Market segmentation involves dividing a market into parts that reflect different customer needs and wants.
What is market segmentation?
The process of splitting the market into different demographics to help gauge where customer needs and wants.
Analysing a market based upon factors such as habits like purchase frequency, method of purchase and other characteristics.
Defining market categories based upon where people live. Looks at different sizes of regions. IE clothing companies may look at the colder regions of the UK to sell their warm clothing, whilst a farming goods company might look at regions with the highest agricultural activity.
Splitting the market based upon the traits of the population. This could be anything from age to religion, gender, race, education.
Cons of market segmentation
- Can encourage companies to ignore some of their potential customers
- It can be difficult to break the market into obvious segments
- It can be difficult to know certain demographics
- Companies could miss out on wider ranges of opportunities
Pros of market segmentation
- Advertising can be targeted at specific market segments
- Least profitable markets can be avoided
- It becomes easier to identify gaps in the market for new firms
- It helps the firm to improve existing products and customer service
3 characteristics that could be used in demographic segmentation
Income segmentation groups
A—higher managerial such as chief executives and directors B—Intermediate managerial such as solicitors, accountants and doctors C1—Supervisory, clerical or junior professional such as teachers and junior managers C2—Skilled manual such as plumbers, electricians and junior managers. D—Semi and unskilled workers such as refuse collectors and window cleaners E—Pensioners, casual workers, students and unemployed.
Market Size: The volume of sales for a product
Brand: A name, sign, symbol, design or slogan linked to a particular product or service
Primary market research: The collection of data on a first hand basis
Market Mapping: Various market conditions that are plotted on a map.