Market Segmentation (With Real World Examples) | From A Business Professor

Business School 101

27 Nov 202211:08

Summary

TLDRThis video discusses market segmentation, a strategy used by companies to target specific customer groups based on shared needs and behaviors. It outlines four main types: demographic, geographic, behavioral, and psychographic segmentation. The video also explains the steps for implementing segmentation, including market definition, research, and strategy testing. Additionally, it highlights the benefits like increased efficiency, stronger brand loyalty, and better targeted advertising, while addressing limitations such as higher costs, complex product lines, and reliance on data. The video provides a comprehensive guide for businesses looking to refine their marketing efforts.

Takeaways

🔍 Market segmentation involves grouping potential buyers based on common needs and responses to marketing actions.
🏠 Demographic segmentation is one of the most common forms, grouping consumers based on observable characteristics such as age, gender, income, and education.
📍 Geographic segmentation divides the market by location, helping businesses understand customer needs in specific areas like country, climate, and population density.
🛍️ Behavioral segmentation focuses on customer behaviors, including purchasing habits, usage patterns, and responses to marketing efforts.
🧠 Psychographic segmentation analyzes the psychological aspects of consumers, including personality, values, beliefs, and lifestyles.
🛠️ Implementing market segmentation involves five steps: defining the market, segmenting the market, understanding it through research, creating customer segments, and testing marketing strategies.
🎯 Market segmentation offers several benefits such as increased resource efficiency, stronger brand image, greater potential for brand loyalty, market differentiation, and better-targeted digital advertising.
💰 A major limitation of market segmentation is higher upfront marketing expenses due to the need for detailed customer data and research.
🌀 Segmentation can lead to increased product line complexity, as companies may overly cater to specific segments, fragmenting their product offerings.
⚠️ Market segmentation depends on accurate data, and assumptions about shared needs within a segment can lead to misidentifying customer motivations or trends.

Q & A

What is market segmentation?
-Market segmentation is a marketing strategy that involves dividing prospective buyers into groups or segments based on shared needs and behaviors, which allows companies to target these segments more effectively.
Why is market segmentation important for companies?
-Market segmentation is important because it enables companies to target specific categories of consumers more precisely, improving marketing efficiency, fostering brand loyalty, and enhancing differentiation from competitors.
What are the four primary types of market segmentation?
-The four primary types of market segmentation are demographic segmentation, geographic segmentation, behavioral segmentation, and psychographic segmentation.
What factors are included in demographic segmentation?
-Demographic segmentation includes factors such as age, sex, marital status, family size, occupation, education level, income, race, nationality, and religion.
How does geographic segmentation work?
-Geographic segmentation divides a market based on location, such as country, state, or zip code, and may also consider climate, population density, and whether the area is urban, suburban, or rural.
What is an example of behavioral segmentation?
-An example of behavioral segmentation is dividing customers based on their purchasing habits, such as offering weekend discounts to users of a ride-sharing app who typically only use the service during weekdays.
How does psychographic segmentation differ from demographic segmentation?
-Psychographic segmentation deals with mental and emotional characteristics like personality traits, interests, beliefs, values, and lifestyles, whereas demographic segmentation focuses on observable, people-based differences like age or income.
What are the benefits of market segmentation for a company?
-The benefits of market segmentation include increased resource efficiency, stronger brand image, greater potential for brand loyalty, improved market differentiation, and better-targeted digital advertising.
What are the limitations of market segmentation?
-The limitations of market segmentation include higher upfront marketing expenses, increased product line complexity, a greater risk of misassumptions, and a reliance on reliable data for accurate targeting.
What are the five steps to effectively implement market segmentation?
-The five steps to implement market segmentation are: 1) Define your market, 2) Segment your market, 3) Understand your market through research, 4) Create customer segments, and 5) Test your marketing strategy.

Outlines

00:00

🚗 Market Segmentation in the Automotive Industry

This paragraph discusses how different auto manufacturers target specific customer groups. For instance, Toyota focuses on middle-income buyers with an emphasis on value for money, durability, safety, and reliability, while Mercedes-Benz appeals to upper-class customers seeking luxury, style, and status. Market segmentation helps companies like these focus on the customer groups most likely to purchase their products or services. The concept of market segmentation is introduced, and questions regarding its implementation, types, benefits, and limitations are raised.

05:01

📊 What is Market Segmentation?

Market segmentation is defined as a process where prospective buyers are grouped based on shared needs and responses to marketing actions. This approach allows businesses to target different consumer categories more effectively by acknowledging that consumers perceive the value of products or services differently. It helps companies cater to diverse customer groups and meet specific needs in a more targeted manner.

