Segmentation strategies

There are many ways in which a market can be segmented. A marketer will need to decide which strategy is best for a given product or service. Sometimes the best option arises from using different strategies in conjunction. Approaches to segmentation result from answers to the following questions: where, who, why and how? Jon Weaver, Marketing Manager at Bournemouth Borough Council applies a multi-strategy approach to identify segments.

Jon Weaver, Marketing Manager, Bournemouth Borough Council

Figure 7.2 Types of segmentation

Geographic segmentation: Where?
A market can be divided according to where consumers are located. On a trip abroad you might have noticed that people enjoy more outdoor activities than back home. You could also be surprised by the amount of people that like drinking hot coffee at the beach in Rio de Janeiro. If you visit this website you will see differences in food preferences around the world.

Understanding cultural differences between countries could be pivotal for business success, consequently marketers will need to tailor their strategies according to where consumers are.

Geographic segmentation is the division of the market according to different geographical units like continents, countries, regions, counties or neighbourhoods. This form of segmentation provides the marketer with a quick snapshot of consumers within a delimited area.

Geographic segmentation can be a useful strategy to segment markets because it:

• provides a quick overview of differences and similarities between consumers according to geographical unit;
• can identify cultural differences between geographical units;
• takes into consideration climatic differences between geographical units;
• recognises language differences between geographical units.

But this strategy fails to take into consideration other important variables such as personality, age and consumer lifestyles. Failing to recognise this could hinder a company's potential for success.

For example some youth groups across the world appear to be somewhat similar. Youth groups will tend to listen to similar music and follow similar fashion trends. If you were to do a quick check of people's nationalities in a 18s-30s club in Mexico, you would find a very international clientele. You might have found that you can befriend foreign people of your same age easily because you share common interests.

Demographic segmentation: Who?
A very popular form of dividing the market is through demographic variables. Understanding who consumers are will enable you to more closely identify and understand their needs, product and services usage rates and wants.

Understanding who consumers are requires companies to divide consumers into groups based on variables such as gender, age, income, social class, religion, race or family lifecycle [insert diagram g].

A clear advantage of this strategy over others is that there are vast amounts of secondary data available that will enable you to divide a market according to demographic variables

If you visit the National Statistic website you should be able to find for example how many adults have access to the Internet or how many females live in Dorset. Marwell Zoo uses this sort of segmentation in order to identify the specific needs of key segments.

Heather Moore, Marketing and Promotions Officer Marwell Zoo, Hampshire

Demographic variables are commonly used in indexes and databases measuring consumers' preferences for brands, products and media. See for example, the TGI (Target Group Indexes) where marketers can find detailed information as to who buys what.

Recently, both demographic and geographic segmentation have been used in conjunction to create geo-demographic segmentation. CACI Market Analysis Group (you can see CACI case studies here) developed ACORN (a classification of residential neighbourhoods) a widely used source for geographic segmentation that uses 40 variables to identity for example what consumers within a specific neighbourhood earn and buy.

This type of segmentation works on the premises that èBirds of a feather flock togetherî. If you visit www.upmystreet.com and type your postcode, you will find out in what ACORN group and category you fall into.

However, this form of segmentation does not probe into why consumers buy what they do, hence it does not offer an understanding of what motivates consumers to buy certain services or what types of personalities favour a product or brand over another.

Psycho-demographic segmentation: Why?
Unlike demographic segmentation strategies that describe who is purchasing a product or service, psycho-demographic segmentation attempts to answer the 'why's' regarding consumer's purchasing behaviour. Through this segmentation strategy markets are divided into groups based on personality, lifestyle and values variables.

Segmenting consumers into lifestyles is based on the notion that a person's lifestyle has a direct impact on their interests in products and services. For example if an environmentalist were to plan a perfect holiday, we would be very surprised to see a hunting excursion or rally driving experience on the options considered. Stuart Perl, Regional Director of Marketing for Europe, Middle East and Africa for Cunard Line Seaborne Cruise Line, stresses the relevance of psycho-graphics in understanding their typical consumer profile.

Stuart Perl, Regional Director of Marketing (EMEA), Cunard Line Seaborne Cruise Line.

Since personality traits have been correlated to (matched with) product categories consumers favour as well as persuasive appeals they respond to, marketers can use personality variables to segment their markets. Generally, this type of segmentation is successful for image-based products, such as cosmetics, clothing, jewellery, cigarettes, alcohol, mobile phones, etc.

