2.2 Market Segmentation MARKETING MR. PAVONE

Identifying and Analyzing Markets

Think of yourself as a consumer. What are your key characteristics?

Identifying and Analyzing Markets  Businesses look for ways to connect with current and potential customers by getting to know them well.  Market Segmentation – The process of analyzing and classifying customers in a given market to create smaller, more precise target markets.  To meet the needs of different market segments, manufacturers use a unique marketing mix, including different products, promotions, stores and price points.  By using a sustainable competitive advantage, marketers identify its specific markets to target.  Companies will study data in order to break down information to demographics, geographics, psychographics, and behavioral factors.

Demographics  Demographics – Statistics that describe a population in terms of personal characteristics such as age, gender, income, marital status, ethnicity, education, and occupation.

Age  Marketers easily use age to segment the market by creating age ranges; some of the common labels used to segment the population by generation are:  Baby Boom Generation : 76 million babies born between 1946 and 1964 with a seeming increase in income and spending power as they get older; prime targets for all types of products.  Generation X (Baby Bust Generation) : Generation from 1965 to early 1980s, mostly children of dual-career households or divorced parents, heavily influenced by the media and marketed with music, share images and humor.  Generation Y : Generation from mid 1980s to early 2000s, also known as the Millennium Generation, very ethnically diverse, very heavily influenced by the Internet.

Gender  Gender helps to create market segments as well; one good example being Jockey (one a men’s underwear company) doubling its sales by entering the women’s market with Jockey underwear for women.

Income  Marketers want to know how much money people have to spend on different products and therefore look at two types of income: disposable and discretionary income.  Disposable Income – The money left over after taxes are taken out of a consumer’s income.  Discretionary Income – The money left over from a consumer’s income after paying for basic living necessities such as food, shelter, and clothing.

Marital Status  The U.S. Census indicates that married couples have decreased to 49.7 percent of total households, compared to 80 percent in the 1950s, attributed to reasons such as:  People are older when they get married for the first time.  Higher divorce rates.  People are living longer.  People are remarrying less.

Ethnic Background  The U.S. population is becoming more multicultural and ethnically diverse; the Caucasian population is declining, while African American, Hispanic and Asian American populations make up more than 30 percent of the U.S. population.

Geographics  Geographics – Segmentation of the market based on where people live.  Geographics segment markets geographically by local, regional, national, even global markets; some examples:  Businesses interested in marketing to Latinos need to know the top Hispanic markets, such as New York, Miami, etc.  55% of the African-American population lives in the South, but large populations of African-Americans also reside in New York and Chicago.  If interested in marketing to children, it is good to know large proportions of children to population reside in Utah and Alaska.  In 2005, the states with the largest populations of people age 65 and older could be found in California, Florida, New York and Texas.  In 2005, states with a median household income of at least $50,000 were Delaware, Washington, California, Colorado, Virginia, Utah, Massachussetts, Minnesota, Alaska, Connecticut, New Hampshire, Hawaii, Maryland and New Jersey.

Psychographics  Psychographics – Studies of consumers based on social and psychological characteristics.  Consumer lifestyles include how people spend their time and money based on:  Activities  Attitudes  Personality & Values

Activities  If you made a list of all of your present activities, you would realize how many market segments can be identified by psychographics.

Attitudes  Consumers’ attitudes, such as taking responsibility for one’s health, eating healthier, and becoming physically fit, are trend-setting issues for markets in the twenty-first century.

Personality & Values  More advanced study of psychographics includes the study of personality characteristics and values.

Behavioral  Segmenting the market based on product related behavior involves looking at the benefits desired by consumers, shopping pattern and usage rate.  MasterCard research revealed five groups of online consumers:  Confident core users  Cautious shoppers  Mainstream users  Curious but not convinced  Technology skeptics

How Marketers Use Consumers’ Behavioral Patterns  Marketers study shopping patterns to determine usage rates, for instance, Jupiter Research determined that most teenagers spend about $50 a month on entertainment and teenage girls spend 15 percent more on music than teenage boys.  Companies classify their customers according to the percentage of sales each group generates; many businesses are finding that 80 percent of their sales are generated by 20 percent of their loyal customers (the 80/20 rule).

Mass Marketing Versus Segmentation  Mass Marketing – Use of a single marketing plan to reach all customers.  When products have universal appeal and few features to differentiate them from competitors, mass marketing is used.

A New Marketing Trend  Mass marketing is not as popular as it once was; the current trend is now niche marketing, the narrowing down of markets and defining them with extreme precision.