10:03

👥 Types of Market Segmentation

There are four main types of market segmentation: demographic, geographic, behavioral, and psychographic. Demographic segmentation divides consumers based on observable differences such as age, gender, income, and education level. Geographic segmentation focuses on a customer’s location, and behavioral segmentation looks at patterns such as purchasing habits and customer loyalty. Psychographic segmentation explores mental and emotional characteristics like values, interests, and lifestyles. Each segmentation method provides unique insights into consumer behavior.

👶 Demographic Segmentation Explained

This paragraph elaborates on demographic segmentation, one of the most common forms of market segmentation. It involves categorizing audiences based on characteristics such as age, gender, income, education, and occupation. This information is relatively easy to obtain and low-cost, making it an attractive option for many companies. An example includes companies marketing personal care products differently to men and women. Data collection methods such as surveys, second-party, and third-party data providers are also mentioned.

🌍 Geographic Segmentation

Geographic segmentation divides consumers based on their location. By understanding where a consumer lives, companies can tailor ads and marketing efforts to suit specific geographic needs, such as climate or population density. For example, clothing companies can promote warmer clothing to customers in colder regions and vice versa. Geographic segmentation can also account for whether customers live in urban, suburban, or rural areas.

🔄 Behavioral Segmentation

Behavioral segmentation focuses on how consumers interact with a product, brand, or service, identifying patterns such as purchasing behavior, occasion-based purchases, and customer loyalty. Examples include offering discounts based on usage patterns or recognizing life milestones like buying a home or getting married. This type of segmentation can be highly effective in understanding customer motivations and enhancing user engagement by tailoring offers to specific behaviors.

🏅 Customer Loyalty Programs

This paragraph highlights customer loyalty and retention as key components of behavioral segmentation. Many companies use rewards programs to foster loyalty, such as offering a free product after several purchases. The goal is to treat loyal customers as royalty, ensuring long-term engagement and repeat business. By recognizing and rewarding loyal customers, businesses can encourage continued patronage and brand advocacy.

🧠 Psychographic Segmentation

Psychographic segmentation examines mental and emotional factors such as lifestyle, interests, values, and personalities. This type of segmentation goes beyond demographics by considering how consumers think and what motivates them. For example, luxury brands target specific social classes, offering highly customized products, while the organic food industry targets health-conscious consumers who prioritize wellness. Psychographic insights help brands craft marketing strategies that resonate deeply with target audiences.

📈 Steps to Implement Market Segmentation

Implementing market segmentation effectively requires five steps: (1) Define the market by identifying demand for products and services, (2) Choose which segmentation criteria to apply, (3) Conduct research through surveys or focus groups, (4) Create customer segments by analyzing the data, and (5) Test the marketing strategy with conversion tracking to see which segments respond best. Adjustments may be needed based on performance and results.

🎯 Benefits of Market Segmentation

Market segmentation offers several advantages: (1) Increased resource efficiency by focusing efforts on key demographics, (2) Stronger brand image through targeted messaging, (3) Greater potential for customer loyalty by personalizing interactions, (4) Stronger market differentiation by highlighting unique product features, and (5) More effective digital advertising by tailoring ads based on user data such as age or location.

⚠️ Limitations of Market Segmentation

Despite its advantages, market segmentation has some limitations. High initial marketing costs are required to gather the necessary data. Additionally, focusing too much on specific segments can lead to product line complexity, and assumptions based on demographics can lead to misidentifying customer needs. Finally, the effectiveness of segmentation heavily depends on the quality of the data used, and shifting market trends require continuous reassessment.

👋 Conclusion and Closing Remarks

The video concludes with a recap of the topic and an invitation for viewers to ask questions in the comments. The speaker thanks the audience for watching, encourages them to like the video and subscribe, and promises to see them in the next video.

Mindmap

Keywords

💡Market Segmentation

Market segmentation is the process of dividing a broad consumer or business market into sub-groups of consumers based on shared characteristics. In the video, it is explained as a way for companies to identify and target specific groups of potential customers, allowing them to tailor their marketing strategies to the needs and desires of these groups. For example, Toyota targets middle-income customers by emphasizing durability and value for money, while Mercedes-Benz focuses on upper-class drivers by promoting luxury and social status.

💡Demographic Segmentation

Demographic segmentation refers to dividing a market based on observable characteristics such as age, gender, income, education, or occupation. The video describes this as one of the most common types of segmentation, where companies like personal care brands differentiate products for men and women. This allows marketers to target groups that are more likely to be interested in their products or services based on these demographic factors.

