INTRODUCTION A market is all of the potential customers for a product or service. To be successful, a marketing program must find the means to satisfy the needs of a significant number of customers. It must also generate profits for the company. An important characteristic of a successful marketing program is a well defined target market for the company's products. By studying customer needs and by grouping customers into categories with similar characteristics, A target market is the group of customers that a company seeks to satisfy through its marketing program. In determining the target market for its products, a company seeks groups of customers whose needs are not currently being met by the products that are already available. These customers are potential buyers of the firm's products. Some examples of target markets that will be familiar to you include: consumers concerned with tooth decay and excess sugar in their diets are the target market for Trident Sugarless gum; Lean Cuisine's target market is young professionals who want more variety in frozen food and fewer calories. In order to find a group of customers whose needs are not being met, a business will conduct research. If a group of potential buyers is large enough to give the company a good chance of making profits, then a marketing program can be developed that caters to their needs. Market segmentation is the process of breaking down large markets into smaller groups according to customer needs and characteristics. For example, professional working women between the ages of 25 and 35 may represent one group of customers. New Canadian families from Hong Kong represent another consumer group. Marketers attempt to assess what products exist or need to be developed to satisfy the needs of a particular customer group. When a product has been matched with a consumer group, a market segment has been defined. Market segmentation begins, then, with a thorough study of current and potential customers. Marketers ask whether all customer needs are currently being satisfied through available products. Are any customers not being satisfied? How could the product or marketing strategy be changed to more fully satisfy customer needs? Or, how could strategies be changed so as to reach entirely new customer groups? One example of a company that successfully used market segmentation is Canon. Before entering the copier market, Canon did a thorough study of available products and copier customers. Research revealed that small business owners were not being well served by existing copier products. Most copy machines were too large and too expensive for the small business owner. In order to meet the needs of these customers, Canon created a line of personal and compact copiers. Canon found a new target market - small business owners - that the company then attempted to satisfy with a well-defined marketing program. The target market for Porsche is professionals with high incomes. The main market for Toyota Tercels is families in the middle-income range. A company can serve many different target markets, but separate marketing programs must be designed for each one. Customer needs vary from one market segment to the other. Ford designs one marketing program for the Mustang and another for the Thunderbird, because these cars appeal to different types of automobile consumers. IMPORTANCE OF MARKET SEGMENTATION Carefully defining market segments and then designing marketing programs that are specifically tailored to those segments leads to marketing success. Companies that first define their target markets and design their products accordingly have a much greater chance of increasing profits than a company that first designs a product and then looks for a market. understand how market segmentation can lead to success, let us look at two major advantages of market segmentation: increased market size; greater market share. INCREASED MARKET SIZE Market segmentation can lead to an overall increase in the size of the market. During the market segmentation process, marketers may uncover unmet customer needs. New product categories can be created to meet these needs, and since more people are now buying' the products, the size of the market will Increase. When scientists discovered the importance of fibre in the human diet, consumers looked for products with high-fibre content. Producers of bran cereals, a good source of fibre, targeted their marketing efforts to these people, and a new market segment was created. People who had not eaten cereals for years were now purchasing bran cereals to add fibre to their diets, thereby increasing the total size of the cereal market. MARKET SHARE Market segmentation also leads to increased market share for a company. Market share is the percentage of the total market that a company holds for its product(s). For instance, Kellogg's holds 45.7 per cent of the market for presweetened cereal with products like Sugar Frosted Flakes, Froot Loops, and Sugar Smacks. Think of the total market for a product as a pie made up of all customers who buy the product. Each company selling that product has a piece of the pie, that is, a share, or portion of the total market. One key objective of marketing is to increase a company's share of the total market in order to increase profits and gain more control over the market as a whole. In some markets, even a small increase in market share can mean huge increases in sales and profits. In