Market Segmentation

Splitting a market into groups

A market is all the customers who might buy a product, but they are not all the same. Market segmentation means dividing that market into groups of similar customers, called segments, so a business can aim at the ones it wants. There are four common ways to split a market. By gender, such as products made for men or for women. By age, such as toys for young children or holidays for retired people. By location, such as warm coats sold in cold regions. By income, such as luxury goods for high earners and budget ranges for those with less to spend. Segmenting lets a firm meet needs better, compete and avoid wasting money marketing to the wrong people.

Segmentation words

Learn these before you match any group, and keep the four ways to split a market in mind.

One product for all against a targeted one

Segmentation matters because aiming at everyone and aiming at a chosen group give very different results.

How to pick a segmentation basis

Do not just name the four ways to split a market. Choose the one that fits the product in front of you. Ask who the item is really for. If it suits one age, lean on age. If only higher earners could afford it, lean on income. If it sells in certain places or to one gender, use those. Then say why that basis beats the others for this exact business, and name the group it should target.

Match the basis to an example

Which basis is this?

A company sells a range of budget own-brand foods to shoppers who have less to spend each week. Which segmentation basis is it using?

• Segmenting by income.
• Segmenting by age.
• Segmenting by gender.
• Segmenting by location.

Why segment a market

Select the TWO real benefits a business gains by segmenting its market.

• It can meet the needs of a chosen group more closely
• It wastes less money marketing to the wrong people
• It guarantees every single person will buy
• It removes the need to make any product at all

Customers in each group

A shop divides its 1200 customers into 4 equal age groups. Divide to find how many customers are in each group.

Order how a firm segments

Put the steps a business takes to segment and target a market in order, earliest first.

• Study the whole market of possible customers
• Split it into groups using a basis such as age or income
• Pick the segment it most wants to target
• Design the product and marketing for that group

Complete the facts

Dividing a market into groups of similar customers is market _____. Splitting customers by how old they are is segmenting by _____. Splitting them by how much they earn is segmenting by _____. The segment a business chooses to aim at is its _____ market.

Match the product to its segment

Spot the true segmentation facts

Tap the TWO statements that are true about market segmentation.

• Segmentation divides a market into similar groups
• A firm can then target the group it most wants
• Segmentation means selling one product to everyone
• A segmented product can never meet customer needs

Recommend a segment

Read each case and choose the best segmentation basis, with a reason.

• A firm launches a high-priced luxury handbag that only wealthier shoppers could afford. Which basis should it segment by?
• A company makes brightly coloured building blocks designed for toddlers. Which basis fits best?
• A student writes only that the firm should segment the market, with no basis named. How could the answer be improved?

Recommend a segmentation basis

A new firm is launching a premium fitness watch that appeals most to health-conscious young professionals. Recommend how it should segment its market.

• Explain what market segmentation means
• Describe two bases the firm could use, such as age and income
• Recommend the single basis that fits this watch best
• Justify your choice with reasons linked to the product and its buyers
• Finish with a judgement on how segmenting will help the firm compete