Marketing Segmentation Strategies
Dave Carlson - December 3, 2008
The world is a huge market. It is not possible to be all things to all people. Companies embrace target marketing to identify consumers they have the greatest chance of satisfying. A method for finding desired buyers on which to focus is to identify and profile unique groups of consumers who have different needs and preferences. There are four types of market segmentations: geographic, demographic, psychographic, and behavioral. It is a challenge to evaluate and select appropriate market segments. Following an analysis of all available market segments, the marketer must evaluate the segments for the specific business opportunity. Kodak and Polaroid represent opposite results in market segmentation analysis and evaluation within the same industry. Kodak was successful; Polaroid was not.
Marketing Segmentation Strategies
The world is a huge market. A company cannot effectively serve the entire world with its products or services -- it is not possible to be all things to all people. To compete more effectively, many companies are now targeting specific markets. Instead of scattering their marketing efforts everywhere, companies are “focusing on those consumers they have the greatest chance of satisfying” (Kotler & Keller, 2009, p. 208).
Kotler and Keller (2009) suggested that a method for finding appropriate consumers on which to focus is to identify and profile unique groups of consumers who have different needs and preferences (market segmentation). A specific market segment “consists of a group of customers who share a similar set of needs and wants” (Kotler & Keller, 2009, p. 208). After identifying and evaluating viable market segments, a successful marketer must select the most appropriate market segment or segments to enter.
Types of Market Segmentation
There are many types of ways a marketer can segment markets. Kotler and Keller (2009) offered four types of market segmentations: geographic, demographic, psychographic, and behavioral. Additionally, Kotler and Keller (2009) adapted a list of segmentation variables from Bonoma and Shapiro (1983) and organized a list of questions a marketer may want to consider when trying to segment a market (see Appendix). A company can operate in one or several of the segments, yet concentrate on specific sub-sets of the chosen segment or segments.
A marketer can segment markets based on geographical units. Some geographical units are continent, country, state, region, county, city, or neighborhood. Even if a large corporation chooses an entire country as its primary market segment, divisions or specific offices may take a more local approach and concentrate on a specific city within their marketing area. No matter what geographic segment a marketer chooses, the segment must be appropriate for the specific business.
Kotler and Keller (2009) offered some examples of how different businesses operate in geographic segments. Hilton Hotels offer customized rooms and lobbies based on the hotel location. “Northeastern hotels are sleeker and more cosmopolitan. Southwestern hotels are more rustic” (p, 213). Wal-Mart, Sears, Kmart, and other major retailers encourage local managers to stock products appropriate for their specific local communities. Local Bed Bath & Beyond managers are allowed to choose most of their own merchandise. Stores only a few miles apart often “address the different taste preferences of city and suburbia with unique product mixes of each” (Kotler & Keller, 2009, p. 213).
Know-Where Solutions’ managers assist companies with geographic segmentation. The Know-Where Solutions owner claims to be able to “get your clients to your nearest location where they can buy your product” (Know-Where Solutions, 2008, ¶ 2). Creative Memories is a company that uses Know-Where Solutions to geographically segment their customers to support local consultants (http://www.creativememories.com/Find-a-Consultant/EntryForm).
A marketer can segment a market based on demographic variables, such as “age, family size, life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class” (Kotler & Keller, 2009, p. 215). Gorman (2003) observed that “television shows, radio stations, magazines, and other media aim for specific segments (such as males 18-34 years old, working mothers, senior citizens, or African Americans)” (p. 250). These media outlets help companies target specific demographic segments with advertising messages. The better a media outlet is at establishing and documenting a specific demographic audience, the more valuable the outlet could be to the right marketing professional.
Table 1 illustrates how some demographic variables have been used to segment markets.
Table 1. Demographic variables used to segment markets.
|Age and Life-Cycle Stage||Consumer wants and abilities change with age. Some companies target kids, adults, and older consumers. Other companies choose specific age groups. |
|Life Stage||People in the same part of the life cycle may differ in their life stages. Life stage defines a person’s major concern, such as going through a divorce, taking care of a parent, buying a new home, etc. The wedding industry attracts marketers of a whole host of products and services. Newlyweds buy more in the first six months than an established household does in five years!|
|Gender||Men and women have different attitudes and behave differently, based partly on genetic makeup and partly on socialization. A marketing research study found that men often need to be invited to touch a product, whereas women are likely to pick it up without prompting. Gender differentiation has been applied in clothing, hairstyling, cosmetics, and magazines. Lowe’s discovered that 80% of home improvement projects are initiated by women. This revelation prompted Lowe’s to design stores with wider aisles to make it easier for women customers to push shopping carts around.|
|Income||Income segmentation is a long-standing practice in such categories as automobiles, clothing, cosmetics, financial services, and travel. However, income does not always predict the best customers for a given product. Marketers need to study the market and balance low price with premium pricing for specific products.|
|Generation||Each generation is profoundly influenced by the times in which it grows up. Music, movies, politics, and defining events of the period all help to shape buying habits.|
|Social Class||Social class has a strong influence on preferences in cars, clothing, home furnishings, leisure activities, reading habits. Retailers and many companies design products for specific social classes.|
(Kotler & Keller, 2009, pp. 215-220)
A marketer can segment a market based on psychology and demographics. Dividing consumers into groups, based on psychological and personality traits, lifestyle, or values is called psychological segmentation (Kotler & Keller, 2009). “People within the same demographic group can exhibit very different psychographic profiles” (Kotler & Keller, 2009, p. 221).
