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Defining Markets & Market Segments

Possible Bases for Segmenting Consumer Markets

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Exhibit 1
Bases for Segmenting Consumer Markets

Exhibit 2
Bases for Segmenting Consumer Markets

So far, we've examined two ways in which markets can be segmented using benefit and consumption rate segmentation bases.  There are many other ways in which markets can be segmented.  In deed, let's shift gears a little bit  and talk in general terms about the possible ways in which markets can be segmented.  This discussion allows us to explore the range of segmentation basis that are available to marketing managers. There are a bunch! Exhibits 1 & 2 summarize the major categories of segmentation bases from which managers can select: 

Geographic bases allows us to segment a market that is spread over a large geographic area into sub-markets that cover smaller geographic areas. Geographic segmentation usually involves dividing up geographic markets by using existing political boundaries, natural climatic zones, or population boundaries.
Demographic segmentation occurs when one or more demographic traits are employed to divide a market. Typical demographic traits that are used include age, gender, race, ethnicity, marital status, family size and stage of the family life cycle. 
Social class segmentation employs a combination of demographic traits that are commonly believed to reflect membership in different social class strata.  Occupation, education, and income are the primary demographic traits that reflect social class membership.
Psychographic segmentation bases divide markets based on differences in lifestyles or differences in personality traits.  Lifestyle segmentation is one of the most popular and effective ways to create segments for consumer products.
Consumer shopping behavior patterns include such things as the type of store shopped in, timing of purchases (i.e. time of day, week, or year), how much of a product is purchased on a given visit to the store, and how often the individual frequents a particular type of retail establishment or shopping mall.
Product consumption behaviors include product consumption or usage rates base (as discussed earlier).  Other segmentation bases included in this category are product usage occasion, product use versus non-use, and loyalties to specific brands.
Segmenting markets according to consumer predispositions essentially entails creating segments based on differences in consumers' wants, needs, and attitudes. We talked at length about creating market segments based on differences in consumers' wants and needs (i.e. creating benefit segments).  Sometimes it is useful to segment markets based on how knowledgeable people are of a particular product category, or whether they've experienced problems with specific products or brands. And, finally, we also include consumers' media viewing habits in this category.  When segmenting markets using this latter base, we are looking for differences in the types of media consumers prefer i.e. preferences for specific television shows, radio stations, magazines, newspapers, and the like.

Geographic Segmentation

Exhibit 3
Geographic Segmentation

Let’s first look at some examples of segmenting markets geographically (Exhibit 3). Probably the two most common ways of creating geographic segments are by dividing larger geographic markets based on existing political boundaries or by natural climatic differences.

Segmentation that uses political boundaries essentially creates geographic segments along existing city, county, state, regional, or even country boundaries.   RJR (Reynolds Tobacco) subdivided the Chicago market into three distinct geographic segments, the north shore, south side and southeast. The company used different promotional campaigns in each segment, reflecting the existence of fundamentally different customer groups in each area of the city.  Frito-Lay and Coca-Cola employ geographic segmentation for U.S. markets quite extensively.  Both firms have identified strong differences in consumer preferences and tastes for their products that are closely associated with regional boundaries.  Frito-Lay, by virtue of its extensive MKIS, segments geographic markets down to specific sections of cities in order to respond to changing market and competitive conditions. In cooperation with Texas' anti-litter campaign (Don't Mess With Texas), Coke implemented a dedicated promotional program for Texas emphasizing Texas as a 'state of mind' with 'Coca-Cola Texas -- home of the real thing.'[1]

When markets are segmented based on climatic differences, we are essentially relying on the fact that customers' needs vary from one climatic region to another. For example, S. C. Johnson employs different formulations of its Raid insect poison for different climatic zones in the United States. This makes sense because the bugs get nastier and more numerous as one travels further south.  As a result, different product formulation are required in different climatic regions. Other logical examples of product-markets that are segmented based on climatic differences include markets for sporting goods, heating and cooling equipment, and clothing.

