Market Segmentation- A framework for determining the right target customers

Defining a target audience

In business it is a matter of being able to communicate your message in a persuasive
way. Companies therefore need to be able to adapt to their target audiences needs,
wants and values (Kotler and Keller, 2009: 253., Larsen, 2010). In order for companies
to do so, they may ask themselves questions like; how the customers are? What do
they buy? And where can they be found? It is not possible for the companies to reach
out to all customers in large, broad, or diverse markets and therefore by dividing the
customers into groups or segment(s), the company can choose which group they wish
to target (Kotler and Keller, 2009: 247., Larsen, 2010).
Kotler and Armstrong define market segmentation as dividing a market into distinct
groups of buyers who have distinct needs, characteristics, or behaviour and who might
require separate products or marketing mixes (Armstrong and Kotler, 2005: 54).
Market Segmentation
The market segmentation is mentioned as being one of the key elements of modern
marketing and is, as mentioned, the process of dividing the market into several groups
and/or segment(s) based on factors such as demographic, geographic, psychological
and behavioural factors (Larsen, 2010). By doing so the marketers will have a better
understanding of their target audience and thus make their marketing more effective
(Gunter and Furnham, 1992: 1). This is due to the fact that by using the analytical
process that puts customers first, the marketer will get more satisfied customers and
thereby gain a great advantage over competitors (Dibb and Simkin, 1996: 3). Market

segments can be characterized in different ways on way is to characterize the

preferences of the target customers; homogeneous preferences, referring to customers
that roughly have the same preferences. (Larsen, 2010) Secondly there are diffused
preferences which mean that the customers vary in their preferences and finally
clustered preferences which mean that the natural market segments emerge from
groups of consumers with shared preferences (Kotler and Keller, 2009: 249.,Larsen,
2010).
It is necessary to briefly mention the three areas of marketing which is to be taken into
consideration when marketing a product especially in market segmentation.
The first area is mass marketing. It covers the area of mass producing, mass distributes
and mass promotes on product to all buyers (Gunter and Furnham, 1992: 2). However,
marketers have realized the great variety in each individual customer and therefore the
market segmentation is a helpful tool for the marketers to customize their marketing
programmes for each individual customer (Dibb and Simkin, 1996: 4).
The second area is product differentiated marketing. The marketer produces two or
more products that display different features, styles, quality, sizes etc. (Larsen, 2010).
The third, and dominating, area is target marketing. The marketer distinguishes among
a variety of market segments, chooses one or more of the segments and then develops
products and marketing mixes customised to each segment (Gunter and Furnham,
1992: 2).

Demographic segmentation
The demographic segmentation

divides customers into segments based

on

demographic values such as age, gender, family size, family life cycle, income,
occupation, education, religion, race, generation, social class and nationality (Armstrong
and Kotler, 2005: 187).
The demographic segmentation is often used in market segmentation for the reason
that the variables are easy to identify and measure. Furthermore the demographic
variables are associated with sale of many products and services and finally they
provide a description of the target customers so media buyers and others can target a
desired target market. (Larsen, 2010).
Each of the variable are useful knowledge when segmenting markets and some of the
above mentioned variables will be elaborated in the following (Gunter and Furnham,
1992: 9).
Age and life-cycle segmentation
The consumers needs and wants change with age. Therefore some companies use
age and life-cycle segmentation, where age and the life-cycle determine the marketing
approach. Marketers using the age and life-cycle segmentation must be careful to guard
against stereotypes. (Armstrong and Kotler, 2005: 188)
Furthermore the age and life-cycle segmentation are associated with behavioural
characteristics and buying patterns. An example of this is a single person who have a
tendency of purchasing new fashionable items due to the fact that they have no other
economic obligations. It is in contrast to married people, who have a large economic

obligation and so they prioritize their budget different (Gunter and Furnham, 1992: 11.,
Larsen, 2010).
Gender segmentation
Gender segmentation is used to differentiate the needs and wants between men and
women due to the fact that men and women have different attitudes toward a product.
The gender segmentation has long been applied in connection with clothing, hairstyling,
cosmetics and magazines. Furthermore, it must be taken into consideration that metro
sexuality has become a common gender-factor and thus the marketers must not only
define a product as being masculine or feminine (Kotler and Keller, 2009: 257., Larsen,
2010).
Income segmentation
Income segmentation divides the market into different income groups. It is used in
automobiles, clothing, cosmetics, financial services and travel. Many companies within
the mentioned categories seek to target the high-income customers. Others seek to
target the customers with a lower income in order to gain consumer loyalty and lessen
the competitive pressures. However, companies must consider the fact that the income
does not always predict the most suitable customers for a given product due to the fact
that some customers may have other preferences and prioritize their money differently
(Kotler and Keller, 2009: 258., Larsen, 2010).
Generation segmentation
Each generation is influenced by the times in which they grow up in, like the music, the
movies, politics and other significant events characteristic of that period. Marketers

