April 15, 2010
Market Segmentation
William Adjorlolo
Raydania Pena Terrero
Steven Ganung
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The modern marketplace is one that is crowded with products; companies are now
competing for consumer attention at a greater level than ever before. On average, 700 new
brands are created every day, adding to the 2 million brands already in existence (Bianco 65).
With all this competition, companies are now finding better ways to attract consumers to their
products. One of these ways is market segmentation. Market segmentation is a concept in
economics that divides people and organizations into groups that will most likely desire the
same product and will respond positively to the same message about that product. By doing
this, companies eliminate wasted resources attempting to market to consumers that may have
no interest in a company’s product. There are four different types of segmentation that can be
utilized to create an effective marketing campaign: Demographic, Geographic,
Psychographic, and Behavioral Segmentation. Demographic segmentation is a division
created based on the characteristics of a specific market. This includes sex, race, age, income,
education, etc. Geographic segmentation is a differentiation based upon the physical locations
of the potential consumers. Psychographic segmentation is based on the personalities or
lifestyles of the potential consumers. And lastly, behavioral segmentation is based on the
actions of potential consumers. Throughout this paper, we will discuss how market
segmentation is accomplished, the advantages to market segmentation, and we will provide
several real examples of market segmentation. Additionally, we will discuss the criteria for
market segmentation and the mediums for market segmentation.
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Market segmentation is a complicated process that requires significant research into
consumer behavior and an in-depth understanding of company goals. The first step in market
segmentation is to identify the broad market that needs to be reached. For example, Apple Inc.
produced a product called the iPod in October 2001. However, before they even began to
research and develop this product, they had identified the broad market for the iPod as the
music market. The next step was central to the success of the iPod: creating an inventory of
potential customer needs. Apple began to take a close look at other music players and
determined what was missing in those products. Focus groups were formed to gain insight
into what consumers desired most in a portable music player. The overwhelming answer was
interactivity. So Apple created iTunes, the ultimate sidekick to the iPod. Now users could
easily transfer and store music on both their iPod and a very accessible user interface on their
computer. iTunes was released to the public ten months before the iPod as a taste of what was
to come. The third step in the process of market segmentation was to formulate narrow
markets within the broad market. For Apple, this meant music genres. They split their
potential consumers into rockers, rappers, country lovers, etc. The next step is to determine
the dimensions/needs of the specific narrow markets. They wanted to create an advertising
campaign that would make every kind of music lover desire the iPod. The fifth step was
attaching a label to each of the narrow markets. The sixth step was evaluating the behavior of
those narrow market segments. Apple Inc. needed to know what would increase their market
share of rockers, rappers, country lovers, etc. So, they catered to rockers by having rock stars
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endorse their products and did similar campaigns for each major genre. The final step in
market segmentation is to estimate the size of each narrow market segment. Apple
meticulously researched how many people, on average, listened to each genre of music (US
only) so that they could match the supply of the iPod with the demand. The iPod later became
responsible for bringing Apple, Inc. back to the top of the Fortune 500 List with record sales.
Before a segment can be marketed to, there are several criteria that need to be fulfilled
in order to determine whether a marketing campaign will be effective. The first criterion is
measurability. Valuable data such as buying behaviors and consumer preferences need to be
available or available to be obtained by the company. A company cannot know how
successful a product or marketing strategy will be without first knowing the information
related to it. The next criterion is relevance. The market segment must be large enough and
have a large enough profit potential to justify the resources required to create an effective
advertising campaign. The third criterion is accessibility. The segment must be reachable
through the mediums of communication available to the company, such as magazines, the
internet, billboards, etc. The fourth criterion is distinguishable. The market segments must be
diverse enough to have different reactions to the different marketing mixes. People will buy
the same product for different reasons, if the marketer’s can appropriately target
distinguishable markets. The final criterion for market segmentation to be effective is
feasibility. The segment should be stable in order to decrease the costs associated with
frequent changes in the characteristics of the segment.
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There are several reasons and advantages to utilize market segmentation. A company
will be able to better serve customers needs and wants by catering to specific groups directly.
