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In: Finance

       Define market segmentation and discuss the different options available to financial services organisations in deciding...

       Define market segmentation and discuss the different options available to financial services organisations in deciding on the bases to use in segmenting the personal sector.

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What Is Market Segmentation?

As a marketing strategy, market segmentation is designed to help companies better market to groups that they will have the most success at meeting their needs. Market segmentation helps companies create a market mix that allows them to target their marketing campaigns to audiences that are more likely to need their product - and, potentially find under-served segments to branch out to.

Factors of Market Segmentation

There are several factors that a company or business will need to examine during the market segmenting process - including how accessible the segments are and specific identification parameters.

For example, companies need to be able to clearly identify different segments of potential consumers. Additionally, the measurability of the segment's size is important to understand how best to plan a strategy, as is the segment's accessibility regarding promotional or marketing materials.

Moreover, to support the strategy, the strategy must be appropriate for the resources of the particular company and in line with their policies.

Types of Market Segmentation

But what types of market segmentation are there? How can companies divide their prospective markets?

In general, there are four basic types of market segmentation (with some variation in them) - behavioral, demographic, psychographic and geographic.

1. Behavioral

As the name may suggest, behavioral market segmentation is focused on how consumers interact with a product, or how much they know about a product.

For example, behavioral segmentation could include what brands consumers are loyal to, how sensitive consumers are to certain prices, their usage or certain decision-making processes. Behavioral also includes occasion, engagement and life cycle.

Behavioral marketing is often employed most during Christmas or holiday shopping seasons when consumer behavior is somewhat altered.

2. Demographic

One of the major ways to segment the market is by demographics. Marketers often segment consumers into groups based on similar age, gender, family size, religion, nationality, income and education level. These are often helpful ways for businesses to better assess what might interest their prospective consumers and better target them based on more narrowed needs.

An example of demographic market segmentation could be marketing a retirement service to older citizens.

3. Psychographic

With psychographic segmentation, companies examine consumer's lifestyles, personality, interests, opinions, social class, habits and activities to better ascertain their needs.

For example, a consumer who is very active with outdoor activities like camping, hiking and skiing would more likely be interested in tents, hiking boots and ski shoes than someone who spends lots of time reading indoors. In marketing, much of this information is procured through surveys or other data that give a company a better picture of a consumer's lifestyle and interests to better target their specific niches.

4. Geographic

Geographic information about consumers can be very helpful (and even essential) to marketing to the right groups. Geographic market segmenting takes into account what country, region, city or area a potential consumer resides in. However, it may also encompass the density of a city, population, climate and language to help further group consumers.

Market Segmentation Examples

Here are some actual examples of market segmentation.

One example of market segmentation in action is Victoria's Secret and their teenage-targeting brand PINK. Victoria's Secret primarily targets women, while their brand PINK is targeted more toward teenage girls and women. However, the brand has also long marketed itself to men - usually husbands or boyfriends of women who are looking to purchase gifts. Given the brand's pricing, Victoria's Secret also targets a relatively affluent segment with additional income to spend on lingerie or mid-price undergarments.

Apple (AAPL) - Get Report has made its fortune by segmenting the overall electronics market into primarily early adapters and affluent market segments.

Another good example of market segmentation is the banking industry - like Wells Fargo (WFC) - Get Report or JP Morgan Chase (JPM) - Get Report . Both are large banks with a multitude of different products that require market segmentation to best market them individually. For example, JP Morgan Chase would not likely market 401(k)s or IRAs to college-aged customers - instead, banks may focus on a 30- to 40-year-old demographic, or even senior citizens.


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