Demographic Segmentation

Exhibit 4
Demographic Segmentation

Demographic market segments are created by dividing a market into groups based on differences in demographic traits (Exhibit 4). Demographic segmentation is probably the most popular form of segmentation for three reasons:

First of all, consumers’ needs, wants and usage patterns often closely reflect differences in demographic profiles. This essentially means that people with different demographic traits often will have different wants and needs with respect to products. For example, preferences for certain foods are highly correlated with one's ethnic or religious ties.  Similarly, preferences for music and other forms of entertainment are often tied to differences in age, occupation, and educational backgrounds.

Second, demographic data are very easy to obtain. There is a tremendous amount of published demographic information available from a wide range of sources. Much of this information is available via the Internet. As a matter of fact, you can get at most government census data by accessing the Census Bureau’s homepage. In addition to data available from the Federal government, there is a wealth of information available from state and local governments, and from many private organizations. 

Finally, demographic segmentation is commonly employed because, even if we use another segmentation base (such as benefits or consumption rates), we must still use demographics to 'profile' the segments that are created. Because of this, many firms opt to 'kill two birds with one stone' and use demographics to simultaneously create and profile market segments.

Creating Segments Based on "Age" 

Exhibit 5
Age Segments

Exhibit 6
Caltrate Targets Seniors

caltrate.jpg (18368 bytes)

Let’s look at a few examples of demographic segmentation in action (Exhibit 5).  Markets can be segmented based on age differences. For example, American Home Products markets several versions of its Centrum vitamin brand targeted to different age groups, or age segments. In addition to its adult formula (Centrum), the firm markets a children’s formula (Centrum Jr.) and a formula for seniors (Centrum Silver).  These three formulas obviously are geared to different age segments. Of course, this is done primarily because different age categories have somewhat different needs with respect to vitamins.

mcdonalds characters.jpg (12591 bytes)Whitehall-Robins Healthcare targets its Caltrate formula for replacing lost calcium in bones to seniors (Exhibit 6).  Another good example is provided by McDonalds' advertising in which children, teens, adults and seniors are targeted with different products and promotion appeals. McDonalds has historically targeted different age groups with different types of advertising. We are all familiar with the Ronald McDonald ads that are targeted to kids. McDonalds' ads targeted to adults often have stressed the convenient breakfast stop at McDonalds on the way to work, or a quick snack during a harried workday. Most recently, McDonalds has been tailoring specific products to different age segments. Examples of products tailored to adults and seniors are those in the Arch Delux line.  The Arch Delux line is, on average, much lower in fat than traditional McDonalds fare.  

Creating Segments Based on Gender

Exhibit 7
Gender Segmenta

Rogain.jpg (9622 bytes)

Gender has long been used for segmenting markets for clothing, hair dressing products, cosmetics and magazines. This seems natural.  Men and women have different preferences for such products. Marketers take advantage of differences in tastes between genders by tailoring different products and promotional programs to each.  For example, Procter and Gamble targets its Secret brand specifically to women. Rogain (Exhibit 7 and Video) is targeted mainly to men.  Marlboro and Camel cigarettes are targeted primarily to men, while Eve and Virginia Slims are targeted to women. We even see gender-based segments emerging in somewhat non-traditional product categories. For example, in automobile advertising, Chevrolet in the recent past devoted 30% of its ad budget to women. It also sponsored career conferences aimed primarily at women. This shift in Chevrolet’s advertising budget reflected a fairly dramatic shift in the US economy and cultural values in this country that have resulted in substantially higher levels of purchasing power in female market segments.

Creating Income Segments

Exhibit 8
Income Segments

neiman marcus logo.gif (857 bytes)

Income segmentation is employed for products such as automobiles, boats, clothing, cosmetics and travel (Exhibit 8). For such products, marketers are primarily interested in identifying and targeting higher income customer groups because these consumers often have the greatest purchasing power.  Moreover, consumers in these groups are most likely to be attracted to innovations in these product categories.  