the soft drink market, a market-share increase of 1 per cent can mean several million dollars in sales for the company that gains that share. MARKET SEGMENTATION METHODS Good marketers know that they cannot sell a product until they have a market. Marketers find out if there is a market for their particular product using market segmentation methods. Think of yourself and your schoolmates. What makes you similar? Age? The clothes you wear? Your interests and activities? To marketers, you and your friends represent a market segment because your similar needs and wants will lead you to purchase similar goods. Market segmentation methods are based on determining ways in which customers might be similar. Customers might be similar because they are the same age, live in the same region of Canada, or engage in the same types of hobbies and activities. If customers have similar characteristics, they will probably have similar product needs and wants. Four categories used in market segmentation are: geography; demography; benefits; lifestyle. Each of these categories reveals different kinds of information about customers and their purchasing habits - information that marketers can use in designing the marketing program. GEOGRAPHIC SEGMENTATION Geographic segmentation divides the market into different units, such ,as countries, regions, provinces, cities, towns, or communities. Consumers' purchasing habits differ depending on where they live. By studying geographic differences in purchasing habits, a company can match its marketing mix with customer characteristics in those areas. Some of the different geographic segments include: climate; regional differences; urban/rural differences; urban/suburb differences; areas within a city; international differences CLIMATE Climate is an important geographic factor for Canadian marketers. Across the country, there are great variations in climate and weather patterns. Climate affects the type of products a marketer can sell in any particular region and the timing of the marketing program. Snow tires, warm winter clothing, and snowblowers are important products in many regions of Canada. In central and northern Alberta, for instance, these products must be available in retail stores from October through to March or April. Stores and distribution outlets have to estimate the length and severity of the upcoming winter to know when to begin stocking winter tires and how many to hold in inventory. In southwestern British Columbia, the season for snow tires and warm clothing is much shorter. However, the popularity of winter activities, such as downhill and crosscountry skiing, requires that retailers begin stocking new equipment in October for the season ahead. REGIONAL DIFFERENCES Across Canada, there are many regional variations in history, culture, tastes, and lifestyles. Our two major cultures, French and English, enjoy different tastes in food and entertainment. Studies show that residents of Toronto are more conservative in choice of business attire than people on the West Coast. Sales of business suits for both men and women, therefore, are much higher in Toronto than in Vancouver. Albertans tend to shop in large department stores and shopping centres, while people from Montreal and Vancouver prefer boutiques and smaller stores. All of these regional variations in taste have implications for marketers. URBAN/RURAL DIFFERENCES City dwellers (urbanites) make different purchases than small community or rural dwellers. City dwellers spend more on time-saving goods and services, such as microwaves, telephone-answering machines, cleaning services, and fast-food restaurants. Residents of smaller communities buy more in bulk, more garden supplies, and larger automobiles than their urban counterparts. URBAN/SUBURB DIFFERENCES Many Canadians live in suburbs of large metropolitan cities. They tend to have larger homes and yards than city residents. They purchase more household appliances, furniture, and yard maintenance equipment. They also tend to shop in large central shopping centres. City dwellers often live in apartments, are more likely to be single, or in the "over 55 and without children" age segment than suburban residents. Their purchases reflect their different needs and lifestyles. AREAS WITHIN A CITY Cities have different neighbourhoods. The downtown core is often made up of large office buildings, retail stores, hotels, and some apartments. Some areas are more residential, without being suburbs, and are home to people from different income brackets and/or from different ethnic backgrounds. When deciding where to open a retail store within a city, marketers will analyze the characteristics of different neighbourhoods to determine in which area the product or service will sell best. A health-food store will probably do well within the city centre where a number of young professionals live who are concerned with nutrition, health, and fitness. International companies often use some form of geographic segmentation when deciding where to locate overseas operations. They divide the world into regions such as Asia-Pacific, Europe, or EasternBlock countries. Within each of these regions, there are differences in language, history, culture, laws, and customer characteristics. So, when determining in which countries to locate, a company will also use demographic segmentation to get a better idea of consumer needs in those countries. DEMOGRAPHIC SEGMENTATION The root