Geographic

Concentrates on a customer’s place of residence, so that any product launched is made relevant to their environment. Potential focus areas include:

• ❯ Post code
• ❯ Continent
• ❯ City
• ❯ Neighbourhood
• ❯ Population density
• ❯ Climate

Demographic

Uses basic consumer data, such as gender or age, to accurately categorize needs and target products appropriately. Potential focus areas include:

• ❯ Income
• ❯ Nationality
• ❯ Family size and age
• ❯ Ethnic background
• ❯ Occupation
• ❯ Religion

NEED TO KNOW

❯ Baby Boomers Section of population born between 1946 and 1964

❯ Generation X People born between 1966 and 1980

❯ Millennials Section of
population born between 1980 and the early 2000s

“Market segmentation is a natural result of the vast differences
among people.”

Donald Norman