EDEXCEL GCSE BUSINESS · PAPER 1
Market segmentation
Spotting a business opportunity · Lesson 3 of 5
Teacher copy - includes the notes for whoever is teaching from it.
Last Lesson
Answer from memory before the answers appear.
1. What is the difference between primary and secondary research?
Primary is new, first-hand information; secondary already exists and was collected by someone else.
2. Give two methods of primary research.
Any two of: survey, questionnaire, focus group, observation, interview.
3. What is qualitative data?
Opinions, feelings and reasons.
4. How can a business make its research more reliable?
Use a larger, representative sample and avoid bias.
Learning Objectives
1. Explain what a market segment is.
2. Explain how a market can be segmented by location, demographics, lifestyle, income and age.
3. Explain how businesses use market segmentation to target customers.
4. Explain the benefits of market segmentation to a business.
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.
PART ONE
Ways to Segment a Market
Five ways to group customers with similar needs.
Ways to segment a market
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Ways to segment a market |
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Location ▸ where customers live or work ▸ local, national, international ▸ town or country |
Demographics ▸ gender ▸ family size ▸ ethnicity ▸ religion ▸ occupation |
Lifestyle ▸ hobbies ▸ interests ▸ attitudes ▸ how customers spend their time |
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Income ▸ low, middle and high earners ▸ budget, mid-range and luxury products |
Age ▸ children ▸ teenagers ▸ adults ▸ over-60s |
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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.
Same Market, Different Segments
Two groups of customers, two very different sets of needs.
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Age and lifestyle: young, active customers. |
Age and income: retired customers with time to travel. |
Segmenting the Market for Holidays
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Segment |
Customers |
What they need |
|---|---|---|
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Age |
Families with young children |
Kids' clubs, pools, short flights |
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Age |
Over-60s |
Comfort, organised trips, quieter resorts |
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Income |
Low income |
Cheap package deals and camping |
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Income |
High income |
Luxury hotels and first-class travel |
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Lifestyle |
Adventure seekers |
Hiking, diving and activity holidays |
PART TWO
How Businesses Use Segmentation
Target the right customers, with the right product, in the right way.
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.
Case Study
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CASE STUDY Saga: A Business Built on One Segment Saga began in the 1950s by offering cheap out-of-season holidays to retired people, who could travel when hotels were quiet. It now sells holidays, cruises and insurance designed only for people aged 50 and over. By targeting one age segment, Saga can design its products around those customers' needs - comfort, reassurance and organised trips - and advertise where they will see it. |
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50+ The age of Saga's target customers |
1950s Saga's first holidays for retired people |
Key Terms
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Market All the customers who might buy a type of product. |
Market segment A group of customers within a market who share similar characteristics and needs. |
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Market segmentation Dividing a market into segments of customers with similar needs. |
Target market The segment a business aims its product and marketing at. |
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Demographics Characteristics of the population, such as gender, family size, ethnicity and occupation. |
Lifestyle How customers live: their hobbies, interests and attitudes. |
Your Task: Segment the Trainers Market
12 minutes
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The market for trainers is huge. Divide it into four segments using at least three different ways of segmenting (location, demographics, lifestyle, income or age). For each segment, describe the customers and one thing they need from a pair of trainers. 1. Name each segment and the method used. 2. Describe the customers in it. 3. Give one need those customers have. |
A good answer shows: Four clearly different segments, each named by its method of segmentation, with a specific customer need for each.
Note: Strong answers combine methods - "high-income adults who run marathons" - and link the need to the segment.
Can I...?
☐ Explain what market segmentation is.
☐ Explain segmentation by location, demographics, lifestyle, income and age.
☐ Give a real example of each.
☐ Explain how segmentation helps a business target customers.
☐ Explain the benefits of market segmentation.
Summary
✓ A market segment is a group of customers with similar needs.
✓ Markets can be segmented by location, demographics, lifestyle, income and age.
✓ Businesses choose a target market and design the product and marketing around it.
