The Use of Market Segmentation (OCR GCSE Business): Revision Note

Why businesses segment the market

• Market segmentation involves a single market being 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 target 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 than one way to segment the market

  • E.g. The UK crisp market is divided up into many market segments

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

• Health conscious crisps (Walkers Baked, Ryvita Lite, Proper Chips etc) are targeted at the health conscious market

• Lunch box value snacks (multipacks, Hoola Hoops, Quavers 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

Gender

• 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

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

• As populations age, spending patterns are changing

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

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

• Many countries have increasingly ethnically-diverse populations

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

Income

• Customers with different levels of income make different spending choices

  • E.g. Travel companies target different packages at families, thrill-seekers and those looking to pursue a specific 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

Lifestyle

• Customers have different hobbies or interests, follow different trends or aspire to live their lives in a range of ways

  • E.g. Some customers prefer to purchase environmentally friendly or socially responsible goods and services

• Specialist products that meet specific needs can often be sold at a premium to those with a keen interest in a particular hobby

  • E.g. Carraway specialist golf clubs are sold for several hundred of pounds each, whilst Salix's hand-made cricket bats can be made to measure keen players

Evaluation of market segmentation