therefore market to a generation by using icons and images that is relatable according
to the generation (Kotler and Keller, 2009: 259., Larsen, 2010).
Social class segmentation
Social class segmentation divides the customers according to their preferences in cars,
clothing, home furnishings, leisure activities, reading habits and retailers. However,
although the tastes of social classes changes, many companies design products for
specific social classes (Kotler and Keller, 2009: 260., Larsen, 2010).
In conclusion, the demographic, and the abovementioned variables, approach to
market segmentation assumes that since people can be grouped into certain types of
categories (i.e. age, income, education etc.) they are likely to share the same values
and buying behaviour. (Larsen, 2010).
Geographic segmentation
Larsen said that the geographic segmentation divides customers into segments based
on geographical areas such as nations, states, regions, counties, cities or
neighbourhoods. (Larsen, 2010). A company can target one or more areas and must be
aware of the fact that data according to geographic segmentation may vary due to
population shift (Pickton and Broderick, 2005: 376., Larsen, 2010).
It is important to segment according to geographic, due to the fact that the purchasing
behaviour of the customers are influenced on where they live, work etc. (Gunter and
Furnham, 1992: 5). Therefore many companies customize their products, advertising,
promotion and sales efforts to fit the needs of the geographical variables (Armstrong
and Kotler, 2005: 186).

The geographic segmentation is furthermore useful when there are differences in a

location where a product is marketed. The differences can be caused by cultural factors,
traditions, politics etc. and furthermore the differences can be significant in one
segment, whereas in other segments the differences can be minor and less significant.
(Gunter and Furnham, 1992: 5)
Furthermore, as a result of an increase in the globalisation today the geographic
segmentation has been linked to other differences in socio-economic and demographic
characteristics (Larsen, 2010). The result of this type of segmentation is referred to as
geodemographics (Gunter and Furnham, 1992: 7). The geodemographic segmentation
combines the geographic segmentation with the demographic segmentation and
thereby combines the study of the target customers with where they live (Pickton and
Broderick, 2005: 376). Hence the geodemographic classifies the customers according
to where they live in comparison to the way the social class defines consumers by their
occupation and in that way the companies are more capable of predicting consumer
behaviour (Gunter and Furnham, 1992: 7).
Psychographic segmentation
The psychological variables come from two principal types of customer; personality
profiles and lifestyle profiles (psychographics). Psychological profiles are often used as
a supplement to geographic and demographics when these does not provide a sufficient
view of the customer behaviour. While the traditional geographical and demographical
bases (sex, age, income etc.) provide the marketer with accessibility to customer
segments, the psychological variables provide additional information about these and
enhance the understanding of the behaviour of present and potential target markets

(Gunter and Furnham, 1992: 26., Larsen, 2010). Psychographic segmentation therefore
divides people according to their attitudes, values, lifestyles, interests and opinions
(Pickton and Broderick, 2005: 377).
Behavioural segmentation
Behavioural segmentation is based on the customers attitude toward, use of, or
response to a product. Many marketers believe that the behavioural variables such as
occasions, benefits, user status, usage rate, buyer-readiness stage, loyalty status and
attitude are the best starting points for constructing market segments and thus these
variables will be described further in the following (Kotler and Keller, 2009: 263., Larsen,
2010).
Occasions
Occasions are when the customers are divided into segments based on the time of day,
week, month and year (Kotler and Keller, 2009: 263). People is therefore being grouped
according to the time on which they get the idea to buy, make their purchase or use the
purchased item (Armstrong and Kotler, 2005: 191).
Benefits
Benefit segmentation divides the customers according to the different benefits they may
seek from a product. Benefit segmentation seeks to find the benefits people look for in a
certain product, the kinds of people who look for each benefit and the brands that
deliver each benefit (Armstrong and Kotler, 2005, 194., Larsen, 2010).

Furthermore the benefit segmentation identifies market segments by casual factors

rather than descriptive factors such as e.g. demographics (Larsen, 2010).
User status
By segmenting according to non-users, ex-users, potential users, first-time users and
regular users of a product a company can customize its marketing for each group
(Armstrong and Kotler, 2005: 194).
Where regular users of a certain product request one kind of marketing approach,
potential users may request another kind of marketing approach, and thus it is
necessary to divide the customers into different segments and target them in different
ways (Larsen, 2010).
Usage rate
The usage rate segmentation divides the customers according to how much they use a
product. They are divided into groups of non-users, light, medium and heavy product
users and companies often seek to target one heavy user rather than several light users
(Armstrong and Kotler, 2005: 194). This is due to the fact that the heavy users constitute
a small percentage of the market but account for a high percentage of the total buying
(Gunter and Furnham, 1992: 20). Thus a company should seek to adapt their marketing
strategy according to these customers. However, it should be mentioned that it is of
certain importance not to exclude the non-users, light users and medium users due to
the fact that these users may provide a positive prospect for future expansions (Larsen,
2010).