Identifying personality traits can aid in the creative execution of an ad. Consumers with a high self-esteem will respond well to a persuasive appeal that protects their ego and helps to communicate a suitable image. Furthermore, consumers could be targeted based on how authoritarian they are. Take for example Club Med's 1992 slogan, èthe anti-dote for civilisationî. This ad appeals to consumers with a non-authoritarian personality trait because it presents an alternative, somewhat rebellious holiday destination that would be not approved by the more conservative consumer.

A commonly used American psycho-demographic segmentation technique is one that places consumers within specific consumer profiles developed according to their values and lifestyles. Two programmes used to segment consumers are the VALs 1 and VALs 2 (values and lifestyles systems). While the first programme just divided consumers based on their values and lifestyles, the second version is also based on relatively stable psychological characteristics

Figure 7.6 VALs2 system

This type of segmentation is advantageous because it:

• provides rich data concerning the psychological make-up of consumers;
• enables marketers to better understand the reasons behind consumers' purchases;
• provides marketers with an effective way to match a variety of marketing communication tools from packaging to taste with consumers psycho-demographic characteristics;
• can be used to develop customer profiles that will guide promotional efforts and ultimately strengthen a brand.

Despite these advantages, this segmentation technique does not provide marketers with a thorough understanding of how often and how consumers use products and services. Because product or service usage could be situational and not related to personality traits, psycho-demographic data does not capture the use of goods and services in everyday life.

Behavioural segmentation: How? Answering the how of consumer purchasing behaviour has become a prevalent consideration in the design and positioning of products. Moreover it has become a powerful competitive tool to expand and build markets.

This segmentation strategy divides markets into consumer groups based on their uses, responses, knowledge and attitudes towards products and services. There are six main techniques through which marketers can divide the market according to behavioural variables. For example, Expedia offers holiday packages according to the different types of experiences people want to have.

Occasions: Segmenting a market according to the occasions when consumers use a product or service can provide rich insight to expand market possibilities. For example, 'early bird' dinners offered in some restaurants have tapped into the market of consumers who want to have an early meal but without the pomp and formality of a regular dinner.

Benefits sought: Grouping consumers based on the benefits they seek from a product or service provides unique opportunities to define and position a brand's main attributes and highlight its superiority over competitors.

Research has found four main benefit segments: economic, medical, cosmetic and taste. While some consumers will dine in an exclusive restaurant for its taste, others will opt to go to the trendy bistro (cosmetic); some will go for the value for money deals (economic) and others will prefer the organic food served in an all-vegetarian deli (medical).

User status: Consumers can be divided based on whether or not they are patronising a product. Hence, a consumer can be a non-user, ex-user, potential user, first-time user or a regular user of a given product or service. You might have found that you are a regular user of a particular service provider, like your bank, and an ex-user of a chocolate you used to like, but not any more.

Usage rate: Consumers can be light, medium or heavy users. Although heavy users account for a very small percentage of a market, they are also responsible for a high percentage of the total buying. It is not surprising then to find that hotel chains like Holiday Inn offer special prizes to reward their frequent visitors.

User readiness: Segments can be divided based on how ready consumers are to make a purchase. Consumers are typecast according to their readiness state. For example you might be aware that a tour operator provides excellent travel packages to India, your friend might be very well informed of its details, your father might be interested in this product, while your sister is not. This allows marketers to guide consumers through the many stages leading to a final purchase.

Attitudes towards the product or service: Consumers can be segmented according to their attitudes towards products and services. For instance you can be enthusiastic, positive, indifferent, negative or hostile about a product or service.

Market segmentation: a critique
Products and services are constantly reinvented by consumers. What a marketer intended to be a children’s toy becomes a cult object among college students [to find out why UK students love Teletubbies visit this website.]

A fizzy drink is not only drunk but is also used in imaginative ways, it becomes the perfect cleaning companion, removing rust spots from chrome car bumpers or cleaning corrosion from car battery terminals [see more creative product usages at www.wackyuses.com]. Consumer’s wacky uses of product and services hint at some of the shortcomings associated with market segmentation.

Market segmentation assumes that consumers are static and stable. Furthermore it places very complex behaviours into neat and exclusive categories that fail to account for all the complexities of human behaviour. Most people find it difficult to describe their own personality. There is also an underlying supposition that human behaviour is always rational, failing to take into consideration spontaneous and playful behaviour.

The different roles an individual plays everyday also conflict with the somewhat limited categories used to segment markets. You are a student, a friend, a sister or a brother, a citizen or a rebel. While you recognise all these different facets, advertising appeals treat you mostly as an educated middle class student. Consequently market segmentation strategies provide marketers with the illusion of a certain and effective tool to operate, but the question remains as to whether or not this strategy allows marketers to know and talk to consumers.