Marketing Strategy: Target Marketing and Market Segmentation
Objective 11-3 Explain market segmentation and how it is used in target marketing.
Marketers have long known that products cannot be all things to all people. The emergence of the marketing concept and the recognition of customers’ needs and wants led marketers to think in terms of target markets—the particular groups of people or organizations on which a firm’s marketing efforts are focused. Selecting target markets is usually the first step in the marketing strategy.
Target marketing requires market segmentation, dividing a market into categories of customer types or “segments” having similar wants and needs and who can be expected to show interest in the same products. Once they have identified segments, companies may adopt a variety of strategies. Some firms market products by targeting more than one segment. Not that many years ago General Motors tried to offer automobiles for virtually every segment of the market. Its brands included Chevrolet, Buick, Oldsmobile, Pontiac, and Cadillac, as well as specialty products like Saturn, Saab, and Hummer plus assorted SUVs and pick-up trucks. The financial crisis of 2008–2011, though, pushed GM to the brink of financial ruin and caused the company to have to accept a bail-out from the U.S. government. To deal with the crisis GM sold some of its product lines and shut down several others. Today the firm is a much leaner company, targeting fewer marketing segments and earning much higher profits.
In contrast, some businesses have always focused on a narrower range of products, such as Ferrari’s high-priced sports cars, aiming at just one segment. Note that segmentation is a strategy for analyzing consumers, not products. Once marketers identify a target segment, they can begin marketing products for that segment. The process of fixing, adapting, and communicating the nature of the product itself is called product positioning.
Identifying Market Segments
By definition, members of a market segment must share some common traits that affect their purchasing decisions. In identifying consumer segments, researchers look at several different influences on consumer behavior. We discuss five of the most important variables next.
Geographic Segmentation
Many buying decisions are affected by the places people call home. Urban residents don’t need agricultural equipment, and sailboats sell better near large bodies of water than in the mountains. Geographic variables are the geographic units, from countries to neighborhoods, that researchers consider in a strategy of geographic segmentation. McDonald’s restaurants in Germany, in contrast to those in the United States, offer beer on the menu. Pharmacies in Jackson Hole, Wyoming, sell firearms that are forbidden in Chicago. Starbucks is currently focusing on the growing geographic segment in China.
Demographic Segmentation
Demographic segmentation is a strategy used to separate consumers by demographic variables. Demographic variables describe populations by identifying traits, such as age, income, gender, ethnic background, marital status, race, religion, and social class, as detailed in Table 11.1. Depending on the marketer’s purpose, a demographic segment can be a single classification (for example, ages 20–34) or a combination of categories (ages 20–34, married without children, earning $25,000–$44,999 a year).
Table 11.1
Examples of Demographic Variables
| Age | Under 5, 5–11, 12–19, 20–34, 35–49, 50–64, 65+ |
| Education | Grade school or less, some high school, graduated high school, some college, college degree, advanced degree |
| Family Life Cycle | Young single, young married without children, young married with children, older married with children under 18, older married without children under 18, older single, other |
| Family Size | 1, 2–3, 4–5, 6+ |
| Income | Less than $15,000, $15,000–$24,999, $25,000–$50,000, $50,000–$100,000, $100,000–$200,000, more than $200,000 |
| Nationality | African, American, Asian, British, Eastern European, French, German, Irish, Italian, Latin American, Middle Eastern, Scandinavian |
| Race | American Indian, Asian, African American, Caucasian |
| Religion | Buddhist, Catholic, Hindu, Jewish, Muslim, Protestant |
| Gender | Male, Female |
For example, Hot Topic started as a California-based chain specializing in clothes, accessories, and jewelry designed to appeal to Generation Y and Millennials, a demographic consisting of U.S. consumers born between the 1980s and 1990s. The theme was pop culture music because it was the biggest influence on the target demographic group’s fashion tastes. More recently, Hot Topic has become a national retail chain for clothing, accessories, and entertainment products relating to today’s pop culture.
Geo-Demographic Segmentation
As the name implies, geo-demographic segmentation is a combination strategy. Geo-demographic variables are a combination of geographic and demographic traits and are becoming the most common segmentation tools. An example would be young urban professional women, well-educated, 25- to 54-year-olds with high-paying professional jobs living in the “downtown” zip codes of major cities. Chico’s targets many women in this segment, offering stylish travel clothing well suited to the needs of this subset in the larger population. Segmentation is more effective because the greater number of variables defines the market more precisely.
Psychographic Segmentation
Markets can also be separated into a psychographic segmentation according to such psychographic variables as lifestyles, interests, personalities, and attitudes. For example, Burberry, traditionally promoted as “The Iconic British Luxury Brand” whose raincoats have been a symbol of British tradition since 1856, has in recent years repositioned itself as a global luxury brand like Gucci and Louis Vuitton. The strategy calls for attracting a different type of customer—the top-of-the-line, fashion-conscious individual—who enjoys the prestige of shopping at stores like Neiman Marcus and Bergdorf Goodman. Psychographics are particularly important to marketers because, unlike demographics and geographics, they can be changed by marketing efforts. With the onset of global interdependence and open communications, marketing today is changing some traditional lifestyles and attitudes in nations around the globe. Polish companies, for example, have overcome consumer resistance by promoting the safety and desirability of using credit cards rather than depending on solely using cash.7
Behavioral Segmentation
Behavioral segmentation uses behavioral variables to market items based on how customers actually behave. These behaviors, in turn, may be caused by a variety of factors. One example is heavy users (customers who buy in bulk, the key to success for Sam’s and Costco). Another is what might be called situation buyers (Halloween, for example, is now the second-largest “holiday” in terms of spending). A final example is specific purpose (All Free Clear is a detergent for people who have skin reactions to additives in other detergents).