The Process of Market Segmentation (Cambridge International IGCSE Business)

An Introduction to Market Segmentation

Spec point — "• How markets can be segmented, e.g. according to age, socio-economic grouping, location, gender • Potential benefits of segmentation to business • Recommend and justify an appropriate method of segmentation in given circumstances"

An introduction to 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 geographical location, demographics, behavior and lifestyle, age or gender

Businesses can choose to segment markets in a variety of ways

• A market for a product such as crisps is not simply seen as one market, e.g., the crisp market is divided up into many market segments, such as #### Evaluating the use of market segmentation | Advantages | Disadvantages | |---|---| | - Recognises that consumers are not all identical; consumer groups do not all share the same tastes and preferences
  - Products and marketing activities can be altered to meet different needs of different groups of consumers and targeted more precisely
  - Less expensive and wasteful than marketing products at wide market segments
  - It may increase loyalty if the consumer feels that their needs are being met, which can lead to repeat purchases | - Not everyone within a segment will behave in the same way
  - It may be difficult to identify a segment and consumers can belong to multiple segments at the same time
  - Segmentation requires more detailed market research, which can prove costly but beneficial to the business
  - A segment may be identified but it may be too small and unprofitable to cater for |

  • Dinner party snacks (Walkers Sensations, Pringles, Burts) are targeted at middle- to upper earners/professionals with a premium price
  • Health conscious crisps (Walkers lite, Walkers baked, Revita lite) are targeted at the health conscious market
  • Lunch box value snacks (multipacks, hoola hoops, etc.) are targeted at families and the mass market

Recommending an Appropriate Method of Segmentation

• The type of market segmentation used will depend upon the nature of the business itself

• Examples of industry specific segmentation include

  • The cosmetic industry often aims their products at a specific gender. In recent years, there has been a growth in specific make-up products aimed entirely at men, such as 'Guyliner'- eye liner for men
  • A bespoke watchmaker may base their segmentation on income levels, aiming at high income customers who can afford their handmade, niche market pieces
  • A business that runs bootcamp-style exercise classes may base their segmentation on lifestyle choices E.g., those people who want to improve their fitness levels

• Before* recommending an appropriate method of market segmentation, the business must also consider a number of factors

Factors affecting the choice of market segmentation

1. Brand image

• The business must consider whether appealing to the chosen segment aligns with the existing brand image of the product/company

  • E.g., A luxury fashion retailer may harm their image if they try to appeal to a budget market

1. Cost of entry into the market segment

• How much advertising will be needed to attract the attention of the segment?

  • E.g., The fitness fashion industry is very competitive with brands such as Gymshark and Puregym and a new entrant may therefore require a large promotional campaign budget to catch the attention of potential customers

1. Market analysis data

• The business will need to examine market research data to find out how big the potential market segment is in terms of number of customers and potential future sales