Application: market segmentation - Business Environment

Marketers have long recognized the importance of demographic, social and cultural factors in shaping people’s demand for goods and services. This is exemplified by the concept of market segmentation.

In essence, market segmentation refers to the practice of dividing a market into distinct groups of buyers who share the same or similar attitudes and patterns of
behaviour and who might require separate products or marketing to meet their particular needs. By segmenting a market into its broad component parts, businessess hould be able to focus their marketing efforts more effectively and efficiently, for example by developing product offerings and marketing programs which meet the requirements of the different market segments.

Markets can be segmented in a variety of ways and this tends to differ between consumer markets and those which involve business to business transactions. Table
below outlines some of the major variables used in segmenting consumer markets. As the table indicates, demographic, social and cultural factors provide a basis for identifying distinct market segments within the markets for consumer goods and services. In practice, of course, marketers may use either one (e.g. demography) or a combination (e.g. age, location and social class) of different variables to segment a market they are seeking to target.

methods-of-segmenting consumer markets

A good example of combining the different variables is provided by the notion of geo-demographic segmentation which focuses on the relationship between an individual’s geographical location and her/his demographic characteristics, given that close links frequently exist between a person’s place and type of residence and factors such as income, family size and attitudes. One well-known scheme of this type is ACORN (A Classification Of Residential Neighbour hoods) which uses 40 variables from population census data to differentiate residential areas. Another is MOSAIC, developed by Experience, which draws on a variety of data sources (e.g. census data, financial data, property characteristics, demographic information) and uses a range of sophisticated analytical techniques to produce household profiles at full postcode level. Under the MOSAIC scheme, UK households are currently divided into 11 groups with names such as ‘Symbols of Success’, ‘Suburban Comfort’ and ‘Grey Perspectives’ and these are then further sub-divided into 61 types, again with interesting and evocative names including ‘Golden Empty Nesters’, ‘Sprawling Subtopia’ and ‘Childfree Serenity’.

With regard to factors such as social class and lifestyles, these tend to be grouped under the notion of psychographic segmentation, an approach which has attracted considerable attention in recent years given the reciprocal link between lifestyles and consumption indicated above. Lifestyle segments can be developed either as ‘off-the-shelf’ products by marketing agencies/management consultancies or can be customized for/by individual companies, although the latter often tend to be both complex and expensive to design. One established and popular example of the former is VALS (Values And Lifestyles) developed by SRI International. Under this model, individuals are allocated to different categories on the basis of a combination of demographic and lifestyle factors such as age, education, income and levels of self-confidence and then these categories are grouped into a number of broader segments which reflect a category’s predominant orientations. Thus, under VALS 2, the three broad groups identified were:

  1. people who were principle orientated(i.e. guided by their views of how the world should be);
  2. people who were status-orientated (i.e. guided by the opinions and actions of others);
  3. people who were action-orientated (i.e. guided by the desire for social and physical activity, variety in life and risk taking).

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