Market segmentation

Last Lesson

Answer from memory before the answers appear.

• What is the difference between primary and secondary research?

  Primary is new, first-hand information; secondary already exists and was collected by someone else.

• Give two methods of primary research.

  Any two of: survey, questionnaire, focus group, observation, interview.

• What is qualitative data?

  Opinions, feelings and reasons.

• How can a business make its research more reliable?

  Use a larger, representative sample and avoid bias.

What Is Market Segmentation?

Market segmentation means dividing a market into smaller groups of customers with similar needs.

• Market

  All the customers who might buy a type of product, for example everyone who buys trainers.

• Segment

  A smaller group within the market whose customers share similar characteristics and needs, for example runners, fashion buyers or children.

• Target market

  The segment or segments a business chooses to aim its product and marketing at.

• Why do it?

  A product designed for everyone often suits no one well. Aiming at a segment lets a business meet those customers' needs exactly.

Location

Grouping customers by where they live or work.

• What it means

  Customers in different places often have different needs - a city, a village, the coast or another country.

• Why it matters

  Climate, culture and local tastes change what people buy. A shop in a student area will stock different things from one in a retirement town.

• Example

  Supermarkets change their ranges store by store, and sell more barbecue food in areas with hot summers.

Demographics

Grouping customers by the characteristics of the population.

• What it means

  Dividing customers by features such as gender, family size, ethnicity, religion and occupation.

• Why it matters

  Each group can have different needs - a family of five needs a bigger car than a single person.

• Example

  Car makers sell small city cars to single people and seven-seat cars to large families.

Lifestyle

Grouping customers by how they live and what they care about.

• What it means

  Dividing customers by their hobbies, interests, attitudes and habits.

• Why it matters

  People with the same age and income can live very differently - one spends weekends hiking, another gaming.

• Example

  Gyms, vegan food brands, outdoor clothing and gaming accessories all target lifestyle segments.

Income

Grouping customers by how much they earn.

• What it means

  Dividing customers into low, middle and high earners.

• Why it matters

  Income decides what customers can afford and how much they are willing to pay.

• Example

  Hotel chains offer budget rooms, mid-range hotels and luxury suites to customers with different incomes.

Age

Grouping customers by how old they are.

• What it means

  Dividing customers into age groups such as children, teenagers, young adults, families and the over-60s.

• Why it matters

  Needs change as people get older - in what they buy, where they buy it and how they hear about it.

• Example

  Saga sells holidays and insurance designed only for people aged over 50.

Segmenting the Market for Holidays

• Age

  Customers: Families with young children. What they need: Kids' clubs, pools, short flights

• Age

  Customers: Over-60s. What they need: Comfort, organised trips, quieter resorts

• Income

  Customers: Low income. What they need: Cheap package deals and camping

• Income

  Customers: High income. What they need: Luxury hotels and first-class travel

• Lifestyle

  Customers: Adventure seekers. What they need: Hiking, diving and activity holidays

The Benefits of Market Segmentation

Segmentation helps a business spend its money where it will work.

• Meets needs better

  A product designed for one segment can meet those customers' needs exactly, so they are more likely to buy it.

• Targeted marketing

  The business can advertise where its target customers will see it, so it wastes less money on promotion.

• Spots gaps

  Looking at segments can reveal a group of customers whose needs no business is meeting.

• Higher sales and loyalty

  Customers who feel a product is made for them are more likely to buy again.

• Can charge more

  A product that meets a segment's needs exactly may justify a higher price.