Market Segmentation

GCSE Business Studies

tutor2u™ Revision Presentations 2004
 Introduction
A market contains different types of customer
A market segment is a group of customers who have similar
wants and needs
For example, consider the wide variety of markets that exist to
meet the following customer needs:

Need Examples of Market Segments Created to Meet

the Customer Need
To Eat Restaurants; fast-food outlets; grocery
supermarkets
To Drink Coffee bars; wine & spirits production; energy
drinks
To Health & leisure clubs; sport equipment; walking
Exercise holidays
To Travel Airlines; railways; motor car industry; holiday
industry

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 How Customers Differ
Market segmentation is needed because customers are not
all the same! They differ in their needs and wants.
For example, customers differ in the…
 Benefits they want
 Amount they are able to or willing to pay
 Media (e.g. television, newspapers, radio stations) they see
 Quantities they buy
 Time and place that they buy

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 Benefits of Segmentation
Businesses are successful when they provide things that
customers want
Segmentation allows businesses to develop products that
more closely meet customer needs
Also allows promotional spending to be targeted more
effectively
 E.g. adverts not put in the wrong kind of newspaper or magazine
 Sales promotions (e.g. price discounts) not offered to customers
who don’t respond to them

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 Main Methods of Segmentation
Businesses use lots of different ways of segmenting a
market. For example:
Socio-economic grouping
Age of customer
Gender
Size and composition of customer households
Geographical location
Ethnicity and/or religion
Educational background of customers

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 Customer Age and Segmentation
Age is an important way of segmenting a market
Members of same age group tend to be at same stage of
their life cycle (e.g. new parents) and tend to have similar
wants
Consumers of a similar age also have similar financial
circumstances
E.g. retired people living on a pension and savings have a
different income they can spend compared with students at
university

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 Socio-Economic Groupings

Group Description

Higher managerial, administrative or professional e.g.

A
surgeon or company director
Intermediate managerial, administrative or professional
B e.g.
teachers, solicitors
Skilled non-manual e.g. sales assistants, shop floor
C1
supervisors

C2 Skilled manual e.g. electrician, plumber

D Semi skilled e.g. assembly line workers, cleaners

E Unskilled, pensioners and unemployed

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 Is Segmentation Always Possible?
A business will only target a segment if it is:
Identifiable or measurable
 The business can estimate the number of potential customers in
a given segment)
Reachable
 The business is able to communicate with existing and potential
customers in a given segment through their distribution and
promotional activities
Profitable
 Segments must be large and profitable enough for a business to
justify offering products and services for customers in the
segment
 Often a business may conclude that a market segment is too
small to bother with

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 Mass Markets
Some market segments are very large – they are often called
“mass markets”
A mass market has a large value of sales by volume e.g.
soap powders
Mass marketing occurs when one product is aimed at the
bulk of a large market – as opposed to a small segment as in
niche marketing.
Not all businesses can compete successfully in a large
market. Mass marketing requires the ability to:
 Mass produce and so enjoy economies of scale
 Persuade customers that a standardised product is ‘better’ than
a rival offering

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 Niche Markets
Niche marketing occurs when a business concentrates its
entire efforts and resources on serving one segment of the
market
Often this segment is quite small – and there are a relatively
low number of customers
By specialising in one segment, a business can often charge
a higher price and earn higher profits per customer than in a
mass market – where there are larger competitors
Disadvantages of Niche Marketing
 A business might be dependent on one product in a market
where customer needs and technologies are changing
 Niches may be short lived if a new, more efficient, entrant is
attracted by potential profits
 Niche marketing normally involves small production runs and
limited opportunities for economies of scale

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