For many products, geographic considerations are less important than other variables. In the cereal market, for example, where a person lives has little bearing on the buying decision, but age is a key factor. Kids like sugar-coated cereals; adults generally prefer unsweetened varieties. For other products, the most important factor in segmenting the market might be buyers' gender, race, religion, education, occupation, or income. Such factors are the subject of demographics, or the statistical analysis of population. Demographic research is one of the basic sources of marketing information.
DEMOGRAPHIC SEGMENTATION IN CONSUMER MARKETS Marketers are especially aware of factors like age and income, which influence a consumer's desire for certain products and ability to pay for them. Of particular interest is disposable personal income, the money that a family is free to spend after taxes have been deducted from total earnings. All families must spend a certain percentage of their disposable personal income on such necessities as food, clothing, and shelter. But the higher a family's income, the more discretionary income it has to spend on nonessentials, such as entertainment, vacation travel, weekend homes, and restaurant dining.
Three market segments defined by age and related demographic characteristics are of particular interest to marketers:
Teenagers. The 26 million Americans in the 13-to-19 age bracket are an important marketing target, even though their numbers are dwindling. Collectively, they spend over $45 billion per year. Furthermore, this group is just establishing its brand loyalties: A teenager who chooses Crest toothpaste today may continue to use it for the next 65 or 70 years.
Where do teenagers get all their money? Most receive an allowance ranging from $12 to $24 per week, but wages are also an important source of teen income. Some 67 percent of teenagers hold jobs; many earn $30 per week or more. Because most of a teenager's living expenses are covered by the family, this money is all available for consumption. And teenagers also spend their parents' money. According to one estimate, teenage girls take care of 40 percent of the family's food shopping, spending $16 billion a year in supermarkets.
Among the industries courting this age group are automakers, food producers, cosmetics firms, clothing manufacturers, computer firms, and credit card companies. General Motors, for example, has launched an advertising campaign aimed at the newly licensed driver. "The young person's first car is an important purchase because he always remembers it," explains Charlene Currey, national advertising manager for Pontiac.
Baby boomers. Another "hot" marketing target is the group of 76 million Americans born between 1946 and 1964, a diverse group that ranges in age from 21 to 40.They include the young marrieds who buy houses, cars appliances, and all the other products needed to run a household and raise a family. They also include the young unmarrieds, a group that has grown steadily as an economic and social force. At the upper income level of this group are the 4.5 million Yuppies (young urban professionals), who make $35,000 a year or more and who set trends in everything from eating patterns to car purchases. Although not all baby boomers are affluent (30 million of them make less than $15,000 a year), they dominate the American economy by the sheer weight of their numbers.
Marketers view this generation, particularly the 25- to 34-year-olds, as a new breed of consumer. For one thing, they are the most educated buying group in American history. Almost half have been to college, and a quarter possesses degrees. Sports are an important part of their lives, as is physical fitness — a trend reflected in the emergence of such publications as Jogging magazine. The baby boomers were raised in the TV generation and are particularly susceptible to broadcast advertising.
One of the things that makes this generation different from its parents is the fact that many more of the women are in the work force. This has created new demands for goods and services. Pressed for time as they try to juggle families and careers, this group is attracted to time-saving devices, such as food processors and microwave ovens. Although many of them cannot afford the home they would like, even on two incomes, they indulge in such affordable luxuries as expensive frozen foods and restaurant meals.
They are eager to live the good life now, while they're young enough to enjoy it. Expensive stereos, VCRs, color TVs, and vacation packages are among their favorite purchases. Because they often buy on credit, baby boomers' spending habits have contributed to a decline in the national savings rate and a rise in total consumer debt.
Over 50s. Another age group currently receiving plenty of marketing attention consists of people over 50. During the next fifteen years, this group will account for an increasing share of the population, as the oldest of the baby boomers mature and as average life expectancy increases.
The 60.2 million people in this category are surprisingly affluent. 77 percent own their own homes; collectively, they control roughly half of all discretionary income available in the United States for nonessential purchases like travel, top-of-the-line merchandise, and financial investments. Unlike the baby boomers, this group has relatively modest day-to-day needs. Their mortgage payments are lower or nonexistent; they have already purchased major appliances and furniture; in many cases, their children are out of college and living away from home.
