A general knowledge of buying behavior is useful condition, but a company with a product to sell needs more specific information. The marketer's job is to winnow those most likely to buy from the universe of potential customers. A company that has identified these target markets and pinpointed their specific needs can then tailor its products and promotion. For example, as owner of the office supply store, you might decide to forgo the consumer market and focus instead on industrial business - a more concentrated target market that purchases supplies in larger quantities. You might further decide to cater primarily to small professional offices within a five-mile radius of your store. Having made this decision, you can concentrate your efforts on a product line and sales effort that suits your target market.
Market segmentation, basically an exercise in classification, is an attempt to group potential customers according to some useful characteristic that will lead to better marketing decisions. The four most common bases for segmenting the consumer market are geographic, demographic, behavioristic, and psychographic; to some extent, these same approaches may be applied in industrial markets as well.
Although some products and markets lend themselves more to one type of segmentation than another, most can be segmented in a variety of ways. For example, the table below illustrates some possibilities for segmenting the toothpaste users' market, all of which might be useful; it is also possible that geographic segmentation would work. In general, the more ways one looks at a market, the better the marketing approach becomes. A single product or company cannot be all things to all customers, however. After looking at the overall market from as many different angles as possible, a company must eventually narrow its focus to those few target segments that it can serve best. E. T. Wright, for instance, targeted affluent customers in two age groups.
Market segmentation – division of market into subgroups.
Approaches to Segmentation the Toothpaste Market
M A R K E T S E G M E N T
Motive for buying
High autonomy, value oriented
Brands on sale
Teens and young adults
High sociability, active
Macleans, Ultra Brite
High self-involvement, hedonistic
Potential customers in different locations often have special needs or wants. When those sorts of differences are important, it makes sense to segment the market geographically. A clothing manufacturer, for example, needs to produce and market heavier coats for people living in North Dakota than for those living in Louisiana.
That clothing manufacturer would also be interested in knowing if the market for heavy winter clothes is shrinking because the population is shifting to warmer areas. If so, production of heavy coats could gradually be cut back, and lighter-weight product lines could be developed. Similarly, a restaurant franchiser would want to sell more franchises in the flourishing Southwest than in the North Central states, whose population has declined in recent years. In the past couple of decades, geographic trends like this have become a significant factor in market segmentation.
Americans are among the most mobile people in the world. According to the U.S. Census Bureau, about 18 percent of the population change their residence every year. Many of these moves are local, but almost 9 million people a year move from one state to another.
GEOGRAPHIC SEGMENTATION IN CONSUMER MARKETS. Many types of consumer products lend themselves to geographic segmentation. More snow shovels are bought in Detroit than in Miami, and more surfboards in Honolulu than in Manhattan.
Raid insecticides, made by S. C. Johnson & Sons, are other consumer products that lend themselves to geographic segmentation, because bugs vary from region to region. With the help of a computer system that analyzes insect patterns around the country, S. C. Johnson has learned which cities are prone to fleas (Tampa and Birmingham) and which are plagued by roaches (Houston and New York). The company promotes its products accordingly. After implementing geographic segmentation, S. C. Johnson increased its share of the U.S. insecticide market from 40 to 45 percent.
GEOGRAPHIC SEGMENTATION IN INDUSTRIAL MARKETS Companies that deal in industrial products might also segment the market geographically, perhaps because geography affects their competitive advantage. For example, a cement company would have a cost advantage in the local market, because it would not incur the expense of shipping a heavy product a long way. The cement company would be at a clear disadvantage the farther it went from home. The target market for a company like this would be local businesses; it would solicit distant customers only if its product could be differentiated enough to compensate for higher freight costs.
An industrial market might also be segmented geographically if customers' needs were affected by their location. For example, a company selling irrigation equipment might find that wheat farmers in Colorado have needs different from those of avocado growers in California.