Bases of Segmentation

I recall speaking to a businessman about his marketing goals. I asked him who he intended to sell his services to. He responded, ‘Everyone and anyone’.

I then asked who he intended to market his product to. At first he was puzzled. Surely that question had already been answered: He would market to those who he was intending to sell to, everyone and anyone.

I narrowed the question. Who would the businessman target to receive marketing messages. The word target puzzled the businessman. Surely he would target marketing messages at ‘Everyone and anyone.

So I had to explain the concept of market segmentation and targeting.

Marketing to everyone is expensive in terms of both cash and effort. By marketing to all, you could be reducing your margins and make you marketing messages inefficient. You may have to develop high share of voice, big advertising budgets and bland messaging.

Most businesses do not restrict who they will sell their goods to. If you have the money to buy the goods or the service, they will trade with you. there are exceptions. For example, for some models of Ferrari, you will have to show you have the skill to drive the vehicle as well as having the requisite pot of cash. Occasionally a firm may refuse to sell a product to a particular individual if they feel such a sale will actually harm their brand image (but such occasions are incredibly rare.).

Businesses who follow a diversified marketing strategy will still segment the market and create distinct offers for different segments. the car industry is an example of this Ford create cars from budget city cars through to executive saloons, SUVs, off-road vehicles, sports cars, etc.

Businesses who target a market niche need to segment the market so as to identify the boundaries of their market.

Businesses who are following a cost focus strategy need to segment the market to identify groups of consumers who will be attracted by a budget offer.

Since the concept of market segmentation was created, the methods and techniques used to achieve distinct segments have evolved.

  1. Geographic and Geodemographic: This is possibly the earliest form of market segmentation. You divide your market into different geographic areas and develop marketing materials specifically for those areas. For example, I once dealt with a parallel imports case in relation to branded jeans. The jeans’ manufacturer had complained that the retailer had no right to import the jeans as, they were marketed differently and were manufactured differently. The imported jeans were made to a lower standards and of different materials to suit the price cap of the intended market, Eastern Europe, not the standards expected in the UK. A geodemographic model of segmentation takes a distinct geographic area and then segments that area by different lifestyles. ACORN is a good system of lifestyle types for the United Kingdom and includes groupings such as Affluent Greys and Striving Families.
  2. Demographic Segmentation: Such segmentation splits a market by terms of age and family lifecycle. Currently the UK has an ageing population. We have more older people. So using marketing messages which attract that ageing demographic can be a route to marketing success. Think of the Werther’s Originals adverts and adverts which rely on ‘the good old days’ nostalgia. Also, think of fashion brands and sports clothing which tend to be marketed to under 25 year olds. The family life cycle is analysis of how a family changes over time. There is also the psychological life cycle that recognises that life stages don’t happen to everyone at the same time. We don’t all learn to drive at 17. We don’t all get married at 21. We don’t all retire at 65. Income is also a major demographic factor. Everyone is aware of the A, B, C1, C2, D, E categories used by government which split the population through occupation and income bracket. However, the A, B, C1, categories are now seen as a blunt tool and somewhat out of date. Gender is also a major demographic for segmentation. Think how successful marketing campaigns for male cosmetics have been.
  3. Behavioural Segmentation: this is segmenting a market by identifying how different groups of consumers behave. In the UK a famous example is Professor Malcolm MacDonald’s seven farmer model. Professor McDonald identified seven types of farmer when fertiliser was to be purchased. He found one group of farmers who will always buy the cheapest fertiliser; another group who would buy based on the yield expectations of the fertiliser; a third who would buy based on the science behind the fertiliser; a fourth who would buy only if they felt they had achieved a discount; etc. Behavioural segmentation recognises that people are not sheep tied to their herd. Income and demographics are one aspect of our lives, our beliefs and actions will differ and only be partially affected by the demographic group in which we conform. That is not to say we do not belong to tribes; we do. The football team we support puts us in a tribe. The music we like puts us in a tribe. The clothes we wear, the sports we play, the events we attend, put us in tribes. The important thing to realise is that we can all be members of several tribes simultaneously.
  4. Psychographic and Lifestyle Segmentation: This is complex segmentation techniques based on three factors: Tradition-directed behaviour (easily predictable e.g. My Mum bought Brand X washing powder, so I buy Brand X washing powder); Other directedness (e.g. peer pressure e.g. Jimmy says Reebok trainers aren’t cool so I want Nike trainers); Inner Directedness (I don’t care that others don’t like smooth jazz, I do, so I’ll put Norah Jones on my iPod). Psychographic and lifestyle segmentation is common amongst fashion brands and in the car industry. Firms in these sectors create ideal customer profiles which list a range of lifestyle options.

In business you need to be focused, productive and efficient. So whatever your generic marketing strategy you need to make the best of scarce resources and achieve the most return for the least effort. therefore segmenting a market and targeting the most profitable consumers within that market is critical.