Module 2: Marketing Segmentation 10

MODULE 2

Marketing Segmentation

Learning Outcomes:
At the end of this module, students will be able to:
 define marketing segmentation
 determine the bases for segmentation
 demonstrate in segmenting the market
 identify the benefits of market segmentation

INTRODUCTION

In marketing, we deal with different customer differences through segmentation. An

entrepreneur might create a new gadget, a brand manager a new line extension, or a
consultant a new piece of software, and each might hope that the whole world will like and
buy his or her market offerings. But it won’t happen. And it’s not smart marketing to go after
the whole market.

Instead of trying to appeal to the entire marketplace, smart marketers and smart
companies try to find out which customers will like their product and get the products into their
hands. That strategy begins with market segmentation.

“A company can’t be all things to all customers.

It must choose a segment to serve”.

DEFINITION OF MARKET SEGMENTATION

A market segment is a group of customers that shares similar inclinations toward your
brand. Market segmentation is a marketing term that refers to aggregating prospective
buyers into groups or segments with common needs and who respond similarly to a marketing
action. Market segmentation enables companies to target different categories of consumers
who perceive the full value of certain products and services differently from one another.

Segments are homogenous groups of customers, “mass marketing” and “one-to-one

marketing” with market segmentation are emphasized to identify the group of customers.

Mass Marketing – means that all customers would be treated the same. This approach might
sound attractive because it simplifies the marketing task, but it is usually unrealistic because
customers differ.

One-to-one Marketing – means that each customer serves his or her own segment. This
approach sound appealing from the customer point of view because the product would be
tailored specially for each person’s idiosyncratic desires.

Niche Marketing – is a type of segmentation in which the company strategically focuses,

targeting a smaller market with particular needs that the company can serve well. Niches
might be small segments, but they can be very profitable.

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BASES FOR SEGMENTATION

One organization can't satisfy the "needs and wants" of

every single person; it's almost impossible and probably
very expensive to attempt. This means firms have to
divide the market into sections and choose the sections
they would like to market their products at. Dividing the
market into sections based on their characteristics and
behaviors is known as segmentation. Below are the four
main methods of market segmentation.

1. Demographic Segmentation
Demographic Segmentation is one of the most common forms. It refers to splitting
up audiences based on observable, people-based differences. These qualities include
things like age, sex, marital status, family size, occupation, education level, income,
race, nationality and religion.

Segmenting a market according to demographics is the most basic form of

segmentation. Combining demographic segmentation with other types can help you to
narrow down your market even more. One benefit of this kind of segmentation is that
the information is relatively easily accessible and low-cost to obtain.

Some products are targeted explicitly towards a specific demographic. One

personal care company, for example, might make two deodorant products — one
labeled as men’s deodorant and one labeled as women’s deodorant.

2. Behavioral Segmentation
You can also segment your market based on consumers’ behaviors, especially
regarding your product. Dividing your audience based on behaviors they display allows
you to create messaging that caters to those behaviors. Many of the actions you might
look at relate to how someone interacts with your product, website, app or brand.

Some types of behaviors to look at include:

 Online shopping habits: You might consider a users’ online shopping habits
across all sites, as this may correlate with the likelihood they will make an
online purchase on your website.
 Actions taken on a website: You can track actions users take on your online
properties to better understand how they interact with them. You might look at
how long someone stays on your site, whether they read articles all the way to
the end, the types of content they click on and more.
 Benefits sought: This refers to the need a customer is trying to meet by
purchasing a product.
 Usage rate: You can categorize users based on usage rate. Your messaging
will be different depending on whether someone is a heavy user, medium user,
light user or non-user of your product.
 Loyalty: After using a product for some time, customers often develop brand
loyalty. You can categorize customers based on how loyal they are to your
brand and tailor your messaging accordingly.

Behavioral data is useful because it relates directly to how someone interacts with
your brand or products. Because of this, it can help you market more effectively to
them.

