1.5 Market Segmentation

Income

Income is a segmentation variable because it indicates a group’s buying power and may partially reflect their education levels, occupation, and social classes. Higher education levels usually result in higher-paying jobs and greater social status. The makers of upscale products such as Rolexes and Lamborghinis aim their products at high-income groups. However, a growing number of firms today are aiming their products at lower-income consumers. The fastest-growing product in the financial services sector is prepaid debit cards, most of which are bought and used by people who don’t have bank accounts. Firms find this group is a large, untapped pool of customers who tend to be more brand loyal than most. If you capture enough of them, you can earn a profit. Based on the targeted market, businesses can determine the location and type of stores where they want to sell their products. Sometimes, income isn’t always indicative of who will buy your product. Companies know that many consumers want to be in higher income groups and behave like they are already part of them.

Golf Example

Callaway Golf sells a wide range of golf clubs to cater to all income and skill levels.  Callaway chooses appropriate distribution channels to target their audience effectively and create value.  Higher-end clubs such as forged club heads, tour designs, and upgraded shafts are distributed through golf courses in pro shops and golf-specific stores such as Golftown.  At these locations, the golfer engages with a product representative to get educated and custom fit for personal golf clubs, which are then ordered from the manufacturer and carry a higher price tag.  Callaway recognizes the massive opportunity that remains for golfers who may be at a lower income level or interest level yet still seek to participate in the sport and invest in equipment.  Stores such as Costco and Canadian Tire sell Callaway golf clubs that are aimed at the price-conscious consumer seeking brand value.  These golf clubs generally cost less to manufacture,  they are standardized for mass production and are sold ‘off the rack’ without the frills and service of a golf store.

Geography

Suppose your great new product or service idea involves opening a local store. Before opening the store, you will probably want to research to determine which geographical areas have the best potential. For instance, if your business is a high-end restaurant, should it be near the local college or country club? If you sell ski equipment, you probably will want to locate your shop in the vicinity of a mountain range with skiing. You might see a snowboard shop in the same area, but probably not a surfboard shop. By contrast, a surfboard shop will likely be located along the coast, but you probably would not find a snowboard shop on the beach.

Geographic segmentation divides the market into areas based on location and explains why the checkout clerks sometimes ask for your postal code. It’s also why businesses print codes on coupons that correspond to postal codes. When the coupons are redeemed, the store can find out where its customers are or are not. Geocoding is a process that takes data such as this and plots it on a map. Geocoding can help businesses see where prospective customers might be clustered and target them with various ad campaigns, including direct mail.

Proximity marketing is an interesting new technology firms use to segment and target buyers geographically within a few hundred feet of their businesses using wireless technology. In some areas, you can switch your mobile phone to a “discoverable mode” while you’re shopping and, if you want, get ads and deals from stores as you pass by them, which is often less expensive than hiring people to hand you a flier as you walk by.

In addition to figuring out where to locate stores and advertise to customers in that area, geographic segmentation helps firms tailor their products. Chances are you won’t be able to find the same heavy winter coat you see at a Walmart in Montana at a Walmart in Florida because of the climate differences between the two places. Market researchers also look at migration patterns to evaluate opportunities.

Psychographics

If your offering fulfills the needs of a specific demographic group, then the demographic can be an important basis for identifying groups of consumers interested in your product. What if your product crosses several market segments?

Associating these specific needs with consumers in a particular demographic group could be difficult. Marketing professionals want to know why consumers behave the way they do, what is of high priority to them, or how they rank the importance of specific buying criteria. Psychographic segmentation can help fill in some of the blanks.

Psychographic information is frequently gathered via extensive surveys that ask people about their activities, interests, opinions, attitudes, values, and lifestyles.  Based on responses to different questions, consumers were divided up into the following categories, each characterized by certain buying behaviours.

• Innovators. Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services. Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality. Innovators are among the established and emerging leaders in business and government, yet they continue to seek challenges. Their lives are characterized by variety. Their possessions and recreation reflect a cultivated taste for the finer things in life.
• Thinkers. Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility. They tend to be well-educated and actively seek out information in the decision-making process. They are well-informed about world and national events and are alert to opportunities to broaden their knowledge. Thinkers have a moderate respect for the status quo institutions of authority and social decorum but are open to considering new ideas. Although their incomes allow them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.
• Achievers. Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery. With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favour established, prestigious products and services that demonstrate success to their peers. Because of their busy lives, they are often interested in a variety of time-saving devices.
• Experiencers. Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savouring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiencers are avid consumers and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having “cool” stuff.
• Believers. Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong. As consumers, Believers are predictable; they choose familiar products and established brands and are generally loyal.
• Strivers. Strivers are trendy and fun-loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it to meet their desires. They favour stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead. Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstances will allow.
• Makers. Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it—building a house, raising children, fixing a car, or canning vegetables—and have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context. Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labour but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.
• Survivors. Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Survivors do not show a strong primary motivation because they must focus on meeting needs rather than fulfilling desires. Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to their favourite brands, especially if they can purchase them at a discount (Strategic Business Insights, n.d.).