For example, Dell does not organize its website by product, but by consumer groups such as
private businesses, corporations, individual, etc. Another advantage is higher profits. It is a
difficult process to increase product price for an entire market, but it is possible to develop a
higher pricing plan for a more affluent segment of the market. This segment would be more
inclined to pay extra for additional services that the general market would not be able to
afford. Opportunities for growth into niche markets are another key advantage to market
segmentation. Whereas a consumer might normally only be attracted to specialized product
providers, large companies can now usurp the role of a specialized product provider by
creating a unique marketing campaign to target specific people. This also leads to higher
market share overall. Another valuable, but often overlooked benefit of market segmentation
is its effect on a company’s products. Products are actually improved by a tailored marketing
campaign because the company gains a better insight into what consumers want. They can
then change their product to specifically cater to their customer needs. Despite these
advantages, there are also a few disadvantages to market segmentation. Higher costs involved
with target market research, unique advertising campaigns, and overall marketing costs can
affect a company’s bottom line. Also, consumer backlash can also be a devastating result of
market segmentation. In the event that a company neglects a specific group of the market that
may have desired the product, the bad publicity associated with this neglect can damage a
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company’s reputation. Lastly, market segmentation can limit the general popularity of a
product in the global marketplace by only targeting people who have the highest likelihood of
purchasing the product.
Choosing the various mediums through which to distribute a targeted campaign can be
a daunting task for any company. The medium can oftentimes determine the success of a
campaign, regardless of how well-crafted it may be. Two mediums in particular are central to
market segmentation. Television is one of these very powerful resources. According to the
Bureau of Labor Statistics, Americans (male and females over the age of 15) spend an
average of 2.3 hours watching TV per day. In addition, television channels in themselves are
already segmented, with channels catering to African-Americans, Hispanics, food-lovers,
sports fans, etc. Companies can utilize this medium to target specific groups of people based
on their lifestyles (psychographic), race (demographic), and region (geographic). Another
powerful market segmentation medium is the internet, specifically Google and Facebook.
Google collects information about its users related to their basic information, such as location,
browsing habits, and general interests. This data is then used to provide marketing companies
with a direct outlet to consumers that will most likely purchase a company product. Facebook
has taken this idea of targeted advertising to a new level. Users of Facebook willingly input
personal details about their lives onto their Facebook pages, with the intention of making this
information public to their friends. However, Facebook gathers this information and
categorizes it, lumping individuals into various marketing groups. Advertising companies can
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then choose which groups they wish to target, from users that play basketball, football, watch
movies, even users that are fans of a certain TV personality. Facebook has gone farther than
just collecting information about users’ age and race; they’ve categorized individuals by their
very personalities, habits, and preferences.
Several poignant examples of market segmentation have been seen in the realm of
advertising. A 2009 Filet-O-Fish commercial that was played on CBS and became widely
popular due to its meme of a singing fish was edited with Spanish lyrics and Hispanic actors
on Telemundo. McDonald’s realized that by creating an ad campaign that Hispanic
individuals could connect with would sell more product than a campaign with just whiteAmerican actors. Even the famous “I’m Loving It” McDonald’s catchphrase was translated to
“Me Encanta”. Another example of market segmentation in the media is Cadillac’s television
advertising campaign for the 2008 CTS. Commercials shown on channels watched mainly by
women, such as HGN and Food Network, featured a female driver behind the wheel of the
car. Channels watched primarily by men, such as ESPN and NFL Network, featured a male
driver. Cadillac hoped to attract two separate markets to the same product by appropriately
segmenting the larger car market by gender. A final example of very recent market
segmentation is the 2010 United States Census marketing campaign. This campaign features
over 12 different TV advertisements with the same script, but different actors and settings.
The actors range from Asian young adults, to elderly African-Americans. The campaign
hopes to encourage every demographic to respond to the census. Also, in regions that are
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largely populated by a specific race, local channels will air commercials that feature actors of
the same race.
Market segmentation has created a much different advertising environment from what
existed less than a decade ago. Companies were formerly accustomed to only mass marketing,
the process of flooding the advertising realm with information about their product. Market
segmentation has provided companies with quantifiable intelligence about consumer behavior
and desires. Without this specific tool to target consumers directly, companies would be
missing out on substantial gains to their financial bottom line.
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