Buyer-Readiness stage
Buyer-readiness stage refers to peoples awareness and interest of the product. Some
people are unaware of the product, some are aware, some are informed, some are
interested, some desire the product and some intend to buy (Kotler and Keller, 2009:
264). The purpose is to lead the customer along so he or she will purchase the product
in the end.
Thus the company should seek to design their marketing strategy according to these
factors. An example is given by Larsen, people from the USA may have limited
knowledge about a product from the UK. So in order for the product to be successful in
the USA, the company should adapt their marketing strategy according to the limited
knowledge an American may have. (Larsen, 2010).
Loyalty status
A market can also be segmented according to the loyalty of the customers. It is
assumed that customers are always loyal by buying the same product. These
customers are referred to as hard-core loyalist. Other people that are loyal toward two
or three brands and buy these on a random basis are referred to as being split loyalist.
A third group of people are those who shift from one brand to another and staying with
that brand for a period of time until they shift to another brand. These customers are
referred to as shifting loyalist. The fourth and final group of loyalist are those who do not
show loyalty or preference towards one particular brand, but rather buy a product or

brand that is on sale or available at the time of the occasion. These customers are
referred to as switchers (Kotler and Keller, 2009: 264., Larsen, 2010).
Attitude
As a final variable to the behavioural segmentation is attitude toward a product. People
can be divided into segments based on whether they have an enthusiastic, positive,
indifferent, negative or hostile attitude toward a product. (Larsen, 2010).
By considering the customers attitudes toward a brand or product the company will get
a wide-ranging view of the market and its segments (Kotler and Keller, 2009: 265).
By combining the different behavioural variables, it is possible for marketers to get a
view of a market and its segments and thereby the marketer can enhance its targeting
strategies (Kotler and Keller, 2009: 265). Larsen concluded that it is important for the
marketer to recognise the fact that it is not impossible to reach all buyers in all
segments. (Larsen, 2010). This is because the customers are different and have
various needs and purchasing behaviours. The company need to consider the variables
of the concepts within market segmentation which are the demographic segmentation,
the geographic segmentation, the psychographic segmentation and the behavioural
segmentation. Targeting
In the segmentation process the second stage is market targeting. Once the marketer
has identified the segments it must be decided how many and which customer
groups/segments to target. With respect to the decision to which customer groups or
segments to target the company may choose one or a combination of the following
marketing strategies; mass marketing strategy (undifferentiated marketing), single

segment strategy (differentiated marketing) or multi-segment strategy (concentrated

marketing) (Dibb and Simkin, 1996: 15-16., Larsen, 2010).
The question of which segment strategy the company shall choose is dependent on a
number of market, product and competitive factors. Each of these factors must be
considered before deciding on the segment or segments to be targeted. The factors are
the following: existing market/share market homogeneity, product homogeneity, nature
of competitive environment, market trends and the marketing environment, customer
needs, segment size and company resources. (Larsen, 2010).
By considering these above mentioned factors the company can decide on viability of
particular segments and ensure that resources are appropriately targeted (Dibb and
Simkin, 1996: 16).
Positioning
The third and final step in the market segmentation process deals with positioning.
Once the company has identified the segments and chosen which segment or
segments to target the final step is to decide on, what position it wants to occupy in
those segments (Larsen, 2010). Positioning is concerned with how the customers
perceive the products and how it is defined by the customers in order to maximize the
potential benefit to the company. The result is a persuasive reason why the target
market should buy the product or products (Kotler and Keller, 2009: 308., Larsen, 2010).
Larsen also said that customers are not capable of remembering information about
each product and thus the consumers organize the products, services and companies in
their minds in order to simplify the buying process. (Larsen, 2010). This process

happens with or without the help from the companies. However, the companies are not
interested in jeopardizing their products position and therefore it is necessary for the
companies to plan positions to gain advantage to their products in selected target
markets (Armstrong and Kotler, 2005: 208., Larsen, 2010). In order for the company to
achieve a particular product or service positioning, Larsen laid these steps that the
company must follow. These steps are:

Understand what the target customers expect and believe to be most important

when deciding on a purchase.

Develop a product or brand which caters specifically for the customers needs

and expectations.
Evaluate the positioning and images, as perceived by the target customers of

competing products in the selected market segment or segments.

Select a credible image that differentiates from competing brands and products
on the basis of the characteristics of the brand or product, the needs and
expectation of the target customers and their perception of competing brands

positioning.
Communicate with the targeted customers about the product via promotion and
make the product available at the right price. (Dibb and Simkin, 1996: 18)

A successful positioning occurs when the target customers find that the product or
brand satisfies their expectations and desires (Dibb and Simkin, 1996: 17).
In conclusion to the market segmentation process it is necessary to sum up the points
made. When identifying the target customers it is necessary to consider the variables of
the different types of segmentation. These types are the demographic segmentation, the
geographic segmentation, the psychographic segmentation and the behavioural

segmentation. The next step is to evaluate the market segments and decide on which
segments to direct their marketing strategies at. The final step is to position the product
so the product satisfies the target customers expectations and desires. (Larsen, 2010).