JoyPerfume.jpg (46445 bytes)Many companies specifically target affluent consumers. In retailing  Neiman Marcus is an upscale department store chain that focuses on affluent market segments. Similarly Rolex and Rolls Royce produce products and have supporting marketing programs geared to higher-end income segments.  Joy perfume is billed as the 'costliest perfume in the world.'  This Parisian perfume is a classic example of segmenting based on income and positioning using both income and lifestyle. Note also that this perfume is promoted as for sale in Lord & Taylor. Like Neimen Marcus, Lord & Taylor is an upscale department store. Joy's exclusive distribution in Lord & Taylor is consistent with the positioning strategy that Joy has in mind.

family dollar.gif (22240 bytes)Some firms primarily target lower income groups and develop marketing strategies tailored specifically to these people. Family Dollar Stores is a case in point. The firm specifically targets consumers who earn less than $17,000 annually. Market studies by Family Dollar stores indicate that these lower income families typically spend six dollars per store visit. The Family Dollar marketing strategy is geared accordingly. Other familiar examples of companies that target lower income groups are Wal-Mart in retailing and Hyundai in automobiles. 

Creating Family Life Cycle Segments

Exhibit 9
Family Life Cycle Segments

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One last example of demographic segmentation is illustrated by the "family life cycle" (Exhibit 9).  Like social class, family life cycle is a 'composite demographic' trait. When segmenting based on stage of the family life cycle, firms specifically recognize that individuals progress through a series of life cycle stages.  The life cycle begins with individuals who are young and single.  It ends with people who are older and unmarried as a result of the death of a spouse. Each of the stages in the family life cycle essentially amounts to a market segment possessing different wants and needs.  Marketers can develop products and tailor their marketing programs to serve these differences. 

Exhibit 10
Family Life Cycle 
Consumption Patterns

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Exhibit 10 highlights some differences in consumption patterns expected as one progresses through stages of the family life cycle. Young singles certainly tend to be more interested in products such as sporting goods, sports cars, fashion clothing, entertainment, recreation and related services. As young singles transition to married life (before they have children), their needs and wants begin to change as they begin establishing households. Young marrieds place less emphasis on some of the more frivolous activities enjoyed by young singles.  Instead, we see a trend toward purchasing home furnishings and home appliances.  In general, young married couples will purchase more durables goods that can be used in a family setting. As children come on the scene, things change even more. And, of course, one of the fastest growing market segment’s reflected in the family life cycle is the segment consisting of young single parents. Given the high divorce rates in the United States, we see young single parents, on somewhat limited incomes, looking for ways to save money. These individuals want smaller food portions in grocery stores, smaller and more efficient apartments, inexpensive and convenient child care, and time-saving appliances.  In general, they expect greater value in the products that they buy.  Family life cycle segments comprised of senior citizens are increasingly interested in health care, home security, specialized housing and specialized food products. The linked Caltrate ad represents a typical approach for targeting later stages of the family life cycle.

Creating Psychographic Segments

Exhibit 11
Psychographic Segments for Beer

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Psychographics, consisting mainly of life style and personality traits, are commonly employed as segmentation bases.  Segmenting markets based on lifestyle amounts to creating segments based on differences in how people choose to live their lives. Because life style is highly predictive of many purchase behaviors, marketers attempt to characterize consumers' life style patterns by asking them questions about their activities, interests, and opinions.  These "AIO" items can be used to segment markets by looking for common patterns of responses to these types of questions on surveys.  

