Market Segmentation (AQA A Level Business): Revision Note

The purpose and value of market segmentation

• A single market is rarely made up of identical customers, as people have different needs, preferences, budgets and lifestyles

• Market segmentation is the process of dividing a broad market into smaller groups of consumers who share similar characteristics

  • Each group - or segment - can then be targeted with a product and marketing mix tailored to its specific needs

  • For example, the UK crisp market is divided into distinct segments, including:

    • premium sharing snacks such as Walkers Sensations

    • health-conscious options such as Walkers Baked

    • value multipacks for families

• The primary purpose of segmentation is to help businesses identify distinct customer groups so they can be served more effectively than if the business tried to appeal to everyone at once

Advantages and limitations of segmentation

Demographic segmentation

• Demographic segmentation divides a market based on measurable personal characteristics such as age, gender, family circumstances and ethnicity

• It is one of the most widely used methods because demographic data is relatively straightforward to collect and analyse

Examples of demographic segmentation

Age

• Children's toys, student bank accounts and retirement holidays each target distinct age groups with different spending power and priorities

Gender

• Men's grooming brand Bulldog targets male consumers with skincare products designed specifically for their needs

Family circumstances

• Family-sized food products, such as snack multipacks or family tickets to theme parks, provide bulk-purchase savings

• Pushchairs and childcare services target households with young children

• Single-person ready meals target the growing number of people living alone

Ethnicity

• As the UK population becomes more diverse, markets for specialist food, clothing and celebration items targeted at specific cultural or religious groups have grown significantly

• For example, Moonpig sells a range of Diwali and Eid gifts and greeting cards

Geographic segmentation

• Geographic segmentation divides a market based on location - where customers live, work or spend their time

  • It is useful because customers in different locations often have different needs, preferences and buying habits

Examples of geographic segmentation

Urban vs rural

• City-dwellers are more likely to purchase small electric vehicles, while rural consumers tend to prefer larger, all-terrain vehicles

Regional preferences

• Food and drink preferences vary across the UK

• For example, Greggs built its initial customer base in the North of England before expanding nationally, adapting some of its products to regional tastes

Climate

• Demand for sunscreen, waterproof clothing and heating systems varies significantly by region, depending on local weather patterns

International markets

• Global businesses adapt their products and marketing to different countries

• For example, McDonald's offers different menu items in different markets to reflect local tastes

Psychographic segmentation

• Psychographic segmentation divides a market based on lifestyle, values, attitudes, interests and personality traits

• It goes beyond surface-level characteristics to understand the deeper motivations behind purchasing decisions

  • It recognises that two consumers with identical demographic profiles may have very different values and buying motivations

• Psychographic segmentation is more complex and costly to research than demographic or geographic methods

  • However, it can be extremely powerful for brand positioning and building strong emotional connections with customers

Examples of psychographic segmentation

Health-conscious consumers

• Innocent Drinks and Pip & Nut target consumers who prioritise nutrition and natural ingredients, regardless of age or income

Environmentally conscious consumers

• Patagonia and Lush appeal to consumers whose values include sustainability and ethical production

• These customers actively seek out brands that align with their principles

Status-conscious consumers

• Luxury brands such as Rolex and Burberry target consumers motivated by exclusivity and social recognition

Convenience-focused consumers

• Meal kit services such as Gousto and HelloFresh target time-pressed consumers who value speed and simplicity

Behavioural segmentation

• Behavioural segmentation divides a market based on how customers actually interact with a product or brand

  • This may include their usage habits, loyalty, purchase frequency and response to marketing

• It focuses on observed behaviour rather than who customers are or what they believe

Examples of behavioural segmentation

Usage frequency

• Pret a Manger's subscription scheme targets daily visitors with discounted coffee, rewarding high-frequency customers and encouraging loyalty

Brand loyalty

• Loyal customers may be rewarded with exclusive offers and early access to new products

• Less loyal customers may respond better to price promotions or BOGOF deals

Purchase occasion

• Thorntons targets consumers buying gifts for birthdays, Christmas and Valentine's Day rather than everyday chocolate buyers

Benefits sought

• Different consumers buy the same product for different reasons

• For example, some choose running shoes for performance, others for fashion and others for everyday comfort