of the word "demographic" comes from the Greek "demos", meaning "people". Demographics is the study and gathering of facts about people and populations. Demographic segmentation divides populations according to: age groups; gender; marital status; household size; household income; education; occupation; nationality; home ownership; religion. Marketers use demographic facts as an important basis for segmenting markets. It is easy to get demographic information for any region, city, town, or community in Canada. The information is gathered, compiled, and updated by StatsCan, the government's information-gathering department. The following demographic factors are of particular interest to Canadian marketers: .. age; gender; household factors; income and occupation; ethnic background. Because of its size, few marketers have been able to ignore the baby-boom segment in planning their marketing programs. Many new products have been created with this segment in mind. Today, the babyboom gen AGE Men's roles are also changing. Men are making some purchase decisions once made mostly by Consumer purchases vary depending on the age of the purchaser. Teenagers purchase more rock recordings, snack foods, soft drinks, and sweatshirts than any other age group. Children under the age of two require a host of specialized products, from diapers to formula and small-sized furniture. People over sixty-five have greater needs for health care and in-home services. Marketers break down the population into various age groups: under 2, 2-6, 6-11, 12-18, 19-24, 25-35, 35-46, 46-55, 56-65, and 65 +. They assume that consumers in these different age groups will make similar purchases. The number of people in each age group is not the same. The 35-45 age group (the baby-boom generation, born in the years after W orId War II) is the largest in Canada. Because of its size, few marketers have been able to ignore the baby-boom segment in planning their marketing programs. Many new products have been created with this segment in mind. Today, the baby-boom gen eration is middle-aged and has become a major market for products needed in settingup and maintaining homes. These products include appliances, furniture, insurance, security systems, and second cars. By the early part of the next century, the baby-boomers will begin to retire. They will require many new goods and services for their retirement years. Marketing opportunities wifl be pientiful for those firms that have studied and understood the changing needs of this important age group. GENDER In recent years, the importance of gender as a market segmentation factor has taken on new significance. This is due to the changing roles of men and women in North America. Occupational choices for women are almost unlimited. More and more women are college or university graduates of business, law, and engineering. Women today are also staying single longer and having children later than their mothers did. The changing role of women in our society is very important for marketers. Career women need a range of goods and services associated with their jobs and with saving time. The more educated woman consumer also demands that marketers use intelligent, informative, and unbiased language in advertising directed at her. women. Men are planning menus and doing the grocery shopping. They are buying the children's clothes and making more household purchases. This change has occurred because there are now more singleparent families, more women working outside the home, and more men who are also staying single longer. HOUSEHOLD FACTORS Demographic data on households provides marketers with information on the number of people in each household in their market area, and the age and income of family members. North American households have changed considerably over the years. The traditional family grouping (mother, father, children) is no longer the only configuration. Today, there are a variety of household configurations that include more: middle-aged and older professional couples who have never had children; middle-aged couples with younger children; single-parent families; single men and women; families with both parents in the workforce; extended families. Changes in the family life cycle have created a new group of market segments. The family life cycle refers to stages that most individuals and families pass through during their lives. Marketers are interested in the family life cycle because people make different purchases depending on whether they are single or married and depending on the ages of their children. Young married couples with children under six are an important market segment for children's clothing, food, furniture, and child-care services. A significant new market segment - and one that is predicted to increase in the future - is families with both parents working. INCOME AND OCCUPATION Income is also a useful way to segment markets. Marketers of clothing, vacations, automobiles, boats, and real estate recognize that consumers with different levels of disposable income make different purchases. Disposable income is the income left over after all deductions have been taken off one's paycheque. Some consumers with higher disposable incomes purchase higher-priced goods while others, with lower disposable incomes, purchase lower-priced goods, attempting to get the best value for their money. Marketers usually combine income with another factor, for example, occupation, to