For example, the beer industry commonly employs AIO surveys to characterize changing life style patterns of beer drinkers.  In one of the few reported lifestyle surveys, an AIO survey was administered to a sample of 300 male beer drinkers.  Their responses were statistically analyzed to determine the existence of any common patterns of responses in the questions that suggested common life-style orientations (Exhibit 11).  Results of the data analysis uncovered a series of distinct "life-style" segments:

Exhibit 12
Ad Promoting a Sports Orientation

sld00913.jpg (58998 bytes)

 

The impulsive drinker segment.  Based on their pattern of responses to the AIO questions, subjects in this segment apparently reject responsibility and are somewhat impulsive in how they behave. For example, Individuals tended to disagree with the statement "I like to work on community projects." They also strongly disagreed with the statement "I have helped collect for the Red Cross." They agreed with "I am not very good at saving money," and disagreed with the statement "I find myself checking prices even for small items." The similar patterns of responses on these questions by a large number of beer drinkers led the researchers to conclude that these subjects represented a specific "life-style" segment.
The "macho-male" segment. A significant number of beer drinkers tended to agree with a series of statements that reflect a 'very masculine view.'  Typical AIO items were "beer is a real man’s drink," "Playboy is one of my favorite magazines," "I am girl watcher," "men should not do the dishes," and "men are smarter than women."  Now think about it for a moment. We can all recall beer advertisements that have employed 'macho-male' lifestyle theme. Think back to some of the Coors Light, Busch, Bud (example TV ad), and Miller Light ads that you have seen over the years.  Many of these ads have been targeted to consumers exhibiting this lifestyle orientation.  Thumbnail Twelve is an ad for Miller Beer. Miller’s ads have traditionally employed blue-collar themes to go after this segment: "Miller – Made the American Way;" "Taste the High Life;" etc.
The "party animal" segment.   Beer drinkers in this self-indulgent segment "like to play poker," "like to take chances," and "would much rather go to a party than spend a quiet evening at home."  bud frogs.gif (251584 bytes) What I call the "party animal" segment has been the target of  virtually every beer producer. Some ads that immediately pop into mind are Bud Light's series of ads featuring Spuds McKenzie. Spuds was the "ultimate party animal,"  as shown in the two example "Spuds" TV commercials: "Yacht Spuds" & "Spuds Bates." Budweiser's current ads employing the frogs and the lizards (Frank & Louie) also fit quite well here. Similarly, some of the current Miller Lite ads illustrate positioning to this segment.
The "sports/physical orientation" segment. A few sample AIO items from the study reflecting this life-style theme included "I would like to be a pro football player," "I like bowling," "I would do better than average in a fist fight," and "I prefer a good western on TV than a sitcom." Again there was strong agreement with these statements by a substantial number of beer drinkers in the survey. And, of course, we see a lot of beer ads that target this life -style theme.  I have seen ads for Coors Light and Bud Light (see Exhibit 12) that have been developed with specifically this lifestyle orientation in mind.

Segments Based on Consumption Behaviors

There are multiple ways that we can segment a market based on differences is consumption patterns or behaviors (see Exhibit 2). We've already looked at creating segments based on usage rates with our health club segmentation study.  Additional behaviors that are excellent candidates for segmenting markets include product usage occasion, product user status, and brand loyalty status.  

Product Usage Occasion

When creating market segments based on product usage occasion, the emphasis is on identifying different circumstances or occasions under which the product is used. The same product may be used on different occasions or under different circumstances by different people.  As a result, opportunities exist for segmenting markets based on such differences in 'usage occasions.'   For example, airlines have segmented their market into usage occasion segments consisting of people flying for business purposes (business flyers), vacation flyers, and people flying primarily for family reasons. Each segment represents a different usage occasion and each is targeted with different pricing and promotional strategies. Frequent-flyer programs are geared to business travelers to encourage airline loyalty. Super-low fares tied to advanced booking are used to attract vacation travelers and people flying primarily for family reasons. Cooperative promotional programs with travel agencies, destination resorts, and cruise-lines are commonly employed to provide reduced rates in travel markets.

