MARKET SEGMENTATION

Market segmentation is the process of identifying key groups or segments within the
general market that share specific characteristics and consumer habits. Once the market is
broken into segments, companies can develop advertising programs for each segment,
focus advertising on one or two segments or niches, or develop new products to appeal to
one or more of the segments. Companies often favor this method of marketing to the
one-size-fits-all mass marketing approach, because it allows them to target specific
groups that might not be reached by mass marketing programs.

To identify segments, marketers examine consumers' interests, tastes, preferences, and

socioeconomic characteristics in order to determine their patterns of consumption and
how they will respond to various marketing strategies. The primary information
marketers seek is why consumers purchase specific products or services but not others.
Catalog retailers and direct-marketing firms make up some of the key users of market
segmentation, although many other kinds of companies and organizations use this
technique.

Market segmentation—also called micromarketing—simplifies the marketing process,

because it allows marketers to concentrate their advertising on groups of consumers who
share significant characteristics. Marketers, therefore, can produce specific advertising
geared towards specific segments; otherwise marketers have to create very general
advertising and hope that it will appeal to a diverse audience. Market segmentation also
can be more efficient than traditional marketing techniques such as product
differentiation. Because marketers focus their advertising on specific segments, they can
expect better results from each segment than they could expect from these consumer
groups if treated as a whole.

Catalog clothing stores, for example, convincingly illustrate these advantages of market
segmentation. If a catalog marketer provides both men's and women's clothes, it would
have to produce a very large catalog to include all of its merchandise, which would cost a
lot to produce and mail. By sending such a catalog to all potential customers, the
company could fail to capture the attention of many potential customers simply by having
a man on the cover and sending it to women or a woman on the cover and sending it to
men. At one point catalog marketers relied on this approach. But contemporary catalog
retailers produce numerous versions of their catalogs designed for specific market
segments, such as men between 20 and 35, women between 20 and 35, men between 35
and 50, and women between 35 and 50.

Market segmentation, however, works effectively only for certain kinds of products and
services. First, to determine whether to segment a market, marketers must find out if the
market can be identified and measured, which entails determining which consumers
belong to specific market segments. Second, marketers must determine if the segments
are large enough to be profitable. While marketers can easily divide the total market into
smaller groups, these groups might be so small that they do not justify the expenses
associated with market segmentation. Third, marketers must be able to reach the
segments through their advertising. If the members of a particular segment do not share
interest in a common magazine or television show, for example, then marketers have no
way of reaching the segment and so the segment is superfluous.

Fourth, marketers must gauge the responsiveness of the segments and find out if a
proposed segment would likely respond to a marketing campaign. If it is not probable
that a segment will react to a promotion, then the segment is not useful. Fifth, marketers
must determine if the segments will change in the near future. Since it takes time to
prepare a marketing strategy for specific segment and since it takes time for market
segmentation to be profitable, creating segments where consumer needs and wants are
likely to change would not be productive.

SEGMENTATION BASES

The market can be divided into segments by using four "segmentation bases":
psychographic, behavioristic, geographic, and demographic bases. Psychographic and
behavioristic bases are used to determine preferences and demand for a product and
advertising content, while geographic and demographic criteria are used to determine
product design and regional focus.

Psychographic bases include personality traits such as consumer attitudes, lifestyles, and
interests, while behavioristic bases include attitudes towards products such as the
frequency of use, brand loyalty, benefits sought in a product, and readiness to purchase
the product.

Geographic bases focus on preferences contingent on regional factors, such as region

(e.g., North or South), county, population density, urban or rural location, and climate.
Demographics include personal characteristics such as gender, age, marital status, social
attributes (such as ethnicity and religion), and income level.

Other bases for segmentation include occasions and consumer knowledge of and interest
in particular brands. Marketers can use various occasions such as marriage, graduation,
anniversaries, birthdays, and holidays to promote products. Marketers can advertise an
assortment of products including candy, cards, and flowers to various segments based on
occasions. In addition, marketers can create segments based on consumer knowledge and
interest, targeting novices and veterans with different promotions for their products or
brands. But whatever segmentation bases marketers use, they analyze their data and
group consumers in order to determine consumer behavior.

THE SEGMENTATION PROCESS

Once a company has gathered information from these segmentation bases, it must decide
how to divide the market, bearing in mind that market segmentation seeks to minimize
the differences within a segment and maximize the differences among segments.
Consequently, depending on the product or service to be marketed, simple divisions
along age, gender, or geographic lines alone may yield segments that are too vague to be
of use. Instead, marketers may have to consider several characteristics or clusters of
characteristics in order to divide the market into useful segments. When considering beer
consumption, for example, marketers must look at both age and gender: the majority of
beer drinkers are both young and male.

