Understanding the consumer: c) Categorising consumers: market segmentation

The idea

Market segmentation involves dividing a broad target market into subsets of consumers who have common needs, interests, or priorities. By categorising consumers, businesses can design and implement strategies tailored to specific groups, improving marketing efficiency. Common methods of segmentation include demographic (age, gender, income), geographic (location), psychographic (lifestyle, values), and behavioural (brand loyalty). For example, a car manufacturer might segment its market demographically, offering affordable hatchbacks to young buyers and luxury SUVs to higher-income families. Effective segmentation allows firms to identify niche markets and allocate resources effectively.

What earns the marks

• Market segmentation is the process of dividing a heterogeneous market into distinct, homogeneous groups of consumers with shared needs or characteristics.
• Demographic segmentation categorises consumers by quantifiable traits such as age, gender, income, and occupation.
• Geographic segmentation divides the market based on physical locations, such as regions, countries, or urban versus rural areas.
• Psychographic segmentation groups consumers according to their lifestyle, social class, personality, and personal values.
• Behavioural segmentation focuses on consumer interactions with the product, including usage rate, brand loyalty, and benefits sought.

Common mistakes and how to put them right

• Confusing market segmentation with market research.

  Put it right: Market research is the process of gathering data, whereas segmentation is the application of that data to divide the market into distinct consumer groups.

• Assuming demographic segmentation is the only method.

  Put it right: Recognise that markets can also be segmented geographically, psychographically, and behaviourally depending on the product.

• Believing that segmentation guarantees higher profits.

  Put it right: While segmentation can improve targeting, it also incurs costs for tailored marketing and requires effective execution to be profitable.

Exam tips

• Always link the chosen method of segmentation to the specific product or service in the given scenario.
• Use concrete examples to illustrate how a business might adapt its marketing mix for different consumer segments.
• Consider the costs associated with developing separate marketing campaigns for multiple segments when evaluating its effectiveness.