Identifying market segments
Market segmentation means dividing customers into groups who share similar characteristics, so that a business can target its product and marketing at one group rather than at everyone.
Why bother? Because a product aimed at everybody usually appeals strongly to nobody. Targeting a segment lets a business design the product, set the price and choose the promotion to suit one identifiable group — which makes each of those decisions easier and more likely to be right.
The specification names five ways to segment a market:
Common mistake
Segmenting a market is not the same as choosing a target market. Segmentation is dividing the whole market into groups; targeting is deciding which of those groups to sell to. Questions sometimes ask for one and get the other.
- Market segmentation
- dividing customers into groups who share similar characteristics, so a business can target its product and marketing at one group rather than at everyone
Market mapping
A market map plots existing businesses or products against two characteristics that customers care about — price and quality, for instance, or traditional and modern. It does two jobs at once, and the specification names both: it identifies a gap in the market, and it shows the competition.
How to read one:
• Where circles are clustered, the market is crowded. A new business entering there faces many competitors offering something similar. • Where the map is empty, there is a possible gap — a combination of characteristics nobody currently offers. • The position of each competitor also shows who a business would be competing against most directly: the nearest circles.
The caution matters as much as the technique. An empty space is not automatically an opportunity. It may be empty because no customer wants that combination — a low-quality product at a high price will always have an empty corner of the map, and for good reason. Before treating a gap as an opportunity a business should use market research to check that customers actually want what would fill it.
Worked example
A market map of local gyms shows most clustered at low price and low quality, with the high price, high quality area empty. Advise a new business.
- Read the crowded area: competing on low price would mean entering the most crowded part of the market.
- Read the empty area: a high quality, high price gym has no direct local competitor.
- Identify the potential advantage: it could charge more, and would not be competing directly with the existing gyms.
- Apply the caution: the space may be empty because local customers cannot afford or do not want a premium gym.
- Say what would settle it.
Answer: The gap suggests an opportunity for a premium gym, with no direct local competitor and the ability to charge more. But the business should first use market research to check that enough local customers have the income and the desire for it — the space may be empty because the demand is not there.
- Market map
- a diagram plotting existing businesses or products against two characteristics customers care about, which identifies a gap in the market and shows the competition
Before you practise
- Segmentation divides a market into groups of customers with similar characteristics.
- The five bases named: location, demographics, lifestyle, income, age.
- Targeting a segment makes product, price and promotion decisions easier and more accurate.
- A market map plots competitors against two characteristics customers care about.
- It identifies gaps in the market and shows where the competition is concentrated.
- An empty space is not automatically an opportunity — check with market research first.