Study Notes
Overview
Market segmentation involves dividing a broad target market into smaller, more defined groups of consumers who share similar needs, interests, or characteristics. For GCSE Business candidates, understanding segmentation is crucial because examiners frequently test your ability to explain why a business uses it, rather than just what it is. A strong grasp of this topic allows you to unlock higher mark bands by linking segmentation directly to the marketing mix (the 4Ps) and demonstrating how it reduces wasted expenditure and increases competitiveness.
Key Concepts
The Four Main Types of Segmentation
1. Demographic SegmentationDividing the market based on measurable population characteristics such as age, gender, income, occupation, and family size.
Example: Saga targets the over-50s market for holidays and insurance, while Nike targets younger demographics with specific trainer releases.
2. Geographic SegmentationDividing the market based on location, such as country, region, city, or even urban versus rural areas.
Example: McDonald's offers the McPlant in the UK but different menus in India to respect cultural and religious preferences.
3. Psychographic SegmentationDividing the market based on lifestyle, values, attitudes, and interests.
Example: Lush Cosmetics targets environmentally conscious consumers who value cruelty-free, handmade products.
4. Behavioural SegmentationDividing the market based on how consumers interact with a product, including buying habits, usage rate, and brand loyalty.
Example: Tesco uses Clubcard data to target frequent shoppers with personalised discount vouchers.
Why Businesses Segment the Market
Examiners award marks for explaining the benefits of segmentation:
- Targeted Marketing: Reduces wasted advertising spend by focusing only on those likely to buy.
- Meeting Customer Needs: Allows businesses to design products that specifically match what a group wants.
- Competitive Advantage: Helps businesses find a niche market that competitors might have ignored.
- Pricing Strategy: Enables businesses to charge higher prices to segments with higher disposable incomes.
Linking Segmentation to the Marketing Mix
Once a target segment is chosen, the business must adapt its marketing mix:
- Product: Designed with features that appeal to the segment.
- Price: Set at a level the segment is willing and able to pay.
- Place: Sold in locations or on platforms the segment uses.
- Promotion: Advertised using media and messaging that resonates with the segment.
Audio Revision
Listen to our comprehensive 10-minute podcast covering everything you need to know about Market Segmentation for your exam:
Visual Resources
2 diagrams and illustrations
Interactive Diagrams
1 interactive diagram to visualise key concepts
Conceptual Flow Outline
The Market Segmentation Process
Worked Examples
3 detailed examples with solutions and examiner commentary
Practice Questions
Test your understanding — click to reveal model answers
State two types of market segmentation. (2 marks)
Hint: Think of the acronym D.G.P.B.
Explain how a gym might use behavioural segmentation. (3 marks)
Hint: Behavioural relates to usage rates or loyalty.
Explain one disadvantage of market segmentation for a business. (3 marks)
Hint: Think about the costs involved in finding out about the segments.
Analyse how a manufacturer of vegan food products might use psychographic segmentation. (6 marks)
Hint: Psychographic relates to values and lifestyle.
Evaluate the importance of market segmentation to a large, multinational clothing retailer. (9 marks)
Hint: Consider the benefits of targeting vs the costs/risks, and reach a conclusion.