tutor2u ™ GCSE Business Studies Revision Presentations 2004 Market Segmentation

tutor2u ™ GCSE Business Studies Introduction A market contains different types of customer A market segment is a group of customers who have similar wants and needs For example, consider the wide variety of markets that exist to meet the following customer needs: NeedExamples of Market Segments Created to Meet the Customer Need To EatRestaurants; fast-food outlets; grocery supermarkets To DrinkCoffee bars; wine & spirits production; energy drinks To Exercise Health & leisure clubs; sport equipment; walking holidays To TravelAirlines; railways; motor car industry; holiday industry

tutor2u ™ GCSE Business Studies How Customers Differ Market segmentation is needed because customers are not all the same! They differ in their needs and wants. For example, customers differ in the…  Benefits they want  Amount they are able to or willing to pay  Media (e.g. television, newspapers, radio stations) they see  Quantities they buy  Time and place that they buy

tutor2u ™ GCSE Business Studies Benefits of Segmentation Businesses are successful when they provide things that customers want Segmentation allows businesses to develop products that more closely meet customer needs Also allows promotional spending to be targeted more effectively  E.g. adverts not put in the wrong kind of newspaper or magazine  Sales promotions (e.g. price discounts) not offered to customers who don’t respond to them

tutor2u ™ GCSE Business Studies Main Methods of Segmentation Businesses use lots of different ways of segmenting a market. For example: Socio-economic grouping Age of customer Gender Size and composition of customer households Geographical location Ethnicity and/or religion Educational background of customers

tutor2u ™ GCSE Business Studies Customer Age and Segmentation Age is an important way of segmenting a market Members of same age group tend to be at same stage of their life cycle (e.g. new parents) and tend to have similar wants Consumers of a similar age also have similar financial circumstances E.g. retired people living on a pension and savings have a different income they can spend compared with students at university

tutor2u ™ GCSE Business Studies Socio-Economic Groupings GroupDescription A Higher managerial, administrative or professional e.g. surgeon or company director B Intermediate managerial, administrative or professional e.g. teachers, solicitors C1 Skilled non-manual e.g. sales assistants, shop floor supervisors C2Skilled manual e.g. electrician, plumber DSemi skilled e.g. assembly line workers, cleaners EUnskilled, pensioners and unemployed

tutor2u ™ GCSE Business Studies Is Segmentation Always Possible? A business will only target a segment if it is: Identifiable or measurable  The business can estimate the number of potential customers in a given segment) Reachable  The business is able to communicate with existing and potential customers in a given segment through their distribution and promotional activities Profitable  Segments must be large and profitable enough for a business to justify offering products and services for customers in the segment  Often a business may conclude that a market segment is too small to bother with

tutor2u ™ GCSE Business Studies Mass Markets Some market segments are very large – they are often called “mass markets” A mass market has a large value of sales by volume e.g. soap powders Mass marketing occurs when one product is aimed at the bulk of a large market – as opposed to a small segment as in niche marketing. Not all businesses can compete successfully in a large market. Mass marketing requires the ability to:  Mass produce and so enjoy economies of scale  Persuade customers that a standardised product is ‘better’ than a rival offering

tutor2u ™ GCSE Business Studies Niche Markets Niche marketing occurs when a business concentrates its entire efforts and resources on serving one segment of the market Often this segment is quite small – and there are a relatively low number of customers By specialising in one segment, a business can often charge a higher price and earn higher profits per customer than in a mass market – where there are larger competitors Disadvantages of Niche Marketing  A business might be dependent on one product in a market where customer needs and technologies are changing  Niches may be short lived if a new, more efficient, entrant is attracted by potential profits  Niche marketing normally involves small production runs and limited opportunities for economies of scale