UPI Study › Courses › Business Essentials › Free lessons › Lesson 12.4 Free with a free account
Segmenting Markets: Geographic, Demographic, Psychographic, and More
Business Essentials · Chapter 12: Marketing Foundations and Consumer BehaviorSection 12.4 · lesson 58 of 10513 min · free with a free account
Free preview
Create a free account to keep watching
It takes a minute and costs nothing. Your free account unlocks all of Chapter 1 and 3 more lessons of Business Essentials.
Lesson complete
Earn the 3 college credits for Business Essentials
Enrolling adds a quiz after each lesson, the graded work and the official transcript. Recommended for credit by NCCRS.
Next lesson: What Drives Consumer Decisions: Culture, Values, and Influence →← B2B versus B2C: Marketing to Businesses and ConsumersNext lesson: What Drives Consumer Decisions: Culture, Values, and Influence →
In this lesson
Dividing a market into groups worth serving differently.
- Describe consumer and business segmentation bases
- State the 5 requirements of a useful segment
- Evaluate segments for attractiveness
- Segment a market and select a target
Free study notes
Get this lesson's notes by email
The key points and 4 practice questions with answers, in your inbox. One email, free.
One email. Unsubscribe in one click.
Transcript
Everything said in the video, section by section (1,774 words). Read along, or search it.
Marketing Foundations and Consumer Behavior
Segmenting Markets: Geographic, Demographic, and More
No product suits everyone equally. So which people should a business build for? This section is about dividing a market into groups worth serving differently. We'll cover the bases for segmenting consumer markets, and the related bases for business markets. We'll set out the five requirements a useful segment has to meet. Then how to judge which segments are attractive, and how to choose a target. Along the way comes an important caution about what a segment can, and can't, tell you about people. We'll finish with a worked example, and a case where a plausible segment turned out not to behave like one. The thread running through it all is behavior. A segment matters only if it buys differently.
What Segmentation Is For
Matching an Offer to a Group, Not an Average
Imagine designing one product to satisfy every buyer in a market at once. It sounds efficient. In practice, it produces a compromise that fits no one especially well. The most demanding buyers find that it falls short. And the least demanding buyers are overserved, at a cost that didn't need to be paid. Segmentation is the fix. It divides a market into groups with different needs, or different responses. That way an offering can be matched to one group, instead of averaged across everyone. You met it in section twelve point one, as the first stage of segmentation, targeting, and positioning. It's the analytical step that lets a business design something closer to what a specific group actually wants.
Consumer Segmentation Bases
4 Ways to Divide a Consumer Market
Consumer markets are commonly segmented along four bases. Geographic segmentation divides a market by location, climate, or population density. That means region, an urban or rural setting, or a climate zone. It's useful when needs genuinely differ by place. Think of heating equipment in cold regions, or drought-resistant landscaping in dry ones. Demographic segmentation uses measurable population traits, like age, household composition, income, occupation, or education. It's widely used, because those data are relatively easy to get, and to link to purchasing patterns. Psychographic segmentation divides by lifestyle, values, and personality. It captures how people see themselves, and what they prioritize, which demographics alone can't reveal. Two households with identical income and age can hold very different values about environmental impact, or status display. Behavioral segmentation divides by usage rate, purchase occasion, benefits sought, and loyalty. It groups customers by what they actually do, rather than by who they are.
A Necessary Caution
A Segment Describes a Pattern, Not a Person
Before going further, one caution applies to everything in this section. A segment is an analytical construct. It describes a pattern of purchasing behavior, observed or estimated at the level of a group. It says nothing about the character, capability, or preferences of any individual in that group. That includes anyone who simply happens to share a demographic trait with it. A segment defined by age, income, or location describes a statistical tendency among many people. It is not a fact about any one of them. Treating a segment as a description of its members is wrong in two ways. It's analytically wrong, because individuals within any segment vary enormously. And it's offensive, because it reduces a person to a marketing category. So keep the distinction sharp. A segment is a pattern some people share, never the people themselves.
