Segmentation (AQA GCSE Business): Revision Notes

Market segmentation

What is market segmentation?

Market segmentation is a crucial marketing strategy where businesses choose to focus on a smaller part or segment of the market rather than trying to sell to everyone. Instead of attempting to appeal to the entire market population, businesses identify specific groups of potential customers and concentrate their efforts on meeting the needs of these targeted segments.

This approach allows businesses to gain a competitive advantage and develop expertise in serving particular customer groups. By understanding what specific segments want, companies can position themselves more effectively against competitors and build stronger relationships with their chosen customers.

Benefits of market segmentation

When businesses implement market segmentation strategies, they can enjoy several significant advantages that help them compete more effectively in the marketplace.

Better matching of customer needs	Better opportunities for growth	More effetive promotion	Gain a higher share of the market
Customer needs differ; creating separate products for each segment provides customers with a better opportunity to buy products that meet their specific needs; this will increase sales	Market segmentation can build sales, for example customers can be encouraged to "trade-up" after being introduced to a particular product with an introductory, lower-priced product	By segmenting markets the target customers can be reached more often and at lower cost, as there is less waste in the promotion used	Through careful segmentation and targeting, businesses can often become the market leader, even if the market is small

Better understanding of customer needs

Different customer segments have unique requirements, preferences, and expectations. When businesses create separate products or services for each segment, they can provide customers with exactly what they're looking for. This tailored approach means customers are more likely to find products that meet their specific needs, which naturally leads to increased sales and customer satisfaction.

Enhanced opportunities for growth

Segmentation opens up new pathways for business expansion. Companies can use strategies like "trade-up" approaches, where they first attract customers with introductory, lower-priced products and then encourage them to purchase more expensive items from their range. This method helps build customer relationships gradually while increasing the value of each customer over time.

More efficient promotional activities

When businesses know exactly who their target customers are, they can design marketing campaigns that speak directly to those specific groups. This focused approach means less money is wasted on advertising to people who aren't interested in the product. Marketing messages become more relevant and effective, resulting in better returns on promotional spending.

Increased market share

Through careful segmentation and targeted marketing, businesses can often become market leaders within their chosen segments, even if the overall market is relatively small. By focusing their resources and expertise on specific customer groups, companies can dominate particular niches and build strong competitive positions.

Ways to segment the market

There are various methods businesses can use to divide their market into manageable segments. The most popular approach is demographic segmentation, which examines customer characteristics and behaviours.

Gender	Age	Income	Location	Social class
We all know that males and females demand different types of the same product; great examples include the clothing, hairdressing, magazine, toiletries and cosmetics markets	Businesses often target certain age groups; good examples are toothpaste, look at the variety of toothpaste products that are available to buy that target children and adults, and toys, for example pre-school, age 5-9, age 10-12, teenagers and family!	Many companies target rich consumers with luxury goods, for example Lexus, Bose. Other businesses focus on products that appeal directly to consumers on low incomes, for example Aldi and Lidl that are discount grocery stores and fast-fashion retailers such as TK Maxx and Primark	Another approach is known as geographic segmentation, which will divide the market up by area. This could be as wide as a country or continent, for example the "European market", but for some small businesses it could just be the local town or village, which usually relates to small service businesses such as shops and cafes	Many businesses believe that a consumers "perceived" social class influences their preferences for cars, clothes, home furnishings, leisure activities and other products and services

Gender-based segmentation

Men and women often have different preferences for similar products, creating natural market segments. This is particularly evident in industries like clothing, personal care, magazines, and cosmetics.

Age-based targeting

Businesses frequently target specific age groups because different generations have distinct needs and preferences. The toothpaste industry illustrates this well - manufacturers create different formulations for children, teenagers, adults, and elderly customers.

Income-level segmentation

Companies often design products and services for different income brackets. Luxury brands like Lexus and Bose target affluent consumers who can afford premium products with higher prices and exclusive features. Conversely, businesses like Aldi, Lidl, TK Maxx, and Primark focus on cost-conscious consumers by offering good value products at competitive prices.

Geographic segmentation

Location-based segmentation divides markets by geographical areas, which can range from broad regions like "the European market" to very specific local areas such as particular towns or neighbourhoods. This approach is especially useful for small service businesses like local shops, cafes, and service providers who primarily serve customers in their immediate vicinity.

Social class considerations

Many businesses recognise that customers' perceived social class influences their purchasing decisions. This affects preferences for cars, clothing, home furnishings, leisure activities, and various other products and services. Companies often position their brands to appeal to specific social groups through pricing, packaging, and promotional strategies.

Limitations of market segmentation

While market segmentation offers many benefits, businesses should also be aware of potential challenges and drawbacks that can affect the success of their segmentation strategies.

Unpredictable consumer behaviour

Human behaviour is complex and constantly changing, making it challenging to predict how different segments will respond to products and marketing messages. Consumer attitudes and lifestyles can shift dramatically over time - for instance, the "grey generation" (people over 50) has changed significantly in recent years, adopting new technologies and lifestyle patterns that differ greatly from previous generations.

Difficulty reaching identified segments

Identifying a market segment is only the first step - businesses must then find effective ways to communicate with and reach these customers. Some segments may be difficult to access through traditional marketing channels, requiring innovative approaches to connect with target customers and inform them about products or services.

Mass market ambitions

Some large businesses prefer not to limit themselves to specific segments because they have global ambitions and want to appeal to as many customers as possible. Companies in industries like soft drinks and fast food often aim to attract virtually everyone, as seen with businesses like Coca-Cola and McDonald's. Tesco is another example of a company that attempts to serve almost all market segments rather than focusing on just one particular group.