Segmentation (AQA A Level Business): Revision Note

The value of segmentation

• Market segmentation is the process in which a single market is divided into submarkets, or 'segments'

  • Each segment represents a slightly different set of consumer characteristics

  • Firms often segment their markets according to factors such as income, geographical location, religion, gender or lifestyle

• A market for a good such as crisps is not simply seen as one market

  • For example, the crisp market is divided up into many market segments, such as

    • Dinner party snacks (Walkers Sensations, Pringles, Burts) are targeted at those with higher discretionary income with a premium price

    • Health conscious crisps (Walker's Lite, Walkers Baked, Ryvita Lite) are targeted at the health conscious market

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

Advantages and disadvantages of market segmentation

Methods of segmentation

• Markets can be segmented in several ways

  • demographic

  • geographic

  • income

  • behavioural

Ways to segment a market

1. Demographic segmentation

• Demographic segmentation involves breaking up a market into groups of customers with similar characteristics, such as age, gender and family circumstances

  • Men and women often have different purchasing preferences

    • Men tend to spend more than women when shopping

    • Women are more price-sensitive shoppers than men, buying more reduced-price items and using price promotions 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 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

  • Many countries have increasingly ethnically-diverse populations

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

2. Geographic segmentation

• Geographic segmentation involves breaking up a market into groups of customers who live, work or spend their leisure time in defined locations

  • 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

3. Segmentation by income

• Income segmentation involves breaking up a market into groups of customers with different levels of income, including their wealth

• Some businesses aim their products 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

• Some businesses offer a range of products that appeal to different income groups

  • E.g. Sainsbury's budget Stamford Street range targets those on limited budgets, while its Taste the Difference range is aimed at higher income customers

4. Behavioural segmentation

• Customers make different lifestyle, health or dietary choices that can provide opportunities for businesses

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

  • Beyond Meat's entire product range is aimed at vegans, vegetarians  and flexitarians cutting down on animal protein

    • Its plant‑based burgers and sausages are sold in supermarket meat aisles

• Some purchasing decisions are based on thorough research, whilst others tend to be impulse buys

  • E.g. Home store Dunelm places low-priced household essentials such as dusters and scented candles close to the checkout area

• Other behavioural factors include

  • The frequency of purchase

    • E.g. whether customers buy a product often or as a one-off, for regular consumption or as an occasional treat

  • Whether customers are brand loyal

    • E.g. those that stick with the same brand may be rewarded with loyalty benefits, such points for each £ spent, while those that switch brands may be attracted by special offers, such as BOGOF (Buy One Get One Free)

Segmentation and the nature of business

• 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 aims products at a specific gender

    • E.g. 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 consumer behaviour or lifestyle choices