Market Segmentation: Geographic, Demographic, Psychographic & More
- 0:04 Ways to Segment Consumer Markets
- 1:11 Geographic Segmentation
- 1:50 Demographic Segmentation
- 4:35 Psychographic Segmentation
- 5:05 Benefit Segmentation
- 5:40 Usage-Rate Segmentation
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Marketers must be effective at creating niche segments to promote and sell their products or services. There are five specific ways that markets can be segmented in order to create a successful sales opportunity.
Ways to Segment Consumer Markets
Our Town USA has built a brand new amusement park. The marketing team for Fantastic Adventure Park is confused about how they should segment the market. The team wants to make sure that the overall marketing and segmentation strategy is effective and produces the highest amount of overall sales this year. The crucial benchmarks for segments are profitability, measurability and accessibility. The marketing team can segment based on just a single variable, such as age, or they can create a multiple segmentation strategy that incorporates different variables together, such as age, gender or lifestyle. Overall, most marketing departments prefer multiple segmentation strategies because they're more precise and tend to be more effective in the long run. There are five different ways to consider segmenting a market:
- Benefits sought
- Usage rate
One of the first variables that the team could use in their segmentation strategy is geographic. This would allow the team to break the market into sections by climate, density, market size, world or states. Many companies use climate if their products or services rely on the weather, such as snow shovels, melting pavement salt, wave runners and boats. Our Town USA is more interested in targeting geographic locations that are located near the park in a 100-mile radius. They believe some customers will fly in from out of state, so in addition, they will target large-density areas nearby.
Demographic segmentation is extremely important to all marketing departments since the data is easily available and does drastically affect buying patterns. Age, income, gender, ethnic background and family life cycle are all important factors of demographic segmentation. The park is going to use an age range of 2-60 years of age so they can include kids, teens, parents and even grandparents. The income level would have to be middle to upper class - $50,000 annual income or above - since park tickets are very expensive. The amusement park is not a gender-specific product, and ethnicity will also not affect the overall plan.
The marketing team is very interested in the family life cycle sub-segments. Family life cycle segmentation is a series of stages determined by a combination of age, marital status and the number of children in a household. Obviously, the park is very interested in the family life cycle of young single, young married with kids, middle-aged married with kids, young divorced with children and middle-aged divorced with kids. They plan on advertising via social media and local cable ads where parents and kids congregate.
There are also key demographic groups that many marketers are very interested in, such as the tweens and Baby Boomers. The tweens are between the ages of 9 and 12 and have enormous spending potential due to their parents providing them with a large disposable income. The park will send out buy one, get one ticket free ads to local middle schools in order to reach the tween audience. The Baby Boomers are another demographic group that accounts for half of all spending in the United States. The group consists of people born between the years of 1946 and 1964. Many companies in real estate, travel and luxury items look to target the large and influential Baby Boomers. The park marketers have realized that many grandparents enjoy taking their grandchildren to amusement parks. They will advertise in local senior newspapers and provide park admission discounts to all senior citizens. The last defined group is called Generation X. This group was born after the Baby Boomers, and many in this segment are not loyal to brands and are turned off by most media advertising. Most have become parents themselves, so they have a lot of disposable income to spend on their kids. The amusement park knows that this segment might dislike flashy ads, so instead they are going to rely on family day pricing discounts.
A very complicated way to segment the market is through using psychographics. Psychographic segmentation is segmenting a market based on personality, motives and lifestyles. When the amusement park team identifies their target market's psychographic traits, they will look at consumers with personalities who enjoy fun, like spending time with their family, enjoy leisure time and are outgoing in nature. The television ad for the park will consist of people laughing, screaming on exciting rides and enjoying a day of freedom.
Marketers can also segment a market using benefit segmentation. This is dividing customers up by the benefit they get from using the product or service. For example, why do people go to amusement parks? Some benefits include getting thrills or excitement, spending time with the family or just relaxing. Depending on why the customer is visiting the park, the marketing team could provide a targeted promotional message. They could show all of the new, exciting roller coasters to the thrill seekers in an ad, or the kiddie rides to the families looking for a relaxing day out.
The last type of segmentation is called usage rate. This segmentation consists of dividing customers by how much of the product is used or consumed. In general, 20% of all customers generate 80% of the demand for a product or service. This is known as the 80/20 Principle, and the result is that most marketers heavily target their biggest users. The marketing team for the amusement park has decided to target the heavy users of the park by offering them a frequency, or loyalty, program. Every time the customer visits the theme park, they receive points, which allow them access to free VIP events and even free visits in the fall and winter.
Marketers must be effective at creating niche segments to promote and sell their products or services. They can segment a market by usage rate, benefit, and psychographic, demographic, or geographic methods. The more precise the segmentation strategy that a marketing department uses to effectively reach their core target market, the more sales will result in the long run.
Chapters in Business 102: Principles of Marketing
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