The Most Useful Base
Behavior, and the Benefit a Buyer Wants
Of the four consumer bases, behavioral segmentation is generally the most useful. The reason is simple. It segments on what people do, rather than who they are. And what people do is much closer to the outcome a business actually cares about, which is purchasing behavior. Within it, one version connects most directly to product design. That's benefits-sought segmentation. It groups customers by the specific benefit they want from a product category. Take toothpaste. One group wants whiteness. Another wants freshness. A third wants low cost. Each of those points straight at what a product should actually deliver for that group. Compare that with a trait like age or income. A trait may merely correlate with buying. It doesn't tell you what to build.
Business Market Bases
5 Ways to Divide a Business Market
Business markets are segmented along a related, but distinct, set of bases. Industry groups buyers by the sector they operate in, since firms in the same industry often share similar needs. Company size groups buyers by revenue or employee count. A small firm and a large firm usually need different purchase volumes, service levels, and financing terms. Geography groups buyers by location. It matters where distance affects delivery cost, or service response time. Purchasing approach groups buyers by how formally and centrally they make purchase decisions. A firm with a centralized purchasing department behaves differently from one where individual managers buy independently. And application groups buyers by how they'll use the product. The same component may be used differently by different buyers, and so valued differently too.
Requirements of a Useful Segment
5 Tests Before a Segment Is Worth Acting On
Not every way of dividing a market produces a segment worth acting on. Five requirements decide. A segment must be measurable. Its size and purchasing power can be estimated from available data. If it can't be sized, it can't be evaluated. It must be substantial, large enough in numbers or spending to be worth a tailored offer. A handful of customers rarely justifies a dedicated program. It must be accessible. The business can actually reach it, through media, channels, or sales efforts. A real, sizable segment that no practical means can reach simply can't be served. It must be differentiable, responding differently from other segments to a distinct approach. If it behaves like everyone else, treating it separately adds cost, and no benefit. And it must be actionable. The business can design and sustain a program for it. Otherwise the exercise is academic, not strategic. Here's the observation worth keeping. Most failed segmentation fails on accessibility or actionability, not on the analysis. Finding a real, measurable, substantial, differentiable group is often the easy part. Reaching it through channels you actually have, and serving it with your real capabilities, is harder.
The Tests Applied
4 Passes and 1 Fail Is Still a Fail
Here are the five tests applied to one described segment. The segment is suburban households with young children, who buy on promotion. It passes the measurable test. It's also substantial, and it's accessible. And it's actionable. The business could build a program for it. That's four passes out of five. But it fails differentiability. Its members don't actually respond differently from other shoppers nearby. And that single failure is enough. An otherwise well-defined segment isn't worth serving separately if it behaves like everyone else. A separate campaign would add cost, and produce no difference in response.
The Segment of One
Tailoring an Offer to a Single Customer
Push segmentation as far as it can go, and you reach the segment of one. Advances in data collection let some businesses tailor an offer to an individual customer, rather than to a group. A streaming service that recommends titles to one subscriber, from that subscriber's own viewing history, is doing a version of this. But micro-targeting has real practical limits. Building and maintaining a system capable of individualized offers is costly. The data underneath must be accurate and current to be useful. And for many products, the gain from tailoring beyond a reasonably defined segment is small, relative to the cost. So the segment of one isn't really a separate concept. It's the extreme end of the same accessible and actionable trade-off that governs all segmentation.
Evaluating and Targeting
Which Segments Are Worth Pursuing?
Once candidate segments pass the five requirements, the business still has to judge which are worth pursuing. Four factors commonly guide that judgment. Size asks how many potential customers, or how much potential spending, the segment represents now. Growth asks whether it's expanding or contracting. A modest segment growing strongly can be more attractive than a larger one in decline. Competitive intensity draws on the five forces from section one point three. How many rivals compete, and how fiercely? A segment that looks attractive in isolation may look far less so once existing competition is counted. And fit asks whether the business's strengths actually match what the segment values. A segment you can't serve better than rivals offers little advantage, however attractive it is. Then comes the target. The business picks an undifferentiated, differentiated, concentrated, or micromarketing approach. The choice depends on how many segments its resources and attention can genuinely support. One risk runs through all of this, and that's segmenting too finely. Each extra subdivision shrinks the segment, and raises the cost of serving it separately. Eventually substantiality fails, even though the analysis is still technically sound.
