There are several important reasons why businesses should attempt to segment their markets carefully.
Better matching of customer needs
Customer needs differ. Creating separate products for each segment makes sense and provides customers with a better solution
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
More effective promotion
By segmenting markets, target customers can be reached more often and at lower cost
Gain a higher share of the market
Through careful segmentation and targeting, businesses can often become the market leader, even if the market is small
There are many ways in which a market can be broken down into segments.
A very popular method of "demographic" segmentation looks at factors such as age, gender, income and so on. These are described briefly below:
Businesses often target certain age groups. Good examples are toothpaste – look at the variety of toothpaste products for children and adults) and toys (e.g. pre-school, 5-9, 10-12, teen, family)
We all know that males and females demand different types of the same product. Great examples include the clothing, hairdressing, magazine, toiletries and cosmetics markets
Many companies target rich consumers with luxury goods (e.g. Lexus, Bang & Olufsen). Other businesses focus on products that appeal directly to consumers on low incomes (e.g. Aldi and Lidl (discounted groceries) and fast-fashion retailers such as TK Maxx)
Many businesses believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products & services
Another approach is known as "geographic segmentation". This tries to divide markets using:
Regions: e.g. in the UK these might be England, Scotland, Wales Northern Ireland or (at a more detailed level) counties or major metropolitan areas
Countries: perhaps categorised by size, development or membership of geographic region
City / town size: e.g. population within ranges or above a certain level
Population density: e.g. urban, suburban, rural, semi-rural
It would be nice to think that market segmentation is the answer to an entrepreneur's problems. By spotting a clear niche market using segmentation, the start-up business can focus all its efforts on reaching the target customer base.
Limitations of segmentation
If only business life was that simple. It isn't. Here are some key limitations with market segmentation:
Lack of information and data: some markets are poorly researched with little information about different customer needs and wants
Difficulty in measuring and predicting consumer behaviour: humans don't all behave in the same way all of the time. The way that they behave also changes over time! A good example is the "grey generation" (i.e. people aged over 50). The attitudes and lifestyles of the grey generation have changed dramatically in recent years.
Hard to reach customer segments once identified: it is one thing spotting a segment; it is another finding the right way to reach target customers with the right kind of marketing message
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