gain a more complete understanding of how income affects what people buy. For instance, automobile marketers sell more BMWs to professionals than to non-professionals, even though the incomes of the two groups may be the same. ETHNIC BACKGROUND Canada is a multicultural society. Many different ethnic groups in Canada want to uphold the traditions and lifestyles of their countries of origin. They want to buy such things as Italian food and foreign-language newspapers. They want to eat in Greek restaurants and shop at German delis. They want access to ethnic radio and television stations. Consequently, the ethnic origin of people within a market area is an important demographic factor for Canadian marketers. COMBINING DEMOGRAPHIC FACTORS Most marketers combine a number of different demographic factors when attempting to define a market segment. For instance, a clothing manufacturer will use age, income, and occupation in designing clothing lines and setting prices. Marketers of travel services may combine stage in the family life cycle with income in order to match vacations with customers. BENEFIT SEGMENTATION Benefit segmentation divides up the market based on the benefits customers seek from using a product. For instance, customers have different reasons for purchasing shampoo. Some use shampoo for treatment of dandruff; others use shampoo to control oily or dry hair; and still others use shampoo to increase hair strength and shine. In determining the reasons why customers purchase a product, marketers can create very specific marketing programs that highlight the benefits sought by the customer. Toothpaste manufacturers have made good use of benefit segmentation. Customers were divided into four major groups based on benefits sought from toothpaste: decay prevention, flavour, teeth whiteness, and low price. Once marketers understood the reasons why different groups of people purchase toothpaste, it was possible to create products that filled those needs and to develop marketing campaigns that emphasized the major benefits of their brand. For instance, a toothpaste may be positioned as a toothpaste that prevents cavities, reduces tartar, or as one that has a good flavour. LIFESTYLE SEGMENTATION Demographic segmentation can give marketers a lot of information on age, family size, ethnic origin, and incomes, but it says little about individual differences in tastes and lifestyles. Marketers have come to realize tastes and lifestyles are often as important in determining customer purchasing behaviour as the data drawn from demographic research. For instance, demographic segmentation may lead marketers to assume that two separate families of four, with children under six and incomes over $50 000, will have the same purchasing habits, making them part of the same marketing segment. In fact, these two families may have completely different lifestyles and spend their time and money in very different ways. In order to account for differences in individual lifestyles and tastes, marketers use another method of market segmentation known as psychographic segmentation, or lifestyle segmentation. Lifestyle segmentation is based on studies of how consumers live, how they spend their time, what they enjoy doing, and how customers feel about themselves and the world around them. Profiles of customer attitudes, interests, and opinions often give marketers a much more accurate idea of why customers choose to purchase particular goods and services. People may see themselves as "the busy female executive", "the outdoor/health conscious individual", "the independent free spirit", "the up-and-coming young male executive", or "the concerned parent". Each of these lifestyle types has implications for marketing. For instance, the young woman who defines her lifestyle as that of a "busy female executive" will be a potential consumer for such items as time-saving appliances and quality professional clothing. She will also make major purchase decisions, such as those for accommodation, transportation, and financial investments. Smart marketers are directing some of their promotional messages to this lifestyle segment. Among them are General Motors and Chevrolet, who design automobiles and advertisements with working women executives in mind Another important lifestyle segment is the "outdoor/health conscious" segment, who can also be the "busy female executive". Millions of North Americans are purchasing goods and services that promote better health. Products and services marketed towards this trend include: adventure vacations, fitness centres, health clubs, and nutrition products and publications. MARKET SEGMENTATION: WHICH FACTORS TO USE? Most marketers use some combination of geographic, benefit, demographic, and/or lifestyle factors in defining a market segment for their products. In some cases, a single factor may be appropriate. Marketers of baby food will, for instance, use age as their key segmentation factor. In most cases, however, more than one factor will be used. Generally, some combination of demographic and lifestyle segmentation will be used. Demographic segmentation provides basic information on consumer age groups, income levels, and occupations. Lifestyle segmentation is then applied to the demographic profile to provide a better picture of consumer lifestyles and interests and to predict purchasing habits. Marketers of automobiles use both segmentation methods in developing their marketing programs.