Basic Marketing Concepts Chapter 2 Section 2.2 – Market Segmentation

Definition Market Segmentation is a way of analyzing a market by specific characteristics in order to create a target market.Market Segmentation is a way of analyzing a market by specific characteristics in order to create a target market. Think about the widget company from before, once the owner decides what, where, and how he’s going to make and distribute his widgets, he needs to know who has a need for them?Think about the widget company from before, once the owner decides what, where, and how he’s going to make and distribute his widgets, he needs to know who has a need for them? By using market segmentation to define our target market we can really focus all our promotional activitiesBy using market segmentation to define our target market we can really focus all our promotional activities.

How do we Segment a Market? There are 4 ways to categorize potential customersThere are 4 ways to categorize potential customers –Demographics –Psychographics –Geographics –Product Benefits

Demographics Refers to statistics that describe a population in terms of personal characteristics. These include age, gender, income, ethnicity, education, and occupation.Refers to statistics that describe a population in terms of personal characteristics. These include age, gender, income, ethnicity, education, and occupation. –Its is important to understand the attributes of your target market, so you can focus your promotional dollars at the right group of people. Ex: You wouldn’t advertise BMW’s to low income teenagers.Ex: You wouldn’t advertise BMW’s to low income teenagers. Ex: You wouldn’t advertise Barbie dolls to everyoneEx: You wouldn’t advertise Barbie dolls to everyone Could also include fitness level, language spoken, or religious affiliationsCould also include fitness level, language spoken, or religious affiliations

Age Age is a key characteristic to consider. Many products are age sensitive.Age is a key characteristic to consider. Many products are age sensitive. –Ex: Health products to older adults Age is often broken down by generations. People from the same generation were born between a certain set of years, and commonly share similar values, lifestyles, cultural knowledge and experiences.Age is often broken down by generations. People from the same generation were born between a certain set of years, and commonly share similar values, lifestyles, cultural knowledge and experiences.

Generations Baby Boom Generation 76 million Americans were born between million Americans were born between Most baby boomers are in there 50’s and 60’sMost baby boomers are in there 50’s and 60’s They are at the peak of their earning incomeThey are at the peak of their earning income They are great targets for luxurious and recreational productsThey are great targets for luxurious and recreational products Ex: My parents

Generations Generation X 40 million Americans were born between million Americans were born between Grew up during a time of widespread mediaGrew up during a time of widespread media They are considered savvy and skeptical consumersThey are considered savvy and skeptical consumers Reaching this group is achieved by using sharp images, music, humor, and a little irreverence.Reaching this group is achieved by using sharp images, music, humor, and a little irreverence. Ex: Ms. Galli (1973)

Generations Generation Y 77 million Americans were born between million Americans were born between Grew up in a computer worldGrew up in a computer world Extremely savvy with technology and used to doing multiple things at a timeExtremely savvy with technology and used to doing multiple things at a time Young people have a huge amount of influence over parents purchasing decisionsYoung people have a huge amount of influence over parents purchasing decisions Marketers want to get kids hooked early and influence buying decisionsMarketers want to get kids hooked early and influence buying decisions Ex: All of you!

Gender Surprisingly few products today are marketed to solely women or men.Surprisingly few products today are marketed to solely women or men. –Ex: Women buy men’s cologne and clothing all the time. Frequently, advertisements for these products are targeted at a female demographic. –Ex: Men buy flowers or jewelry for women as romantic gifts. –Ex: schick razors with women stealing razors from men or vice versa. It’s important to remember the distinction between the customer and the consumer.It’s important to remember the distinction between the customer and the consumer.

Income Level Marketers look at two types of incomeMarketers look at two types of income –Disposable income: is the money left after taking out taxes. –Discretionary income: is the money left after paying for basic living necessities such as food, shelter, and clothing. Teenagers income is usually discretionary. Good ol’ Mom & Dad.Teenagers income is usually discretionary. Good ol’ Mom & Dad.

Ethnic Background The U.S. is the Great Melting Pot.The U.S. is the Great Melting Pot. –African, Hispanic, and Asian Americans make up 28% of the population. –Marketers reach them using targeted ads on places like Spanish TV, BET or magazines like Ebony and Black Enterprise. –Ethnicity and culture has a huge impact on purchasing decisions. Marketers have to understand all of the cultures in the U.S. in order to be successful.

Ethnic Background 2000 Census

Ethnic Background African Americans make up 12.2% of the U.S. population and spend around 400 billion dollars a year.African Americans make up 12.2% of the U.S. population and spend around 400 billion dollars a year. Many marketers use ethnically targeted magazines to reach the African American demographicMany marketers use ethnically targeted magazines to reach the African American demographic For this market it’s important that businesses go beyond selling and try and provide community support.For this market it’s important that businesses go beyond selling and try and provide community support. –Ex: Putting a community garden in a poor neighborhood –Ex: Supporting NAACP or the Unite Negro College Fund

Ethnic Background Hispanic Americans represent over 11% of the population and in 2003 surpassed African American’s as the largest ethnic group.Hispanic Americans represent over 11% of the population and in 2003 surpassed African American’s as the largest ethnic group. This is a difficult group to categorize since they come from 21 different nations.This is a difficult group to categorize since they come from 21 different nations. –Ex: Mexico, Honduras, Puerto Rico… Family oriented with larger families than the average U.S. householdFamily oriented with larger families than the average U.S. household.

Ethnic Background Asian Americans represent 4% of the population.Asian Americans represent 4% of the population. Fastest growing, highly educated and most affluent group.Fastest growing, highly educated and most affluent group. Very diverse with people from different Asian NationsVery diverse with people from different Asian Nations Native language advertising helps as many Asian Americans speak their native language in home and social situations.Native language advertising helps as many Asian Americans speak their native language in home and social situations.

Psychographics Categorizing people based on social and psychological characteristics.Categorizing people based on social and psychological characteristics. Consumers’ attitudes, value system, and lifestyle.Consumers’ attitudes, value system, and lifestyle. Trends are also important to look at. People start placing value on new things like eating healthy, being independent, or being more casual in the workplace.Trends are also important to look at. People start placing value on new things like eating healthy, being independent, or being more casual in the workplace. Are people’s desires in line with their means?Are people’s desires in line with their means? –Ex: people want luxury, even if they can’t truly afford it.

Geographics Segmenting the market based on where people live.Segmenting the market based on where people live. –Ex: local, regional, national, or global markets. –Ex: Small town restaurant – local –Ex: Coca Cola – International Using ethnicity you can look at location by the concentration of a particular ethnic group.Using ethnicity you can look at location by the concentration of a particular ethnic group. The trend in the U.S. has been for people to move South, West, or Southwest. There is huge growth in places like Nevada, Arizona, Colorado, Georgia, and Idaho.The trend in the U.S. has been for people to move South, West, or Southwest. There is huge growth in places like Nevada, Arizona, Colorado, Georgia, and Idaho. Marketers also have to consider people in a specific regions likelihood to use certain products.Marketers also have to consider people in a specific regions likelihood to use certain products. –Washington – Umbrellas –California/Florida – Surfboards

Product Benefits Often potential customers are separated by the features they are looking for.Often potential customers are separated by the features they are looking for. –Ex: Shampoo comes in multiple styles; w/ conditioner, scented, dry scalp, oily hair, thick hair, etc.. Often products have several appealing features and need to be marketed in different ways.Often products have several appealing features and need to be marketed in different ways. –Ex: To one person an Audi might be fast and luxurious, while to another the safety of passengers is paramount.