Well hi there. Thanks for watching this video on market segmentation. If you've been
watching some of the videos that we've been posting over the past several months or so
once of the things that you've probably realized is that we actually already have a video on
market segmentation. And every now and then I think that we have an opportunity to maybe
revisit a few concepts and I can explain them maybe a little more clearly, a little more
succinctly, and so that's what we're going to try to do today. And so we're going to
discuss really the purpose of market segmentation. What it is? And ultimately how marketers use
it to generate what we call a target market. And so for starters lets talk about what market
segmentation is. All market segmentation is dividing a larger market into smaller groups
based on shared characteristics. And so we're trying to take a very very large group of
individuals and we're trying to zero in on what we call a target market. Now that target
market for businesses is the consumer that you are trying to direct all of your marketing
efforts towards to attract them to purchase your products. It doesn't mean that you wouldn't
sell your products to anyone who wanted to purchase them. It simply means that everything
that you do, from the messages that you display, through television, through the print ads
that you run, from the products themselves, they are geared towards one type of consumer.
And the reason that businesses do that is they want to focus their energies. All products
are designed for a specific type of consumer in mind. Different income levels, different
interests, different backgrounds, different education levels. All sorts of different variables.
And so by tailoring them to a specific group, businesses increase the likelihood of them
being desired by that particular group. And so what we have here is, for example, lets
say we have the we'll call this the total market. And then we're going to take that
total market and then we're going to apply kind of what we call the funnel concept if
you will. And so I'm going to do my best to draw a funnel. It already looks horrible but
that's okay you're going to get the point. Lets make it a little longer. Okay so that's
my failed attempt at a funnel. So what we do here, is we put our target market here
in this kind of funnel. So this goes in here and what we do is we apply what we call market
segmentation. And that goes in here. And then once we apply all the different types of market
segmentation walla. We have what we call the target market. I apologize for the drawings
I am certainly not an artist and do not pose to be one. So this is how we do that. That's
kind of the general process and how it works. Once again we can't advertise to everyone
because there are such a great variety of consumers and there are all these different
variables that really what someone likes another person doesn't and so it's just not effective
it's a waste of resources. Why don't we focus on maybe a few specific consumers that we
have a high likelihood or probability of at least trying to reach. And so what are the
ways that we segment the market? There are actually four distinct methods that we will
segment a market. Meaning take it from a larger group and ultimately separate it into smaller
pieces. If you were to look at kind of a pie. A circular shape. We're essentially dividing
that pie into smaller pieces. With one piece hopefully having a unique set of characteristics.
So let me kind of walk through some of the different methods of segmentation so hopefully
this makes a little bit more sense. So the first thing and probably the most common is
by engaging in what we call demographic segmentation. And demographic segmentation is breaking a
dividing a larger market into smaller groups based upon such things such as gender, even
income, ethnicity, education, and a host of other variables. Essentially all the different
demographic variables if you will. And so we're taking the larger group and we're essentially
separating them. So maybe the first thing that we do is we separate male from female.
And so we know that maybe the product that we sell is geared towards females and so we
want to segment based upon that group. And then after that maybe we segment based upon
income. Maybe the product that we sell is geared towards a lets say kind of upper echelon
clientele and so the need to have more discretionary and disposable income so they can purchase
our products. And so once again we're going to keep segmenting and segmenting and segmenting
until we get a small group that has the highest probability of purchasing our product, which
is the end goal of course for the company. Now in addition to demographic segmentation
companies can also use what we call geographic segmentation. And geographic segmentation
is simply dividing the market into groups based upon geographics. Things like location.
And so you may do this on like a regional basis. You can do this based upon zip code
and a host of other areas. The main thing with geographic segmentation and usually why
most companies incorporate it to some degree is because many times companies start out
and they only operate on a certain level. Maybe it's a local level. That's really the
the only they only have a limited number of resources so they can't necessarily target
an entire state or nation. So it makes sense to focus on their specific local community.
They area in which they are physically located. As businesses grow they have the resources
to maybe kind of market towards a wider audience. But another thing they do this for is there
are differences in weather. So if you're selling products that are maybe dependent upon the
sun maybe you're in the solar industry, you probably wouldn't open up shop in a place
like Portland Oregon that doesn't get a great deal of sun. And so you would engage in geographic
segmentation because you're trying to zero in on one the consumer that has the most use
of your product in this case. And so you would probably locate in California or Arizona or
another state that gets a high amount of sun because you know that that consumer is going
to have the most use of it. So that mainly that reason that you would gauge engage in
geographic segmentation. Is to determine if that consumer has a use for your product,
obviously you want to take that into consideration as well. In addition to that you also look
at like urban versus rural populations. And so you don't see a great deal of advertisements
for like Ford or Dodge big trucks in densely populated areas like San Francisco for example
because really it's just kind of hard to park on a hill when you're driving a big truck
and parallel park for that matter. The spots are very small. And so you don't see a great
deal of advertising surrounding that because those companies engage in geographic segmentation.
