Market SegmentationCh 2.2

Section 2.2Objectives

Explain the concept of market segmentation

Analyze a target market

Differentiate between mass marketing and market segmentation

Identifying and Analyzing Markets

Companies identify groups of people who have common interests and traits. This is called market segmentation.

Businesses use these groups to create market-specific ads

Market Segmentation

Marketers analyze groups of customers and look to see if they can break the group down further into smaller sections

This process of taking a given market and making the group even smaller is called market segmentation

Market Segmentation

The four factors that help segment a market and describe a target market are:

Demographics

Geographics

Psychographics

Behavioral factors

Example: Jeans

The jean market:

Segmented by: age (kids, teens, adults)

By Price: different income levels (referred to as socio-economic)

By desired features: tight, comfortable, unique, newest design

To meet the needs of these different market segments, companies make a unique marketing mix for each segment

Which Segments?

The next question: Which of these segments will we target?

Must identify markets in which companies have a sustainable competitive advantage

Advantage that allows you to survive against the competition over a long period of time

How is this information gathered?

Government census

Private research firms

Trade associations

Make a decision if the market is large enough to target

Additional research will reveal more about the market segment

Demographics

Statistics that describe a population in terms of personal characteristics

Age, gender, income, marital status, ethnic background, education, occupation

Age: target markets by using age ranges common labels used: Baby boomers, Generation X and Generation Y or the Echo Generation

Age: Boomers

Baby boomers: 76 million born between 1946-64

As the boomers get older, their income and spending power increase

Prime target for many products: tech gadgets, cosmetics, and products that enhance their lifestyle

Gen X or baby Bust

Followed the boomers

Children of duel-career households or divorced parents

Bombarded with media from early age

Savvy purchasers and skeptical consumers

Reach this market: sharp images, music, a sense of humor and meet them on their terms

Generation Y

Sons and daughters of later boomers (you)

Known as Echo Boomers or Millennium Generation

More racially and ethnically diverse with spending power

Fashions and info get passed via the internet

Gender

Gender creates market segments

Jockey exclusively for men: entered the women’s market doubled its sales

Income

Marketers want to know how much money they have to spend on different products

They look at two types of income: Disposable income: Money left over after taxes/important to companies that produce and sell necessities

Discretionary income: Money left over after paying for basic living necessities such as food, shelter, and clothing/important to companies that sell luxury items

Marital Status

Census says married couples have slipped to 49.7% of total households compared with 80% in the 50’s

Reasons for change: getting married later, divorcing more, living longer, and remarrying less

Married couples with kids represent less than 25% of the population

Ethnic Background

U.S. population is becoming more diverse

Due to increase immigration

Caucasians population is declining

African American, Hispanic, and Asian make up 30% of the population

By 2025 they will represent 37.2%

Geographics

• Segmenting markets based on where people live

• Closely related to demographics because of the similarities among people who live in certain areas

• Segmented by: – Local & regional – National & global

Examples: • Small independent restaurant (Cuginos)• Coca-Cola• Meijer

To reach Latinos

• Top Hispanic Markets: LA, New York, Miami, Houston and Chicago

• Best places to test new products to reach Latinos

African Americans

• 55% live in the south

• City with the largest populations is New York with 2.3 million

• 2nd largest: Chicago 1.1 million

• Detroit, Philadelphia, Houston, LA, Baltimore, Memphis, DC, and New Orleans

• Key outlets in these cities would be necessary to reach this market

Children

• Highest proportion of their population in the 5-13 year old age group (15% each) are in Utah and Alaska

• 14% in Texas, Arizona, California, and Idaho

Older population

• 65 and older greatest populations are found in

• CA (3.8 million)

• Florida: (2.9 million)

• New York: (2.5 million)

• Texas (2.2 million)

• Pennsylvania (1.8 million)

Income

• States with a median income of at least $50,000

• Delaware, Washington, California, Colorado, Virginia, Utah, Massachusetts, Minnesota, Alaska, Connecticut, New Hampshire, Hawaii, Maryland, and New Jersey

• Target financial, insurance, luxury goods

Psychographics

• Grouping people with similar lifestyles, attitudes, values, and opinions

• Activities/Interests: create target markets (magazines target activity segments)

• Attitudes: health conscious, being fit 21st century trend attitudes

• Personality and values: More advanced studies look at these issues and segment based on them

Behavioral

• What are the benefit desired by consumers

• Shopping patterns

• Usage rate

• ex: regardless of income people desire luxury and premium merchandise/people more and more define themselves by the products and brands they buy

How marketers use Consumers’ behavioral

Patterns• Companies classify their customers according to

% of sales each group generates

• Often 80/20 rule applies: 80% of the time sales are generated by 20% of its loyal customers

Mass Marketing Vs. Segmentation

• Mass Marketing is used when a product has universal appeal and few features that differentiate them from their competitors

• It uses a single marketing strategy to reach all of its customers

• Not very common today

Niche Marketing

• Markets are narrowed down and defined with extreme precision

• Even products with one slogan : Got Milk will use different models or themes to reach market segments