💡Geographic Segmentation

Geographic segmentation involves dividing a market based on location, such as country, region, or city. This type of segmentation helps companies address the specific needs of customers in different areas. For example, the video mentions that clothing companies may show ads for warm clothes to customers in colder climates and lighter clothes for customers in warmer regions. Geographic data can also include details like population density and climate.

💡Behavioral Segmentation

Behavioral segmentation focuses on consumers' behaviors, such as how they use a product, their purchasing patterns, or their loyalty to a brand. The video uses the example of a ride-sharing app offering discounts to customers who typically don’t use the service on weekends, based on their usage behavior during weekdays. Understanding these behavior patterns allows companies to better target their marketing efforts.

💡Psychographic Segmentation

Psychographic segmentation divides the market based on lifestyle, personality, values, and attitudes. Unlike demographic segmentation, which focuses on external factors, psychographic segmentation deals with internal characteristics. The video provides examples of luxury brands like Louis Vuitton and Hermes targeting customers with certain lifestyles and social statuses, as well as the organic food industry appealing to health-conscious consumers.

💡Customer Loyalty

Customer loyalty refers to a consumer's likelihood to continue purchasing from a brand over time. The video highlights this as part of behavioral segmentation, where companies implement rewards programs to retain loyal customers. For instance, a rewards program might offer a 'buy nine, get the 10th free' incentive, encouraging repeat purchases and fostering long-term brand loyalty.

💡Purchasing Behavior

Purchasing behavior refers to the decision-making process consumers go through when buying a product or service. The video explains this concept in relation to behavioral segmentation, focusing on patterns such as the time of day or year when purchases are made. For example, it mentions 'occasion purchasing,' where customers might make specific purchases during life events (e.g., engagement rings) or seasonal occasions (e.g., holiday gifts).

💡Benefits Sought

Benefits sought refers to the specific advantages or value that customers seek when they choose a product or service. In the video, this is part of behavioral segmentation, where different customers may prioritize different features of a product, such as convenience or experience. For example, Starbucks customers might be drawn to the ease of ordering through the app, while others may value the in-store experience.

💡Brand Loyalty

Brand loyalty is the extent to which customers consistently purchase the same brand over time, often due to satisfaction and positive experiences. The video emphasizes that market segmentation can enhance brand loyalty by enabling companies to create more personalized marketing strategies, fostering a sense of connection with their customers. For example, companies often use loyalty programs to reward repeat customers and build lasting relationships.

💡Market Differentiation

Market differentiation refers to the process of distinguishing a brand or product from its competitors. The video explains that segmentation helps companies clearly convey what makes their offerings unique. For example, Toyota differentiates itself by emphasizing durability and reliability, while Mercedes-Benz focuses on luxury and status. Differentiation is essential for creating a strong brand identity and appealing to specific market segments.

Highlights

Toyota targets middle-range income customers, emphasizing durability, quality, safety, and reliability.

Mercedes-Benz appeals to upper-class drivers, focusing on luxury, style, and social class as a status symbol.

Market segmentation allows companies to focus on specific customer groups that are most likely to become satisfied customers.

Market segmentation refers to aggregating prospective buyers into segments with common needs and similar responses to marketing actions.

Demographic segmentation divides markets based on observable factors like age, sex, income, and education, which are easy to gather and analyze.

Geographic segmentation uses a customer’s location to tailor marketing strategies, such as sending ads based on climate or population density.

Behavioral segmentation analyzes customer behavior patterns, like usage, loyalty, and purchasing habits, to optimize marketing efforts.

Occasion purchasing is a subset of behavioral segmentation that looks at when customers make purchases, such as daily coffee runs or life milestones like engagements.

Psychographic segmentation explores mental and emotional factors, such as personality traits, lifestyles, beliefs, and values.

Luxury brands like Louis Vuitton use psychographic segmentation to target consumers based on social status and lifestyle preferences.

Implementing market segmentation involves defining the market, selecting criteria, conducting research, and creating customer segments.

Testing marketing strategies through customer feedback and conversion tracking helps refine segmentation and boost targeting accuracy.

Market segmentation increases resource efficiency by focusing efforts on targeted groups, leading to cost-effective marketing strategies.

It also strengthens brand loyalty and differentiation by personalizing marketing approaches that resonate with specific customer segments.

However, market segmentation comes with limitations, such as high upfront marketing expenses and the risk of misassumptions about customer needs.