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3. Geographic Segmentation

Geographic segmentation, splitting up your market based on their location, is a

basic but highly useful segmentation strategy. A customer’s location can help you
better understand their needs and enable you to send out location-specific ads.

There are several kinds of geographic segmentation. The most basic is identifying
users based on their locations such as their country, state, county and zip code. You
can also identify consumers based on the characteristics of the area they live in, such
as its climate, the population density and whether it’s urban, suburban or rural.
Identifying characteristics can require you to get more specific since one county could
have rural, suburban and urban areas.

Dividing a market according to location is critical if you need to target an ad to

people in a specific area, such as if you’re advertising a small local business. It can
also be useful if you’re targeting a broad area because it enables you to tailor your
messaging according to regional differences in language, interests, norms and other
attributes as well as the differing needs of people in different regions.

4. Psychographic Segmentation

Psychographic segmentation is similar to demographic segmentation, but it deals

with characteristics that are more mental and emotional. These attributes may not be
as easy to observe as demographics, but they can give you valuable insight into your
audience’s motives, preferences and needs. Understanding these aspects of your
audience can help you to create content that appeals to them more effectively. Some
examples of psychographic characteristics include personality traits, interests, beliefs,
values, attitudes and lifestyles.

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HOW DO MARKETERS SEGMENT THE MARKET?

Marketers identify segments best when iterating between two approaches: a managerial,
top down ideation and a customer-based, bottom-up needs assessment. Marketers begin
with some knowledge of the marketplace; the customers, the competitors, and the company’s
own strengths, and they gather information to understand the customer perspective.

Knowledge of the marketplace clearly enters into the

decision of which of the segments the company should
target. A market segment may look desirable in terms of
its size and future growth potential, but it may already be
saturated with competitors’ offerings. There may be
richer opportunities in other segments. The managerial
perspective is also important for assessing the extent to
which the servicing of a particular segment is consistent
with corporate goals.

The iteration between the managerial and customer perspectives is also important
because sometimes a marketing manager holds beliefs that are not consistent with the
customer data.

BENEFITS OF MARKET SEGMENTATION

Market segmentation offers many benefits to marketers, publishers and others, including the
following advantages.

1. Improves Campaign Performance

Market segmentation can help you to improve the performance of your marketing
campaigns by helping you to target the right people with the right messaging at the right
time. Segmentation enables you to learn more about your audience so you can better
tailor your messaging to their preferences and needs.

Targeting a specific segment that is likely to be interested in your content or product

is much more effective than targeting an overly broad audience. If you advertise to an
entire market, you will end up spending a massive amount of money on ads, but a
relatively small percentage will convert. If you instead direct your marketing to a segment
with the right characteristics, you can increase the conversion rate of your campaign
considerably. The more specific the audience of people interested in your brand, the more
beneficial targeting can be. For example, there’s no reason to market dental tools to
anybody but dentists.

Even if you’re selling a product with broad appeal, customer segmentation can help
you tailor your messaging to different groups to better engage with them. Say that you’re
advertising furniture. You might split your audience up by age and push individuals’ ads
that show people who are close to their age.

2. Informs Product Development

Market segmentation can also help companies to develop products that better meet
the needs of their customers. You can create products to appeal to needs your main
market segment may have and develop different products tailored to different parts of your
customer base. Say, for instance, you run an automotive company, and your primary
market segment is middle-class families. You would likely design your car with lots of

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seating, leg room and space to accommodate a family with multiple kids. You would also
create mid-range priced vehicles.

You could, however, also segment your audience further, and create vehicles that
appeal to each of those segments. For example, one segment might be families who like
to go on outdoorsy vacations. To appeal to this group, you could offer a vehicle with four-
wheel drive and lots of cargo space. Another segment might prefer to take trips into the
city. You might make this car smaller so that the drivers can easily navigate narrow city
streets and fit into tight parking spots.