Hence, to begin segmenting the market, marketing managers must select the
segmentation bases they will use to develop the segments, depending on the products or
services to be marketed. Marketers may select a few segmentation bases they believe are
the most relevant at the outset and develop market segments using them. On the other
hand, they may compile a large array of information using all the segmentation bases and
use this information to group consumers in various segments.

Next, marketers conduct any primary market analysis they may need, by preparing
questionnaires and samples and by assessing the response to them. Using this
information, marketers try to determine the most fruitful segments—the ones with
greatest similarities within them. Because this process can be labor-intensive and require
advanced knowledge of statistics, companies often rely on outside firms or artificial
intelligence technology to produce meaningful market segments.

Once relevant, stable, reachable, profitable market segments are established, marketers
can target the segments they believe will offer the best opportunities for growth given
their products and resources and the ones they believe that correspond to the products
being marketed the best. Finally, marketers can develop and launch advertising
campaigns that appeal to the various segments.

Companies tend to choose the largest segments, although the segments with the most
consumers are not always the most profitable and usually have the most competition.
Consequently, marketers might benefit from considering targeting smaller segments or
segments ignored by competitors, such as low-income consumers, which is frequently
referred to as "niche marketing."

METHODS OF SEGMENTATION

Companies can implement market segmentation in three general ways: through

differentiation, concentration, and atomization. Differentiation refers to marketing
products or services to different market segments based on each segment's individual
needs as well as to developing new products for different segments. For example, a
computer maker could market its products to home users, corporations, small
businesses, and government agencies, thereby differentiating the needs of each of these
four segments and appropriately targeting them.

A company also may opt to target just one segment of the market, employing the market
segmentation method of concentration. After considering various segmentation bases and
conducting research, a company might find that its competitors are not reaching specific
segments and decide to target this segment or niche exclusively. A computer maker, for
instance, could concentrate solely on the home-user segment of the market and ignore the
needs of the other segments. To do so, the computer maker would have to offer products
that meet home-user needs at prices these consumers could afford. Since concentrated
marketing costs less than differentiated marketing, it may appeal to small businesses in
particular.

Atomization involves dividing the market into very small segments, which may include a
single customer in some cases. Although rare, some companies offering expensive and
highly customized products or services rely on this method. If a computer maker focused
on government clients, it might have to build special computers for various government
branches based on their individual needs. Some marketing analysts predict that
atomization will grow in the coming millennium as companies strive to offer more
individualized service.

When choosing a method of market segmentation, marketers must take several factors
into consideration. First, they must select a method consistent with company resources,
because differentiated marketing, for example, has a significant cost and some companies
may not be able to afford it. Second, marketers must consider the product line they are
trying to sell. If the product line is limited, marketers usually choose the concentrated
marketing method. If the product line is expansive, however, then marketers usually opt
for the differentiated marketing method.

After choosing a method of market segmentation, marketers must integrate the method
into an overall marketing strategy. The marketing strategy will try to make the target
product or service appeal to the target segment through an advertising campaign
developed based on segmentation information such as age, gender, or location. Marketers
also consider what a company's strategic position in a market is—e.g., if it is a computer
supplier to home users or businesses—and create a marketing program that will help a
company achieve or maintain this position. If the segment is properly defined for a
specific product or service, then developing promotional strategies and reaching the
target segment should be relatively easy. The information used to help create the market
segments should help marketers choose among promotional techniques (e.g., direct
marketing, advertising, publicity, and sales promotion), pricing strategies, and
distribution strategies. This information also should help marketers choose among
various advertising media.

Companies using market segmentation techniques typically strive to maintain a

relationship with their customers, instead just making an isolated sale. After collecting a
large amount of information about their customers, marketers can plan promotions and
products that will appeal to various segments over a long time by determining what
products a segment wants in the future and offering them at the appropriate time.

SEE ALSO : Catalog Marketing

[ Karl Heil ]
FURTHER READING:

Cohen, Eric. "How to Target Smarter." Target Marketing, May 1998, 58.

Haim, Alexander, and Charles D. Schewe. The Portable MBA in Marketing. New York:
John Wiley & Sons, 1992.

Moschis, George P., Lee Euehun, and Anil Mathur. "Targeting the Mature Market:
Opportunities and Challenges." Journal of Consumer Marketing, fall/winter 1997, 282.

Sandhusen, Richard L. Barron's Business Review Series: Marketing. 2nd ed. Barron's
Educational Series, 1993.

Weinstein, Art. Market Segmentation. Chicago: Probus Publishing, 1987.