Market segmentation involves dividing a market into parts that reflect different customer needs and wants.

STP model

  • Segmentation
  • Targeting
  • Positioning

What is market segmentation?

The process of splitting the market into different demographics to help gauge where customer needs and wants.

Behavioural Segmentation

Analysing a market based upon factors such as habits like purchase frequency, method of purchase and other characteristics.

Geographic Segmentation

Defining market categories based upon where people live. Looks at different sizes of regions. IE clothing companies may look at the colder regions of the UK to sell their warm clothing, whilst a farming goods company might look at regions with the highest agricultural activity.

Demographic Segmentation

Splitting the market based upon the traits of the population. This could be anything from age to religion, gender, race, education.

Cons of market segmentation

  • Can encourage companies to ignore some of their potential customers
  • It can be difficult to break the market into obvious segments
  • It can be difficult to know certain demographics
  • Companies could miss out on wider ranges of opportunities

Pros of market segmentation

  • Advertising can be targeted at specific market segments
  • Least profitable markets can be avoided
  • It becomes easier to identify gaps in the market for new firms
  • It helps the firm to improve existing products and customer service

3 characteristics that could be used in demographic segmentation

  • Age
  • Education
  • Income

Income segmentation groups

A—higher managerial such as chief executives and directors B—Intermediate managerial such as solicitors, accountants and doctors C1—Supervisory, clerical or junior professional such as teachers and junior managers C2—Skilled manual such as plumbers, electricians and junior managers. D—Semi and unskilled workers such as refuse collectors and window cleaners E—Pensioners, casual workers, students and unemployed.

Segmentation Methods

  • Demographic
  • Geographic
  • Income
  • Behavioural

Market Size: The volume of sales for a product

Brand: A name, sign, symbol, design or slogan linked to a particular product or service

Primary market research: The collection of data on a first hand basis

Market Mapping: Various market conditions that are plotted on a map.