Worked Illustration
Halden Cycle Works: From Bases to a Target
Here's the whole sequence in one worked illustration. Halden Cycle Works, a fictional company, wants to segment the market for a new line of commuter bicycles. Geographically, dense urban areas with established bike lane networks look more promising than rural areas. Demographically, within those areas, it considers working adults aged roughly twenty-five to forty-five. Psychographically, it separates commuters who value convenience and low maintenance from enthusiasts. The enthusiasts value performance, and are willing to spend more time maintaining their equipment. Behaviorally, it separates daily commuters from occasional recreational riders. Daily commuters ride five days a week, and value durability and weatherproofing. Weekend riders value comfort over durability. Now check the daily-commuter segment against the five tests. It's measurable from bike-lane usage data and commuting statistics, and substantial, given how many adults commute in those cities. It's accessible through workplace partnerships and urban advertising. It's differentiable, because daily commuters prioritize durability and weatherproofing differently from weekend riders. And it's actionable, given the company's existing manufacturing capability. So Halden targets daily urban commuters, with a concentrated approach suited to its current size and resources.
Case Vignette
A Segment That Wasn't
A final composite case. The company and the person are fictional. Tomas, a marketing manager at Fennmore Home Goods, proposes segmenting the kitchenware line by the age of a household's youngest child. His reasoning is that households with young children would buy more durable, spill-resistant kitchenware. They should respond well to a dedicated campaign built around that theme. So the campaign launches. Afterward, the purchase data tell a different story. Households with young children bought spill-resistant kitchenware at almost exactly the same rate as households without them. That held within the same income and location range. Both groups bought mainly on price and brand familiarity. The campaign's design and media placement are already paid for. So Tomas could continue and hope the effect grows, fold the campaign into general marketing, or find a better basis. The trade-off is the sunk cost of continuing, against wasted spending on a segment that doesn't behave differently. The reasoning turns on differentiability. The demographic story was plausible, but it didn't predict different behavior. A segment that responds like everyone else gives no reason to treat it separately. The sound choice is a behavioral basis, like households that previously bought spill-related or child-safety products. Those customers are more likely to respond differently to this specific offer.
About Business Essentials at UPI Study
Business Essentials (Business 100) is a self-paced online course of 105 video lessons in 24 chapters, from the business environment, economics and global markets to ownership, management, leadership, operations, people, marketing, accounting, finance and banking. It carries a NCCRS credit recommendation for 3 semester credits.
Every lesson transcript is free on pages like this one, and the videos are free with a free UPI Study account. Enrolling adds a practice quiz after each lesson, the graded work and final exam that earn the credit, lifetime access, and an official transcript on completion. UPI Study has helped over 130,000 students with college credits. ACE and NCCRS have over 2,100 cooperating colleges that will consider accepting credits; the final decision is with the universities.
Enroll now → Course details Download the syllabus All Business courses Every course with PRO →
Why take it here
Why students take Business Essentials with UPI Study
Where the credit goes
Universities that work with NCCRS
Business Essentials carries a NCCRS credit recommendation. These universities work with NCCRS; some are UPI Study's signed partners. ACE and NCCRS have over 2,100 cooperating colleges that will consider accepting credits; the final decision is with the universities.
Thomas Edison State UniversitySigned partner
University of the PeopleSigned partner
Charter Oak State CollegeSigned partner
Strayer UniversitySigned partner
Columbia Southern UniversitySigned partner
Indiana TechSigned partner
Penn StateWorks with NCCRS
Southern New Hampshire UniversityWorks with NCCRS
SUNYWorks with NCCRS
+many more cooperating universitiesFind my college →Find my college → Not listed? Ask Athena in the corner of this page, or book a 15-minute call.
FAQ
Questions students ask us
About Segmenting Markets: Geographic, Demographic, Psychographic, and More
What are the four bases for segmenting consumer markets?
What are the five requirements for an effective market segment?
What is benefit segmentation?
How are business markets segmented?
About the Business Essentials course
How many college credits is Business Essentials?
How much does Business Essentials cost and what is included?
Which universities accept UPI Study credits?
How long does Business Essentials take?
How are the exams done?
How do my credits reach my college?
Ready for the full course? Earn 3 credits in Business Essentials.
105 video lessons, a quiz after each one, and the graded work that earns the credit. Recommended for credit by NCCRS.
3 credits · NCCRSEnroll →