Market Segmentation Essay
The diagram above depicts how segmentation information is often represented as a pie chart diagram – the segments are often named and/ or numbered in some way. Segmentation is a form of critical evaluation rather than a prescribed process or system, and hence no two markets are defined and segmented in the same way. However there are a number of underpinning criteria that assist us with segmentation: ; Is the segment viable? Can we make a profit from It? ; Is the segment accessible? How easy Is It for us to get Into the segment? ; Is the segment measurable?
Can we obtain realistic data to consider Its potential? The are any ways that a segment can be considered. For example, the auto market could be segmented by: driver age, engine size, model type, cost, and so on. However the more general bases include: ; by geography – such as where in the world was the product bought. ; by chirography’s – such as lifestyle or beliefs. By socio-cultural factors – such as class. By demography – such as age, sex, and so on. A company will evaluate each segment based upon potential business success.
Opportunities will depend upon factors such as:
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A Business market segment is a group of people or organizations sharing one or more characteristics that cause them to have similar product and/or service needs. A true market segment meets all of the following criteria: it is distinct from other segments different segments have different needs), it is homogeneous within the segment (exhibits common needs); it responds similarly to a market stimulus, and it can be reached by a market intervention. The term is also used when consumers with identical product and/or service needs are divided up Into groups so they can be charged different amounts.
These can broadly be viewed as ‘positive’ and ‘negative’ applications of the same Idea, splitting up the market Into smaller groups. “Positive” market segmentation Market segmenting is the process that a company divides the market into distinct reduces & services Broadly, markets can be divided according to a number of general criteria, such as by industry or public versus private although industrial market segmentation is quite different from consumer market segmentation, both have similar objectives. All of these methods of segmentation are merely proxies for true segments, which don’t always fit into convenient demographic boundaries.
Consumer-based market segmentation can be performed on a product specific basis, to provide a close match between specific products and individuals. However, a number of generic market segment systems also exist, e. G. He Nielsen Clarita PRIZE system provides a broad segmentation of the population of the United States based on the statistical analysis of household and stereographic data. The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment).
The overall intent is to identify groups of similar customers and potential customers; to prioritize the groups to address; to understand their behavior; and to respond with appropriate marketing strategies that satisfy the different preferences of each chosen segment. Revenues are thus improved. Improved segmentation can lead to significantly improved marketing effectiveness. Distinct segments can have different industry structures and thus have higher or lower attractiveness (Michael Porter).
With the right segmentation, the right lists can be purchased, advertising results can be improved and customer satisfaction can be increased leading to better reputation. Successful Segmentation Successful segmentation requires the following ; homogeneity within the segment heterogeneity between segments segments are measurable and substantial segments are differentiable segments are accessible and actionable argue segment is large enough to be profitable Variables Used for Segmentation Geographic variables o region of the world or country, East, West, South, North, Central, coastal, hilly, etc. Country size/country size : Metropolitan Cities, small cities, towns. O Density of Area Urban, Semi-urban, Rural. Climate Hot, Cold, Humid, Rainy. O ; Demographic variables age gender Male and Female family size family life cycle education Primary, High School, Secondary, College, Universities. O occupation socioeconomic status religion nationality/race (ethnic marketing) income Cryptographic variables personality lifestyle value attitude
Behavioral variables benefit sought product usage rate brand loyalty product end use readiness-to-buy stage buying center profitability income status Technological segmentation variables motivations usage patterns attitudes about technology fundamental values lifestyle perspective standard of living profit is there in business from the existing clients Personalization vs. segmentation Personalization’ is a term very much in fashion at present. It is used by vendors to sell their products, and promoted by website and intranet managers as a way of delivering a brave new era of functionality.
Separate from debates regarding the rites and approaches to personalization, there is considerable confusion about the meaning of the word itself. As the use of personalization spreads, this confusion has grown. Personalization is now routinely used for everything from ‘my links’ functionality, to fine-grained targeting of information to specific staff roles. The absence of consistent terminology in this space is now causing considerable difficulty for purchasers of technology, and organizations in general.
Without a clear understanding of what is meant, it is often difficult to assess the value of products, and even harder to measure the success of personalization features. At the risk of introducing still more terminology into this fragmented marketplace, this briefing will draw a clear line between two separate functionalities: ; Personalization, whereby individual users can choose or configure what is delivered to them. ; Segmentation, where organizations tailor or selectively deliver information or tools to specific audience groups.