Some of the descriptors for different segments are successful, active, mature, satisfied, goal-oriented, young, enthusiastic, impulsive, conservative, traditional, trendy, fun-loving, practical, self-sufficient, elderly, and passive (Kotler & Keller, 2009). Each of these segments may respond to a different kind of product and motivation to buy. Kotler and Keller (2009) presented Sharper Image as a retailer that successfully uses psychographic segmentation to guide their target market toward specific buying decisions and determine site selections for stores.
A marketer can segment a market based on consumers’ knowledge of, attitude toward, use of, or response to a product. Kotler and Keller (2009) identified five roles people play in a buying decision: “initiator, influencer, decider, buyer, and user” (p. 223). Each of these roles may demand a different marketing mix to generate a sale.
For example, assume a wife initiates a purchase by requesting a new treadmill for her birthday. The husband may then seek information from many sources, including his best friend who has a treadmill and is a key influencer in what models to consider. After presenting the alternative choices to his wife, he then purchases her preferred mode which, as it turns out, ends up being used by the entire family. Different people are playing different roles, but all are crucial in the decision process and ultimate customer satisfaction. (Kotler & Keller, 2009, p. 223)
Evaluating Market Segmentation
After a marketer selects a segmentation type and specific group within that segment, the challenge is to evaluate the segmentation groups to determine and select an appropriate market segment or segments for the company to pursue. Sometimes, this can be a daunting task, as many market segments may appear to be well-suited, based on a multitude of criteria. Kotler and Keller (2009) specified that, to be useful, market segments must rate favorably on five key criteria: measurable, substantial, accessible, differentiable, and actionable.
Selecting a Market Segment
- Measurable. The size, purchasing power, and characteristics of the segments can be measured.
- Substantial. The segments are large and profitable enough to serve. A segment should be the largest possible homogeneous group worth going after with a tailored marketing program. It would not pay, for example, for an automobile manufacturer to develop cars for people who are less than four feet tall.
- Accessible. The segments can be effectively reached and served.
- Differentiable. The segments are conceptually distinguishable and respond differently to different marketing-mix elements and programs. If married and unmarried women respond similarly to a sale on perfume, they do not constitute separate segments.
- Actionable. Effective programs can be formulated for attracting and serving the segments. (Kotler & Keller, 2009, p. 228)
Following an analysis of market segments, the marketer must evaluate segments appropriate for the specific business. Kotler and Keller (2009) presented two factors to consider when evaluating different market segments: “the segment’s overall attractiveness and the company’s objectives and resources” (Kotler & Keller, 2009, p. 228). A marketer should evaluate the segments using the five criteria mentioned above. An important factor also to consider is how the firm will evaluate future segments.
Kodak is still in business because the company realized early during the digital camera technological evolution that the physical film market eventually would yield to digital photos. “Kodak has stayed in the game. They are one of the world’s leading manufacturers of digital cameras” (Lindstrom & Kotler, 2005, p. 123). Kodak’s original market segment was film users, but the company leadership reevaluated the market to switch their focus to digital camera users. Whatever marketing analysis instruments Kodak used to evaluate the market and switch from film to digital camera support were accurate and effective.
However, Polaroid appeared to have missed the indicators pointing toward a movement from instant photographs to digital images. “When the digital camera technology took off, Polaroid’s earnings fell sharply” (Kotler & Keller, 2009, pp. 228-229). Polaroid limped along until October 2001. “After years of falling sales and drastic cost cuts, the firm filed for bankruptcy” (Haig, 2005, p. 228). The company briefly recovered after a purchase in July 2002 by a private equity firm, but it never returned to its once dominate position in the market place. Kodak and Polaroid represent opposite results in market segmentation analysis and evaluation within the same industry. Kodak was successful; Polaroid was not.
A company can not expect to succeed in today’s market if the firm tries to sell to everyone. The company must analyze and evaluate different market segments using a variety of marketing instruments to select appropriate segments on which to focus the company’s energy and resources. Additionally, the organization must continually reevaluate the market to ensure they are focusing on the best segments based on all current marketing information.
Bonoma, T. V. and Shapiro, B. P. (1983). Segmenting the industrial market. Lexington, MA: Lexington Books.
Gorman, T. (2003). The complete idiot’s guide to MBA basics. New York: Penguin Group.
Haig, M. (2005). Brand failures. London: Kogan Page Limited.
Kotler, P. and Keller, K. L. (2009). Marketing management (13th ed.). Upper Saddle River, NJ: Prentice Hall.
Know-Where Solutions. (2008). The Know-Where solution. Retrieved December 2, 2008 from http://www.knowwhere.com/
Lindstrom, M. and Kotler, P. (2005). Brand sense: Build powerful brands through touch, taste, smell, sight, and sound. New York: Free Press.