Food products markets also are commonly segmented by usage occasion.  For example, orange juice has traditionally been promoted as a breakfast drink. In an attempt to build additional demand for orange juice, the orange-grower's trade associations  promote the consumption of orange juice at other times of the day. Orange juice is promoted as an afternoon snack or as a 'pick-me-up.' wpe8.jpg (14554 bytes)Appropriately, the theme was "its not just for breakfast anymore." Coke has done basically the same thing. We all are aware that colas (e.g. Coke and Pepsi) are consumed during morning hours as a substitute for coffee.  Most colas have a fairly high caffeine content and can give you the same caffeine boost as does coffee as an aid to waking up. This is a particularly attractive alternative for folks that do not like the taste of coffee. Coke, of course, has long recognized this and offers a promotional campaign to its local bottlers called "Coke in the Morning." Pepsi has experimented with a dedicated product geared to this usage occasion segment. The product was branded as Pepsi AM during test market.  The product was a very potent version of Pepsi laced with extra caffeine and sugar. [2]

Product User Status

Marketers employing this segmentation base attempt to identify differences between non-users, potential users, regular users, ex-users, and first-time users of products.  Larger firms with substantial market share often target non-users or potential users in an attempt to stimulate primary demand for the product category.  Smaller firms, in contrast, target regular users in an attempt to encourage brand switching.[3]  Marketers try to differentiate between users and non-users of product categories when consumer characteristics are tied to the need for the product itself rather than to the use of different brands.  For example, consumers' characteristics associated with drinking decaffeinated coffee and using analgesic pain relievers may correlate most highly with the characteristics of the product category, rather than reflect the specific differences between brands. 

Brand Loyalty Status

Firms can learn a lot by analyzing the loyalty patterns of customers in markets.  By finding the characteristics of loyal and non-loyal customers for their brand and those of major competitors, firms can find ways to keep their customers loyal and attract non-loyal customers away from competitors.  Brand loyalty often is defined based solely on consumers' patterns of repeat purchase behavior.  For example, consumers buying the same brand five times in a row has been defined as brand loyalty[4] or as the proportion of total purchases within a given product category devoted to the most frequently purchased brand.[5]  A problem with such definitions is that repeat purchase patterns may reflect only a spurious loyalty with little attitudinal attachment to the brand.  Such spuriously loyal consumers can easily be induced to switch to other brands via better prices, coupons, point-of-sale visibility and incentives.[6] 

Segments Based on Consumer Predispositions

Markets can be segmented based on differences in consumers' wants, needs, and attitudes. We've already examined in our health club study the value inherent in creating 'benefit segments' that focus on different wants and needs held by consumers in each segment. Additional predispositions also can lead to meaningful segmentation schemes.  Markets can be segmented based on how knowledgeable people are of a particular product category.  Different promotional programs may be required to communicate with those who know little about the product versus those who don't.

Sometimes marketers may want to differentiate between customers who have experienced specific types of problems with products or brands versus those who have not.  It is possible that customers who frequently encounter problems of specific types may have a common set of characteristics that can suggest how the problem should be addressed.  

Segmenting markets based on consumers' media viewing habits may reveal consistent differences in the types of media consumers prefer (i.e. preferences for specific television shows, radio stations, magazines, and newspapers) and how these differences vary with key customer demographic and psychographic traits.  This information then can be used to more effectively target advertising and other communications to customer groups.

1Adopted from Charles Lamb, Joseph Hair, and Carl McDaniel, Marketing 4th. Ed. (Cincinnati, OH: South-Western College Publishing, 1998), p.215.

2Robert M. McMath, "The Perils of Typecasting," American Demographics (February 1997), p. 60.

3Philip Kotler and Gary Armstrong, Principles of Marketing, 4th Ed., (Englewood Cliffs, NJ: Prentice-Hall, 1989), p. 224.

4George Brown, "Brand Loyalty -- Fact or Fiction?" Advertising Age (June 19, 1952), 53-55.

5Ross M. Cunningham, "Brand Loyalty -- What, Where, How Much?" Harvard Business Review, Vol. 34 (January-February 1956), 116-128.

6Georgy S. Day, "A Two-Dimensional Concept of Brand Loyalty," Journal of Advertising Research, Vol. 9 (September 1969), 29-35.

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Page last modified: February 06, 2002