Market segmentation—dividing the total market into smaller, relatively similar groups—is essential to target marketing, in which a company’s efforts are focused on meeting and anticipating the needs of those segments of the total market most likely to purchase their goods and SERVICES. No business or organization has sufficient RESOURCES to market their PRODUCTs or services to everyone. Market segmentation directs MARKETING STRATEGY to those groups who provide the best possibilities for success. It is applicable for consumer and business markets as well as for nonprofit organizations. Four criteria are necessary for successful market segmentation.
• The market segment must have a measurable size and PURCHASING power.
• The segment must be accessible to the marketer with effective SALES PROMOTION and distribution.
• The segment must be sufficiently large enough to be profitable.
• The segment must match the firm’s marketing capability.
Consumer markets are generally segmented based on DEMOGRAPHICS, geographic, psychographic, or productrelated characteristics. Demographic segmentation divides consumer groups based on age, gender, occupation, education, household size, and stage in the FAMILY LIFE CYCLE. Most DIRECT MAIL promotions are targeted based on emographics; the products being promoted are geared to the gender, age, income level, or education of the recipient. For example, someone’s age and stage in the family life cycle will create changing needs. In the 1980s Chrysler astutely anticipated demographic changes by developing minivans for aging baby boomers who found child car seats did not fit well in their sports cars. While Toyota had the first minivans in the U.S. market, Chrysler developed a better product to meet the needs of this changing demographic group. Anyone who announces a wedding or a birth will be inundated with marketing promotions as a result of entering a new market segment. Geographic segmentation is simply dividing the total market based on population locations. Marketers adjust their strategies based on regions of the country and urban/suburban/rural locations. Wal-Mart, the largest U.S. retailer, grew by locating stores on the perimeters of larger towns and small cities, rather than attempting to locate within major urban areas. A favorite question in RETAILING is, “What are the three most important considerations in retailing?” The answer is “location, location, location.” One firm expanding into Mexico used three different distribution strategies depending on location. In large cities it opened company stores and service centers. In smaller cities it contracted with local, independent stores to sell and service its products, while in rural areas only mailorder sales were available. Psychographic segmentation divides consumers into groups based on psychological characteristics, lifestyles, and personal values. One common method used is ATTITUDES, INTERESTS, OPINIONS STATEMENTS (AIO), which segment consumer groups in a way that provides marketers with more information to better target consumers. AIO statements also help marketers to develop lifestyle profiles of customer groups, overcome consumer reservations about products, and appeal to specific segments of the market. Product-related segmentation involves dividing the consumers into groups based on usage rates, benefits received, and loyalty to BRANDS / BRAND NAMES. Marketers of INTERNET services modify their strategies depending on whether the targeted group wants speed, reliability, or least-cost service. A common usage-rate concept in marketing is known as the 80/20 PRINCIPLE, whereby 80 percent of a company’s sales come from 20 percent of its customers. Marketers who can identify the 20 percent of the customers generating the majority of their revenue will offer special SERVICES, discounts, and added attention to these groups. For example, airline companies have lounges for valued customers, allow frequent flyers to board the plane ahead of the others, and offer upgrades to heavy-user groups. Airline, hotel, and other frequentvisitor programs are also used to build and maintain brand loyalty. Businesses that sell to other businesses (b-to-b) also use market segmentation. B-to-b marketers typically segment based on geographic area, business demographics, customer type, or end use of their products. If a firm has a limited product line or its products are not complex, it may use geographic segmentation, having one sales representative calling on all businesses in an area. Many b-to-b marketers segment based on the size of companies with executive sales representatives for large companies, and TELEMARKETING efforts for smaller companies. If the needs of one industry are unique, a company might segment by customer type. If each user of a firm’s products has unique specifications, a company might group customers based on the end use of their products.
See also TARGET MARKETS.