This briefing will explore each of these categories, hopefully bringing some measure of clarity to this space. Personalization This covers all situations in which the end user is given the capability to customize or aileron the features provided, or how information is delivered to them. This covers simple functionality such as: my links choosing portal elements (protests’) Personalization also includes richer functionality such as selecting news channels, or setting preferences in HRS and travel systems.
Personalization (as defined here) is the most commonly implemented functionality, and is often the simplest to deploy. Doubts are raised, however, about the degree to which users make use of this functionality, and simple personalization can struggle to demonstrate the benefits delivered to the organization. Segmentation Instead of leaving it to end users to configure interfaces, segmentation involves the organization more actively tailoring what is delivered to specific groups or roles.
This may include: targeting the delivery of individual documents providing tailored ‘portals’ for specific groups segmenting the whole site by audience There is a strong argument for benefits delivered by segmentation, particular as a way of overcoming the ‘information overload’ experienced by end users. The challenge is, and always will be, the considerable resources that need to be devoted to planning and managing segmentation, recognizing that the responsibility now sets with central teams to ensure that users are provided the right information.
For this reason, segmentation is often only implemented in simple ways, with more powerful capabilities left to future projects. Conclusion Both personalization and segmentation are potentially valuable. Organizations can make the most informed decisions when they can clearly distinguish between these two quite separate approaches. The division of a market into different homogeneous groups of consumers is known as market segmentation.
A market segment should be: measurable accessible by communication and distribution channels efferent in its response to a marketing mix ; durable (not changing too quickly) substantial enough to be profitable A market can be segmented by various bases, and industrial markets are segmented somewhat differently from consumer markets, as described below. Consumer Market Segmentation A basis for segmentation is a factor that varies among groups within a market, but that is consistent within groups.
One can identify four primary bases on which to segment a consumer market: ; Geographic segmentation is based on regional variables such as region, climate, population density, and population growth rate. Demographic segmentation is based on variables such as age, gender, ethnicity, education, occupation, income, and family status. ; Cryptographic segmentation is based on variables such as values, attitudes, and lifestyle. ; Behavioral segmentation is based on variables such as usage rate and patterns, price sensitivity, brand loyalty, and benefits sought.
The optimal bases on which to segment the market depend on the particular situation and are determined by marketing research, market trends, Business Market Segmentation While many of the consumer market segmentation bases can be applied to genuineness and organizations, the different nature of business markets often leads to segmentation on the following bases: ; Geographic segmentation – based on regional variables such as customer concentration, regional industrial growth rate, and international macroeconomic factors. Customer type – based on factors such as the size of the organization, its industry, position in the value chain, etc. ; Buyer behavior – based on factors such as loyalty to suppliers, usage patterns, and order size. Profiling the Segments The identified market segments are summarized by profiles, often given a descriptive name. From these profiles, the attractiveness of each segment can be evaluated and a target market segment selected. Racket segmentation – introduction Markets consist of customers with similar needs. For example, consider the wide variety of markets that exist to meet the following needs ; Eat ; Drink ; Exercise ; Travel ; Socialism ; Educate As you can imagine, such markets (if they were not further divided) would be very broad. Customers in a market are not the same. For example, within the market to provide meals, customers differ in the: ; Benefits they want ; Amount they are able to or willing to pay ; Media (e. Television, newspapers, radio stations) they see ; Quantities they buy ; Time and place that they buy It therefore makes sense for businesses to segment the overall market and to target specific segments of a market so that they can design and deliver more relevant products and services A market segment can be defined as follows: A customer group within the market that has special characteristics which are significant to marketing strategy Segmentation is most often applied to markets, but it is equally relevant to distribution channels and customers. However, similar principles of how to segment apply to all three.
Overall definition of segmentation Segmentation involves subdividing markets, channels or customers into groups with different needs, to deliver tailored propositions which meet these needs as precisely as possible. Market segmentation – bases of segmentation It is widely thought in marketing that than segmentation is an art, not a science. The key task is to find the variable, or variables that split the market into actionable (1) Needs (2) Profilers The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.
Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise. The most common profilers used in customer segmentation include the following: Profiler Examples Geographic ; Region of the country ; Urban or rural Demographic ; Age, sex, family size ; Income, occupation, education ; Religion, race, nationality Cryptographic ; Social class ; Lifestyle type ; Personality type Behavioral ; Product usage – e. G. Light, medium ,heavy users ; Brand loyalty: none, medium, high ; Type of user (e. With meals, special occasions) market segmentation – behavioral segmentation Behavioral segmentation divides customers into groups based on the way they respond to, use or know of a product. Behavioral segments can group consumers in terms of: Occasions When a product is consumed or purchased. For example, cereals have traditionally been marketed as a breakfast-related product. Kellogg have always encouraged consumers to eat breakfast cereals on the “occasion” of getting up. More recently, they have tried to extend the consumption of cereals by promoting the product as an ideal, anytime snack food.