Many companies are reformulating their products and readjusting their advertising to appeal to those over 50. The cosmetics industry is a case in point. Well-known companies are flooding the market with skin-care formulations designed to counteract the effects of aging, and they are using older models in their ads. One cosmetics company, Germaine Monteil, conducted a nationwide search for a model who could convey the message that older women are glamorous, exciting, and interesting. Their "discovery" was Tish Hooker, a silver-haired interior decorator who is actually under 40.
DEMOGRAPHIC SEGMENTATION IN INDUSTRIAL MARKETS In industrial markets, such demographic characteristics as the customer's industry may be a useful basis for segmentation. For example, both hospitals and automobile companies buy computers, but they need different types of systems. Insurance companies and retailers both buy computer software, but their applications differ. By segmenting the market along industry lines, a computer or software manufacturer could selectively target industries in which it might achieve a competitive advantage.
The customer's size might also be a key demographic factor in industrial market segmentation. For example, a small supplier of industrial chemicals might decide not to bother marketing to large companies whose volume requirements exceed its own production capacity.
Another way to segment a market is to classify customers on the basis of their knowledge of, attitude toward, use of, or response to products or product characteristics. This approach is known as behavioristic segmentation. Imagine that you are in the hotel business. You might classify potential customers according to when and why they stay in hotels, making a distinction between business travelers and vacationers. You could then tailor your services and promotion for one group or the other. The business traveler might be attracted by ads in The Wall Street Journal, and the tourist might respond to ads in People magazine.
You could also think in terms of the benefits your customers might seek. Some travelers, for example, might be interested in price, others in status, service, location, or dependability. You could gear your hotel marketing plan to appeal to each group. Holiday Inns has recently adopted this approach: It I now has budget-priced facilities called Hampton Inns, a high-priced urban hotel called Holiday Crown Plaza, casino hotels called Harrah's, and two suites-only products, Embassy Suites and Residence Inns.
Measurement of the extent to which a product is used provides another behavioristic approach to segmenting both consumer and industrial markets. With this approach, a company divides its market into nonusers, former users, potential users, occasional users, and frequent users. The hotel giant Marriott is using this approach on a $16 million bonus promotion for frequent guests. A variation on this approach is to classify potential customers according to whether they use your product or your competitor's product. This enables you to develop a marketing approach aimed at your competitor's possible weaknesses. Pepsi, for example, has used the "taste challenge" in ads against Coke.
In industrial markets, another behavioristic basis for segmentation is urgency of order fulfillment. Some customers might have regular, predictable purchasing needs; others might need a product less often but more urgently. One supplier of heavy-duty pipe-fittings, for example, specializes in fast-order replacements. Because its customers need special fittings "right now," this company can charge a premium. But in the market for routine replacement fittings, this company has no competitive advantage.
Behavioristic segmentation – categorization of customers according to their relationship with products or response to product characteristics.
Psychographics is a relatively new specialty that characterizes consumers in terms of psychological makeup - their social roles, activities, attitudes, interests, opinions, and lifestyle. Psychographic analysis is particularly useful in marketing because it focuses on why people behave the way they do. In segmenting a market psychographically, you would examine a person's brand preferences, favorite radio and TV programs, reading habits, values, and self-concept.
Perhaps the best-known psychographic study was performed by SRI International, a marketing research firm whose Values and Lifestyle program categorizes each consumer as one of nine types: survivor, sustainer, belonger, emulator, achiever, I-am-me, experiential, societally conscious, or integrated. The "belongers," for example, are a conservative group. According to SRI International, they are "people who want to fit in and not stand out. They're church-and-family oriented." To reach this group, SRI International suggests, you emphasize "brand — brand recognition, brand name. You say you've been around a long time. Features are important to belongers, but they're secondary to brand." Another way to reach belongers is to stress the idea that other people like the product. A typical ad directed to belongers might feature a homemaker doing something nice for her family. The " Jell-O is fun" campaign is a good example.
In industrial markets, which are generally composed of a limited number of buyers, psychographic principles may be used to develop marketing approaches geared to specific types of purchasing agents. For example, some purchasing agents are risk averse - they are reluctant to try new products or take chances on a new vendor. Others are very thorough in their approach to buying; they shop around and compare prices. Still others rely on old friends or past relationships in making purchasing decisions.
Psychographics - classification of customers on the basis of their psychological makeup