Market Segmentation (Cambridge International A-Level Business)

Methods of market segmentation

• Market segmentation is the process in which a single market is divided into submarkets or "segments"

  • Each segment represents a slightly different set of consumer characteristics
  • Firms often segment their markets according to factors such as income, geographical location,religion,gender or lifestyle

• A market for a good such as crisps is not simply seen as one market

  • For example, the crisp market is divided into many market segments

    • Dinner party snacks (Walkers Sensations, Pringles, Burts) are targeted at those with higher discretionary income with a premium price
    • Health-conscious crisps (Walker's Lite, Walkers Baked, Ryvita Lite) are targeted at the health-conscious market
    • Lunch box value snacks (multipacks, Hula Hoops, etc.) are targeted at families and the mass market

Segmentation methods

Markets can be segmented by geography, customer behaviour and demographics

Geographic segmentation

• Geographic segmentation involves breaking up a market into groups of customers who live, work or spend their leisure time in defined locations

  • Urban and rural customers' needs relate to their surroundings

    • E.g. city-dwellers are likely to purchase small, electric vehicles, while those who live in the countryside tend to prefer larger, all-terrain vehicles

  • Customers in warmer countries make different purchasing decisions to those living in cooler climates

    • E.g. sales of air-conditioning units in Italy and Turkey are significantly higher than in Germany and the UK

  • Within a country, customers living in different regions have varied preferences

    • E.g. France is well-known for its regional food specialties, with residents of southern départements generally preferring a Mediterranean diet, whilst those in more northern regions consume more dairy products and red meat

Behavioural segmentation

• Customers make different lifestyle, health or dietary choices that can provide opportunities for businesses

  • E.g. travel companies target different packages at families, thrill-seekers and those looking to pursue a specialist interest such as cuisine or art

  • Beyond Meat's entire product range is aimed at vegans, vegetarians and flexitarians cutting down on animal protein

    • Its plant‑based burgers and sausages are sold in supermarket meat aisles

• Some purchasing decisions are based on thorough research, whilst others tend to be impulse buys

  • E.g. home store Dunelm places low-priced household essentials such as dusters and scented candles close to the checkout area

• Other behavioural factors include

  • the frequency of purchase

    • E.g. whether customers buy a product often or as a one-off, for regular consumption or as an occasional treat

  • whether customers are brand loyal

    • E.g. those that stick with the same brand may be rewarded with loyalty benefits, such as points for each £ spent, while those that switch brands may be attracted by special offers, such as BOGOF (Buy One Get One Free)

Demographic segmentation

• Demographic segmentation involves breaking up a market into groups of customers with similar characteristics, such as age, gender and family circumstances

  • Men and women often have different purchasing preferences

    • Men tend to spend more than women when shopping
    • Women are more price-sensitive shoppers than men, buying more reduced-price items and using price promotions more frequently

  • As populations age, spending patterns are changing

    • Spending on specialist services such as personal care and single-person travel has increased significantly

  • Many products are aimed at different age groups, who are likely to have different interests, influences and spending power

    • E.g. in 2022, consumers in the United States spent an average of $1,945 on clothing, with most being spent by the generation born between 1965 and 1980, known as Generation X

  • Many countries have increasingly ethnically diverse populations

    • Markets for clothing, food and celebration items can be targeted at specific ethnic or religious groups

Advantages and disadvantages of market segmentation