Usage Some markets can be segmented into light, medium and heavy user groups Loyalty Loyal consumers – those who buy one brand all or most of the time – are valuable customers. Many companies try to segment their markets into those where loyal customers can be found and retained compared with segments where customers rarely display any product loyalty. The holiday market is an excellent example of this. The “mass-market” overseas tour operators such as Thomson, Riotous, JACM and First Choice have very low levels of customer loyalty – which means that customers need to be recruited again every year.
Compare this with specialist, niche operators such as Lacking which has customers who have traveled with the brand in each of the last 15-20 years. Benefits Sought An important form of behavioral segmentation. Benefit segmentation requires An excellent example is the toothpaste market where research has found four main “benefit segments” – economic; medicinal, cosmetic and taste. Market segmentation – demographic segmentation Demographic segmentation consists of dividing the market into groups based on variables such as age, gender family size, income, occupation, education, religion, race and nationality.
As you might expect, demographic segmentation variables are amongst the most popular bases for segmenting customer groups. This is partly because customer wants are closely linked to variables such as income and age. Also, for practical reasons, there is often much more data available to help with the demographic segmentation process. The main demographic segmentation variables are summarized below: Age Consumer needs and wants change with age although they may still wish to consumer the same types of product. So Marketers design, package and promote products differently to meet the wants of different age groups.
Good examples include the marketing of toothpaste (contrast the branding of toothpaste for children and adults) and toys (with many age-based segments). Life-cycle stage A consumer stage in the life-cycle is an important variable – particularly in markets such as leisure and tourism. For example, contrast the product and promotional approach of Club 18-30 holidays with the slightly more refined and sedate approach adopted by Saga Holidays. Gender Gender segmentation is widely used in consumer marketing. The best examples include clothing, hairdressing, magazines and toiletries and cosmetics. Income Another popular basis for segmentation.
Many companies target affluent consumers with luxury goods and convenience services. Good examples include Scouts bank; Meet & Chanson champagne and Elegant Resorts – an up-market travel company. By contrast, many companies focus on marketing products that appeal directly to consumers with relatively low incomes. Examples include Laid (a discount food retailer), Riotous holidays, and discount clothing retailers such as TX Max. Social class Many Marketers believe that a consumers “perceived” social class influences their references for cars, clothes, home furnishings, leisure activities and other products & services.
There is a clear link here with income-based segmentation. Lifestyle Marketers are increasingly interested in the effect of consumer “lifestyles” on demand. Unfortunately, there are many different lifestyle categorization systems, many of them designed by advertising and marketing agencies as a way of winning new marketing clients and campaigns! Market segmentation – geographic segmentation Geographic segmentation tries to divide markets into different geographical units: these units include: ; Regions: e. In the I-J these might be England, Scotland, Wales Northern Ireland or (at a more detailed level) counties or major metropolitan areas ; Countries: perhaps categorized by size, development or membership of geographic region ; City / Town size: e. G. Population within ranges or above a certain level ; Southern Geographic segmentation is an important process – particularly for multi-national and global businesses and brands. Many such companies have regional and national marketing programmer which alter their products, advertising and promotion to meet the individual needs of geographic units. Reek segmentation – why segment markets? There are several important reasons why businesses should attempt to segment their markets carefully. These are summarized below Better matching of customer needs Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution Enhanced profits for business Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits Better opportunities for growth Market segmentation can build sales.
For example, customers can be encouraged to “trade-up” after being introduced to a particular product with an introductory, lower- priced product Retain more customers Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life (“life-cycle”), a business can retain customers who might otherwise switch to competing products and brands Target marketing communications Businesses need to deliver their marketing message to a relevant customer audience.
If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost Gain share of the market segment Unless a business has a strong or leading share of a market, it is unlikely to be maximizing its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves.
Through careful segmentation and targeting, businesses can often achieve nominative production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones. Audience Segmentation Models “Understanding the people who will ultimately engage with a product or service provides the foundation for user experience design. ” Understanding the people who will ultimately engage with a product or service provides the foundation for user experience design.
