Market Segmentation (Edexcel IGCSE Business)

How Businesses use Market Segmentation

• Market segmentation is the process in which a single market is divided into groups, each of which has distinct customer preferences

  • Each segment represents a slightly different set of consumer characteristics

• Market segmentation allows businesses to target their marketing efforts at customers who are most likely to be interested in their products
  

  • This is an efficient use of the marketing budget

  • Customer needs are likely to be closely met, so they should be satisfied with their purchase

  • Satisfied customers are likely to be loyal and recommend the brand to other, like-minded customers

• Once appropriate market segment(s) have been identified, a business can choose an appropriate targeting strategy

  • Often, businesses aim their products a particular market segment

    • E.g. Ecover targets environmentally-conscious customers with its range of chemical-free housing cleaning products

  • Sometimes different products are aimed at several different market segments

    • E.g. Supermarket Tesco targets customers with different incomes with its own-brand ranges, such as Stockwell and Finest

  • In some instances, a business aims its product range at the mass market

    • E.g. Coca-Cola offers a range of products that, given their large volume of sales, could be considered to be aimed at the mass market

• Businesses often use more that one way to segment the market

  • E.g. the UK crisp market is divided up into many market segments such as

    • Dinner party snacks (Walkers Sensations, Pringles, Burts) are targeted at middle to upper earners/professionals with a premium price

    • Health conscious crisps (Walkers lite, Walkers baked, Revita lite) are targeted at the health conscious market

    • Lunch box value snacks (multipacks, hoola hoops etc) are targeted at families and the mass market

Ways to Segment the Market

• Markets can be segmented in several ways

  • The main ways include location, demographics, lifestyle, income and age

Diagram: Ways to Segment Markets (requested edit)

Businesses can choose to segment markets in a variety of ways

1. Location

• Urban and rural customers' needs relate to their surroundings

  • E.g. City-dwellers are likely to purchase small, electric vehicles, while those who live in the countryside tend to prefer larger, all-terrain vehicles

• Customers in warmer countries make different purchasing decisions to those living in cooler climates

  • E.g. Sales of air-conditioning units in Italy and Turkey are significantly higher than in Germany and the UK

• Within a country, customers living in different regions have varied preferences

  • E.g. France is well-known for its regional food specialties, with residents of southern départements generally preferring a Mediterranean diet, whilst those in more northern regions consume more dairy products and red meat

2. Demographics

• Men and women often have different purchasing preferences

  • Men tend to spend more than women when shopping

  • Women are more price-conscious shoppers than men, buying more reduced-price items and using coupons more frequently

• As populations age, spending patterns are changing

  • Spending on specialist services such as personal care and single-person travel has increased significantly

• Many countries have increasingly ethnically-diverse populations

  • Markets for clothing, food and celebration items can be targeted at specific ethic or religious groups

3. Lifestyle & Income

• Customers make different lifestyle choices

  • E.g. Travel companies target different packages at families, thrill-seekers and those looking to pursue a specilaist interest such as cuisine or art

• Some products are aimed at those on high incomes, whilst others target customers with limited budgets

  • E.g. Luxury brand Mulberry targets very high-income customers with its iconic handbags whilst budget-conscious customers are served by brands such as H&M and Primark

4. Age

• Many products are aimed at different age groups, who are likely to have different interests, influences and spending power

  • E.g. In 2022, consumers in the United States spent an average of $1,945 on clothing, with most being spent by the generation born between 1965 and 1980, known as Generation X

The Advantages & Disadvantages of Market Segmentation

Recommending a Method of Segmentation

• The type of market segmentation used will depend upon the nature of the business itself

• Examples of industry-specific segmentation include

  • The cosmetic industry often aim their products at a specific gender. In recent years, there has been a growth in specific make-up products aimed entirely at men, such as 'Guyliner'- eye liner for men

  • A bespoke watchmaker may base their segmentation on income levels, aiming at high income customers who can afford their handmade, niche market pieces

  • A business that runs boot camp style exercise classes may base their segmentation on lifestyle choices E.g. those people who want to improve their fitness levels

• Before recommending an appropriate method of market segmentation the business must also consider a number of factors

Factors Affecting Choice of Market Segmentation