They realize that their ideal consumer is not necessarily in that area. It's in more
of a rural area where they actually have more of a use for them.Now in addition to those
two types, so geographic and demographic segmentation we are really looking at certain characteristics
and we're trying to infer based upon the characteristics that you have you are more likely to purchase
a product. So there is no guarantee. Simply because you fall into a certain bucket on
age, gender, ethnicity, education, maybe you have a high probability of doing something,
but that doesn't necessarily mean that you will. And so to kind of overcome that barrier
that obstacle because we all have choice at the end of the day, we can also utilize businesses
rather can also utilize what we call psychographic segmentation. And psychographic segmentation
is once again dividing the market into smaller groups but this time we're basing it off of
things like interests, and lifestyles, and even attitudes. And so we're focusing not
necessarily just on the characteristics that we share, things like income, education, where
you live, but we focus on what do you really like? Facebook has gathered so much information
related to just what people post, what people like, and all these different things and that
is all designed to sell marketing and advertising space. Because they know that this person
likes these things, they have these interests, which makes it more likely that you're going
to maybe be purchasing a related product. And they're very sophisticated in the way
that they actually use that information. And based upon the things that you like and based
upon the posts that you create they can determine with a high probability what your interests
are what things are you interested in, what your lifestyle, your attitudes, those types
of things and that helps them sell advertisements to different businesses. They can charge more
for them. Because the idea being is that if you have an interest in something you are
probably going to purchase products related to that particular interest. Much more valuable
than just your characteristics your things like age. Even within a specific age range
there's still a great degree of variability. Just because you fall into one group on age
or income doesn't mean you're going to behave the same way as all the other people in that
group. But if you have an interest in a certain thing that is a better descriptor a better
variable to segment based upon because the chances are if you share a certain interests
there are going to be products related to that particular interest. And so with psychographic
segmentation you look at things such as stages of life, so married with kids obviously have
different needs than people who are just simply married. Or students that are in college have
different needs than singles who are out of college. And so that's what you're kind of
looking into is based upon those things based upon those variables being able to kind of
predict ultimately kind of future behavior but also trying to get a feel for what is
your target market. Now that last variable that businesses use is what we refer to as
behavioral segmentation. And so psychographic segmentation kind of the place where it falls
short is we're assuming that based upon your interests and your lifestyle that you're going
to be behaving in a certain way or have a high probability of behaving in a certain
way. So because you like lets say outdoor activities or outdoor watersports well maybe
your going to like you know hiking because if things are outdoors maybe you have an interest
in that. So maybe that translates to hiking. Well not necessarily. So what behavior segmentation
does is it doesn't just focus on things that you're interested in, or your attitudes towards
different things because those are hard to obtain. You have to tell someone you have
an interest in something, which we tend to behave in socially acceptable ways so sometimes
if we're answering a questionnaire and someone is asking us all these questions that we're
going to give them the answer that they want just so we can move on. So with behavior segmentation
we're actually dividing the market into smaller segments and groups based upon actual behavior.
Much more valid method of segmentation. If people purchase product xyz they have a high
probability of purchasing this next product because they not only have an interest but
they've actually purchased it. Their behavior indicates that they like those products. So
if you look at things like Amazon for example. If you've ever purchased anything on Amazon
before you'll notice that your homepage on Amazon if you're logged in of course will
change based upon the things that you actually purchase. Because they're engaging in behavior
segmentation, they're changing their marketing efforts based upon what you buy because they're
trying to get a more accurate depiction over the things that you like. Because once again,
they're trying to sell things. And so why wouldn't I sell you things that are somewhat
related to what you've already purchased in the past. So you go only and you purchase
maybe a lot of baby supplies or different things of that nature then you're going to
see a lot of similar products related to that. Or if you're constantly buying books in a
certain genre you're going to see suggestions of books in that particular genre. because
those arguably have a high probability of actually selling. So businesses use each of
these four areas. We have demographic segmentation, geographic segmentation, psychographic, and
behavioral. Once again as taking the total market and widdling it down to this target
market so that we have an ideal set of characteristics of the consumer that we are targeting, who
our product is actually designed for, so we know what they like, what they're interested
in, what are they looking for in a product so we can ideally design something specifically
for them. That's the main goal. Creating something and then finding someone to sell it to is
very ineffective. The thing that works the best is understanding who is your market first,
who are you trying to target, finding our what they like. What drives them? What's the
pain in the market that they feel from not having a particular need met? And then designing
something as a way of fulfilling that particular need. And so by engaging in market segmentation
not only do you get a good idea of who you're consumer is, but you also know how to actually
attract them, and how to design products and services ultimately with their needs in mind.
So that's kind of market segmentation. Hopefully that helps clear some things up if there were
any questions before. If you have a question go ahead and leave a comment in the box below
and I'll do my best to get back to you as soon as I can. Thanks for watching and have
a great rest of the day.