Modeling those people and segmenting our models into meaningful groups lets us explore different clusters of needs, then address our lotions to meeting the needs of people belonging to specific clusters. Audience segmentation models come in many shapes and sizes. So far, the practice of XX design has focused primarily on the persona as the model of choice. This article explores alternative ways of segmenting audiences and the design research we need “Persona are archetypal representations of audience segments, or user types, which describe user characteristics that lead to different needs and behaviors. In April 2009, I wrote a column for Smarter titled “User Research for Persona and Other Audience Models,” in which I focused primarily on the research techniques we can use to generate persona, a particular type of audience segmentation model. Persona are archetypal representations of audience segments, or user types, which describe user characteristics that lead to different needs and behaviors. Where the characteristics of users overlap, we build up an archetype, or persona, that represents those users collectively.
Where the characteristics of users differ, we must create other persona that represent different audience segments. However, the discussion around persona tends to focus more on process and communication ether than the type of audience segmentation we’re undertaking. So let’s take a look at some different types of audience segmentation models and how we might go about deriving each of them-?that is, what we’re looking for and what research to do. Audience Segmentation Models “Typically, we know some members of such an audience are more important to our company than others.
To help us design for our most important audience segments, we need some methods of identifying and representing them. ” Designing a Web site or application, product, or service for a large, heterogeneous audience can be a daunting task. Typically, we know some members of such an audience are more important to our company than others. To help us design for our most important audience segments, we need some methods of identifying and representing them. There are many different methods we can use to think about our audience segments, focusing on differences that can help us prioritize and design the features that best meet the needs of each.
The type of segmentation we should choose depends on what characteristics would elicit the most meaningful segments. Vive already touched on persona and discussed the type of segmentation they produce, but there are any other useful segmentation models, like the following: ; market segmentation -?Within the business and marketing communities, this has been the most commonly used type of audience segmentation for decades. ; experience lifestyle-?This segmentation model shows the end-to-end lifestyle of the customer experience. mental models-?This model comprises an affinity diagram of user behaviors surrounding a particular topic. ; capability level-?This segmentation model indicates the stages of capability our audiences go through over time. ; mood-?This type of segmentation draws on a concept Will Evans put forward, using mood maps. ; game-play style-?while this method of segmentation is somewhat specific to the world of online games, this type of segmentation takes into account the way players want to play games-?solo or multilayer.
Market Segmentation “A market segment is a group of people or organizations that share one or more characteristics, causing them to have similar product or service needs. ” A market segment is a group of people or organizations that share one or more characteristics, causing them to have similar product or service needs. A true market segment meets al of the following criteria: ; It is distinct from other segments. Different segments have different needs. ; It is homogeneous within the segment. People belonging to a ; It can be reached by a market intervention.
The term market segmentation is also used when a company divides consumers with identical product or service needs into groups, so they can charge them different amounts of money. This description of a market segment applies equally well to the other segmentation types I’ll discuss later-?particularly the needs for a segment to be distinct from other segments and for all members of a segment to exhibit common heartsickness, needs, and behaviors. “The primary research tools for market segmentation are… Surveys, interviews-? usually closed-question surveys-?and focus groups. Surveys and other forms of analytic data generally drive market segments. Such data might include information about purchasing intent and behavior, demographic information, and frequency of activity in a problem domain. The primary research tools for market segmentation are, therefore, surveys, interviews-?usually closed- question surveys-?and focus groups. The analysis process focuses on identifying luster of characteristics that define distinct segments of an audience-?tending heavily toward the multivariate statistical forms of analysis.
However, it is possible to derive market segments using fairly simple tools like Excel-?though this capability is advanced for such software. Experience Lifestyle Mimi can build experience lifestyles based on a wide range of design research techniques, including observational research, interviews, surveys, analytics, purchasing behavior, and ethnographic studies. ” Experience lifestyle is a generic term that represents the start-to-finish series of interactions a customer has with an organization.
For example, LOGO uses an experience wheel like that shown on Customer Experience Matters, depicting the end-to-end experience of a frequent flyer traveling to New York from London. With this form of segmentation, the goal is to target the design of a product or service to meet the needs of consumers at different stages in their experience. On a recent project that I described in an article on the Johnny Holland Magazine, I broke down the accommodation lifestyle for a backpacker during his or her travels. Different lifestyle stages presented very different sets of acquirement and needs for the same person.
You can build experience lifestyles based on a wide range of design research techniques, including observational research, interviews, surveys, analytics, purchasing behavior, and ethnographic studies. The aim here is to understand both the overall structure of the experience-? as a lifestyle comprising stages with certain experiential characteristics-?and the component tasks of each stage in the lifestyle. Mental Models “A range of observational research techniques can drive mental models, as well as interviews and, occasionally, focus groups.