✓ Segmentation meets needs better, targets marketing and reveals gaps in the market.
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EXAM FOCUS Explain one benefit to a business of segmenting its market. (3 marks) Name one benefit and build a chain: segment, then better-targeted product or marketing, then what that means for sales, costs or profit. |
Exam Practice: Market Segmentation
Answer all questions. Use the context of the business in the question where one is given. · 20 minutes
▸ Question 1 · 1 mark · Define. Define the term 'market segmentation'.
▸ Question 2 · 1 mark · State. State one way a market can be segmented.
▸ Question 3 · 2 marks · Outline. Outline one way a holiday company could segment its market.
▸ Question 4 · 3 marks · Explain. Explain one benefit to a business of segmenting its market.
▸ Question 5 · 6 marks · Analyse. Analyse the benefits to Leon of segmenting his market.
Question 1 · 1 mark · Define
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“Define the term 'market segmentation'.” |
HOW TO ANSWER IT Command word: Define. Worth 1 mark, so plan before writing.
Question 1 · mark scheme
1 mark available. Award a mark for each point made.
▸ Dividing a market into groups of customers with similar characteristics / needs. 1 mark
▸ Model answer. Dividing a market into smaller groups of customers who share similar characteristics and needs.
Question 2 · 1 mark · State
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“State one way a market can be segmented.” |
HOW TO ANSWER IT Command word: State. Worth 1 mark, so plan before writing.
Question 2 · mark scheme
1 mark available. Award a mark for each point made.
▸ Any one of: location; demographics; lifestyle; income; age. 1 mark
▸ Model answer. By age.
Question 3 · 2 marks · Outline
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“Outline one way a holiday company could segment its market.” |
HOW TO ANSWER IT Command word: Outline. Worth 2 marks, so plan before writing.
Question 3 · mark scheme
2 marks available. Award a mark for each point made.
▸ A method identified: location / demographics / lifestyle / income / age. 1 mark
▸ Developed in the context of a holiday company. 1 mark
▸ Model answer. By income (1), offering cheap package holidays for customers on lower incomes and luxury holidays for high earners (1).
Question 4 · 3 marks · Explain
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“Explain one benefit to a business of segmenting its market.” |
HOW TO ANSWER IT Command word: Explain. Worth 3 marks, so plan before writing.
Question 4 · mark scheme
3 marks available. Award a mark for each point made.
▸ A benefit identified, e.g. better meets needs / targeted marketing / identifies gaps / higher sales. 1 mark
▸ First linked point of explanation. 1 mark
▸ Second linked point of explanation. 1 mark
▸ Model answer. It can target its marketing more effectively (1). By knowing which segment it is selling to, the business can advertise only where those customers will see it (1). This means it wastes less money on promotion to people who will not buy, so its marketing costs are lower for each sale made (1).
Question 5 · 6 marks · Analyse
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“Analyse the benefits to Leon of segmenting his market.” — Leon has opened a small gym in a town with a large university and a growing number of retired residents. He wants to attract more members, and is thinking about offering separate… |
HOW TO ANSWER IT Command word: Analyse. Worth 6 marks, so plan before writing.
Question 5 · mark scheme
6 marks available. Award a mark for each point made.
▸ AO2 (Application, 3 marks): uses the context - university students, retired residents, gym memberships. Level 1-3
▸ AO3a (Analysis, 3 marks): chains of reasoning showing how segmentation benefits Leon. Level 1-3
▸ Model answer. Segmenting by age would let Leon meet the different needs of his two main groups. Students may want cheap memberships and late opening, while retired residents may prefer daytime classes and a quieter gym. By designing a membership for each, both groups are more likely to join, which increases his total number of members and revenue. Segmenting would also help Leon target his promotion. He could advertise student deals on social media and at the university, and advertise daytime classes in local newspapers and community centres. This means he spends his limited marketing budget where each segment will actually see it, rather than wasting money on adverts that reach the wrong people.