Market segmentation

[6] Archaeological evidence suggests that Bronze Age traders segmented trade routes according to geographical circuits.

Another solution, that came into vogue starting in the late sixteenth century, was to invite favored customers into a back room of the store, where goods were permanently on display.

Yet another technique that emerged around the same time was to hold a showcase of goods in the shopkeeper's private home for the benefit of wealthier clients.

Samuel Pepys, for example, writing in 1660, describes being invited to the home of a retailer to view a wooden jack.

[10] From the 1880s, German toy manufacturers were producing models of tin toys for specific geographic markets; London omnibuses and ambulances destined for the British market; French postal delivery vans for Continental Europe and American locomotives intended for sale in America.

"[16] Smith's article makes it clear that he had observed "many examples of segmentation" emerging and to a certain extent saw this as a "natural force" in the market that would "not be denied.

However, with the advent of digital communications and mass data storage, it has been possible for marketers to conceive of segmenting at the level of the individual consumer.

One American study, for example, suggested that almost 60 percent of senior executives had used market segmentation in the past two years.

In an undifferentiated approach, the marketer ignores segmentation and develops a product that meets the needs of the largest number of buyers.

To support this type of analysis, data for household penetration of TV, Radio, PCs, and other communications technologies are readily available from government statistics departments.

However, analogous product adoption and growth rates can provide the analyst with benchmark estimates and can be used to cross-validate other methods that might be used to forecast sales or market size.

This approach seeks to deliver a single segmentation that is equally useful across multiple marketing functions such as brand positioning, product and service innovation as well as eCRM.

They classify residential regions or postcodes based on census and lifestyle characteristics obtained from a wide range of sources.

[46] Segmentation according to demography is based on consumer demographic variables such as age, income, family size, socio-economic status, etc.

This is an applied example of behavioural segmentation, using attitude to a product or service as a key descriptor or variable which has been customized for the specific application.

This approach customer-level and occasion-level segmentation models and provides an understanding of the individual customers’ needs, behaviour, and value under different occasions of usage and time.

[67] Attitudinal segmentation provides insight into the mindset of customers, especially the attitudes and beliefs that drive consumer decision-making and behaviour.

As an example, segmentations driven by functional needs (e.g. “I want home appliances that are very quiet”) can provide clear direction for product development, but tell little about how to position brands, or who to target on the customer database and with what tonality of messaging.

First, the development of more powerful AI and machine learning algorithms to help attribute segmentations to customer databases; second, the rapid increase in the breadth and depth of data that is available to commercial organisations; third, the increasing prevalence of customer databases amongst companies (which generates the commercial demand for segmentation to be used for different purposes).

[69] Before the onset of Covid-19 travel restrictions, they credited this segmentation with having generated an incremental £50 million of revenue in the UK market alone in just over two years.

[70] Facebook has recently developed what marketing professor Mark Ritson describes as a “very impressive” hybrid segmentation using a combination of behavioural, attitudinal, and demographic data.

These benchmarks form an important evidence base to guide strategic direction and tactical campaign activity, allowing engagement trends to be monitored over time.

They also 'dislike unsolicited e-mail, uninviting chat rooms, pop-up windows intended to encourage impulse buys, and other features that complicate their on- and off-line experience'.

Surfers like to spend a lot of time online, thus companies must have a variety of products to offer and constant updates, Bargainers are looking for the best price, Connectors like to relate to others, Routiners want content, and Sportsters like sport and entertainment sites.

During the research and analysis that forms the central part of segmentation and targeting, the marketer will gain insights into what motivates consumers to purchase a product or brand.

According to advertising guru, David Ogilvy, "Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the minds of the target market.

The choice of an appropriate statistical method for the segmentation depends on numerous factors that may include, the broad approach (a-priori or post-hoc), the availability of data, time constraints, the marketer's skill level, and resources.

For example, a marketer might want to learn more about the motivations and demographics of light and moderate users to understand what tactics could be used to increase usage rates.

The typical analysis includes simple cross-tabulations, frequency distributions, and occasionally logistic regression or one of several proprietary methods.

Analysts typically employ some type of clustering analysis or structural equation modeling to identify segments within the data.