DM - Marketing Segmentation

Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally, then, a seller might design a separate marketing program for each buyer. Market Segmentation is the process of dividing a market into distinct groups of buyers who might require separate products and/or marketing mixes, then developing profiles of the resulting segments.

A. There is no single way to segment a market. Marketers may have to try different segmentation variables, alone or in combination, hoping to find the most appropriate view of the market structure. Here, we will look at the major geographic, demographic, psychographic, and behavioristic variables used in segmenting consumer markets.

1. Geographic segmentation calls for dividing the market into different geographic units such as nations, states, regions, counties, cities, or neighborhoods. For example, General Foods’ Maxwell House ground coffee is sold nationally but is flavored regionally. For the lodging companies, Holiday Inn began as a regional motel company out of Memphis, Tennessee. Motel 8 began in Aberdeen, South Dakota, with original appeal to the Midwestern and western market, but expanded well beyond regional boundaries. Hyatt Hotels initiated a program to offer regional dishes on its menus. The Four Seasons Hotel in Washington, D.C., became concerned about offering local cuisine.

2. Demographic segmentation consists of dividing the market into groups based on demographic variables.
a. It is the most popular bases for segmenting customer groups.

• Because consumer needs, wants, and usage rates often vary closely with demographic variables.
• Because demographic variables are easier to measure most other types of variables.

b. Demographic variables include age, gender, family life cycle, income, occupation, education, religion, race, and nationality.

• Age and life cycle stage: consumer needs and wants change with age. Some companies offer different products or marketing strategies to penetrate various age and life cycle segments. For example, McDonald’s offers happy meals that include toys, aimed at young children. American Express focuses much of its marketing attention on the “mature” market. Nevertheless, age and life cycle variables can be misleading. For instance, some customers were not the physiologically young but the psychologically young. Southwest Airlines realized that many senior citizens are psychologically young. Their advertisements for senior fares show active older people enjoying themselves.

• Gender: Currently, women accounted for 40 % of all business travelers. Hotel corporations are now taking women into consideration in designing their hotel rooms. Most effective when combined with lifestyle and demographic information.

• Income: Income alone does not always predict which customers will buy a given product or service. It should combine with other variables. For instance, the St. Moritz on-the-Park Hotel in New York City has combined income and geographical segmentation variables to set its prices. Middle-income consumer is by far the largest segment but is difficult to attract and retain.

3. Psychographic segmentation divides buyers into different groups based on social class, lifestyle, and personality characteristics.

a. Social class: social class has a strong effect on preferences for leisure activities. For example, afternoon tea at the Ritz-Carlton is aimed at the upper-middle and upper classes. A neighborhood pub near a factory targets the working class.

b. Lifestyle: marketers are increasingly segmenting their markets by consumer lifestyles. For example, nightclubs are designed with certain clientele in mind: young singles wanting to meet the opposite sex, singles wanting to meet the same sex.
c. Personality: marketers also use personality variables to segment markets. For example,, Frontier Airlines is building a personality around animals by putting colorful graphics on their planes.

4. Behavior segmentation divides buyers into groups based on their knowledge, attitude, use, or response to a product. Six variables are commonly used: occasions, benefits sought, user status, usage rate, loyalty status, and buyer readiness stage.

a. Special Occasions: Buyers can be grouped according to occasions when they get the idea, make the purchase, or use a product.

• For example, air travel is triggered by occasions related to business, vacation, or family. Mother’s Day has been promoted as a time to take your mother or wife out to eat. Some hotels in the Pocono Mountains of Pennsylvania, specialize in the honeymoon market. Doubletree’s “Room at the Inn” program offers free short-term lodging for travelers needing emergency lodging between Thanksgiving and Christmas.

b. Benefits sought: Buyers can also be grouped according to the product benefits they seek.

• For example, a study indicated that the benefits sought by patrons of different types of restaurants are different.

• Knowing the attributes or benefits sought by customers is useful in two ways. First, restaurant marketers understand what to provide and promote to attract a specific segment. Second, identification of customer types is possible. This type of information reduces waste in advertising and increases effectiveness. The French Trianon Palace Hotel found a specific niche for travelers who want to travel with their best friend – their dog – by offering special services for their pets.

c. User status: Many markets can be segmented into nonusers, former users, potential users, first-time users, and regular users of a product. Potential users and regular users often require different marketing appeals.

d. Usage rate: Markets can also be segmented into light-, medium-, and heavy-user groups.

• Heavy users are often a small percentage of the market but account for a high percentage of total buying. For example, a study found heavy users of fast food restaurants account for only 20% of the customers but 60% of fast food transactions. Heavy users of airline travel accounts for only 4.1% of the customers but 70.4% of total airline trips. Heavy users of pleasure trip users of hotels and motels account for only 7.9% of the customers but 59.4% of room nights.

• One of the most controversial programs ever employed by the hospitality and travel industries to ensure heavy patronage by key customers is the frequent flyer or frequent guest program. Clearly, marketers are eager to identify heavy users and build a marketing mix to attract them.

e. Loyalty status: Markets can also be segmented into four groups: hard-core loyalty, soft-core loyalty, switchers, and no loyalty. In the hospitality and travel industries, marketers attempt to build brand loyalty through relationship marketing. Loyal customers are generally more price insensitive.

f. Buyer readiness stage: At any given time, people are in different stages of readiness to buy a product. Some are unaware of the product; some are aware; some are informed; some want the product; and some intend to buy. The relative number in each stage makes a big difference in designing a marketing program.