Designing your products with the needs of your customers in mind will help you to sell
more and will make your customers happier. Your customers will also feel like you
understand their needs, improving your company’s reputation.

3. Reveals Areas to Expand

Market segmentation can also help businesses to identify audience segments that
they are not currently reaching with their marketing efforts and then expand into new
markets.

When you look at your audience data, you might discover interests that you didn’t
realize your customers had. For example, a company might make the majority of their
sales in physical stores. When looking at behavioral data, they might see that many of
their customers like to shop online. Based on this information, they could then either open
an online store or stat advertising their online marketplace more.

As another example, a clothing company that primarily targets middle-aged women

might decide to start selling kids clothing as well. They could introduce these items and
market them to their current customers, encouraging them to buy them for their kids.

4. Improves Business Focus

Market segmentation can also help businesses to focus their efforts, which enables
them to establish a brand identity and specialize in a particular type of products. A brand
that tries to appeal to everyone in their marketing will come off as generic and
unmemorable. It could also leave customers confused about what the brand stands for
and what kind of company it represents. Similarly, a company that tries to sell everything
likely won’t make a big impact in any one market, and its offerings may be of lower quality
compared to companies that specialize. As your company grows, you can expand your
offerings, but when first starting out, it can be challenging to differentiate your company if
your product offerings are too broad.

5. Informs Other Business Decisions

Market segmentation can also help to inform other important business decisions
regarding how you get your product to customers. These decisions may involve matters
such as pricing and distribution.

Businesses can use segmentation to help them decide on pricing that maximizes
sales while keeping customers happy. Companies may consider demographic information
such as income levels. They may also take into account their customers’ price sensitivity,
the degree to which their price affects their purchase decisions. Paying attention to
seasonal demand changes can help businesses time special deals to boost sales.

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Market segmentation can also help companies to determine the optimal strategies for
the distribution of their products. Some groups of people, for instance, are more likely to
shop online, while others are more likely to shop in a store. Companies can also decide
which stores to pitch their products to base on where their market segment shops. Their
customers may, for example, shop at luxury boutiques or bargain outlets. Looking at
geographic data can also help a company decide where to set up a new store.

Self-Help: You can also refer to the source below to help you
further understand the lesson

References:
Iacobucci, Dawn (2012), Marketing Management 2nd Edition, C & E Publishing, Inc.,
839 EDSA, South Triangle, Quezon City, Philippines

https://www.lotame.com/what-is-market-segmentation/

How to Be Quadrilingual?
If you’re this: and you want to say that customers vary, you’d say:
Economist “The market is heterogeneous”.
Psychologist “Consumers exhibit individual differences”.
Statistician “There is variance in the customer data”.
Marketer “We have to look at customer segments”.

ASSESSMENT TASK
Let’s Check!
TRUE OR FALSE. On the space provided before the number, write TRUE if the statement is
correct and FALSE if the statement is incorrect.

________ 1. Market is the division of a market into several smaller groups with similar
needs.
________ 2. In demographic segmentation, a variety of information about customers has
been used as the basis of a marketing segmentation.
________ 3. Knowing where potential customers live can point to indicators about who
they are.
________ 4. Segmentation helps managers understand customers.
________ 5. Designing your products with the needs of your customers in mind will help
you to sell more and will make your customers happier.
________ 6. Focus strategies are used to compete in mass markets.
________ 7. Market segmentation is the development of new markets.
________ 8. Lifestyle is a customer characteristic used for market segmentation.
________ 9. Customer loyalty is a customer characteristic used for market segmentation.
________ 10. Benefit is a behavioral characteristic used for market segmentation.

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Let’s Analyze!
Analyze and answer the following questions.
1. Why do marketers think about segmentation?

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2. How do you know a good “marketing segmentation” when you see one?

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3. Explain why is it necessary to segment the market?

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MM101 – Marketing Management