Identifying market segments and targets is often seen as the backbone of an advertising campaign. In this blog, I’ll discuss the appropriate steps to take along with substantial information for marketers to successfully identify market segments and targets.

Target Market Requirements
The first step is the identification and profiling of distinct groups of buyers, a process known as market segmentation. Through market segmentation, marketers find groups of buyers who differ in their needs and wants. The next step is to select one or more market segments to enter, known as market targeting. The last step is to establish and communicate benefits of the company’s products and services. This is known as market positioning. Market Positioning establishes and communicates the distinctive benefits of the company’s market offering. If these steps are done properly, then the 4 P’s of marketing (price, product, place and promotion) should fall into place.

Bases for Segmenting Consumers
A market segment consists of a group of customers who share a similar set of needs and wants. The major segmentation variables are geographic, demographic, psychographic and behavioral.

Geographic segmentation divides the market by nations, states, regions, counties, cities, or neighborhoods. Nielsen Claritas developed PRIZM NE, a geoclustering approach that combines geographic data with demographic data that yields richer descriptions of consumers and neighborhoods.  The groupings take into consideration 39 factors from 5 broad categories: (1) education and affluence, (2) family life cycle, (3) urbanization, (4) race and ethnicity, and (5) mobility. Inhabitants in a cluster tend to lead similar lives, drive similar cars, have similar jobs, and read similar magazines. Geoclustering is in some ways geography overlapped with demographic insight. Groups that act very similar are demographics in small geographic segments. This process is very relevant for retail outlets.

Demographics & Psychographics
Demographic segmentation divides the market on variables such as age, family size, family life cycle, gender, income, occupation, education, religion, race, generation, nationality, and social class. Demographic variables are often associated with consumer needs and wants and are easy to measure. Demographics are best used along side psychographics. Psychographics are wants and abilities that change with age. Companies such as Crest and Colgate offer products that target kids, adults and older consumers.

Behavioral segmentation includes various life stages of consumers. Life stage defines people’s major concerns, such as going through divorce, going into second marriages, taking care of an older parent, deciding to cohabit with others, deciding to buy a new home, and so on. These life stages present opportunities for marketers to help people cope with their major concerns. The problem with this stage is that it is the most transitional stage.

Part of demographic targeting includes gender. Men and women have different attitudes and behaviors due in part to genetics and socialization. Women are more communal-minded, men more self-expressive and goal directed. A recent study found that men need to be invited to touch a product, whereas women are more likely to pick up without being prompted. If a marketer only segments by gender, they will need to take in cultural elements.

Another part of demographic targeting includes consumer incomes. Income segmentation is used in categories such as clothing, travel, financial services, and automobiles. Income does not always predict the best customers. Blue-collar workers were among the first adopters of color television as it offered entertainment at a lower cost than going to movies or restaurants. Increasingly, companies are finding their markets are hourglass shaped as middle-market U.S. consumers migrate toward both discount and premium products.

It’s important to note that income indicates purchasing power, shapes preference for products, whether a product would survive a recession, and looking at whether it will appeal to the upper or lower class since the middle class is shrinking.

Generations are another factor in demographics. Each generation is profoundly influenced by the time in which it grows up — by the music, movies, politics, and defining events of that period. Members share the same major cultural, political, and economic experiences and have similar outlooks and values. Marketers often advertise to a cohort by using the icons and images prominent in its experiences. They also try to develop products and services that uniquely meet the particular interests or needs of a generational target. Generation groups are generally divided as follows: Gen X (1964-1978), Baby Boomers (1946-1964), Silent Generation (1925-1945), and Millennials (Gen Y) – (1979-1994).

Race and culture
Race and culture are the final elements of demographic segmentation. In a later blog, I will delve in deeper into the analysis of multicultural consumers. The following is a brief overview of race and culture. Multicultural marketing is an approach recognizing that different ethnic and cultural segments have sufficiently different needs and wants to require different targeted marketing activities, and that a mass-market approach is not refined enough for the diversity of the marketplace. Multicultural marketing can result in different marketing messages, media, channels, and so on.

Hispanic Americans are the largest minority group in America and have an annual purchasing power estimated to exceed $1 trillion. By 2020, 17% of Americans are projected to be of Hispanic origin.

African Americans have had a significant economic, social, and cultural impact on the U.S. life. African Americans are the most fashion-conscious of all racial and ethnic groups, but strongly motivated by quality and selection. Children have a strong influence on product selection.

The Asian American market has been called the “invisible market” because, compared to Hispanic Americans and African Americans, it has traditionally received a relatively small portion of multicultural marketing dollars.

Wrap Up
Companies cannot connect with all customers in large, broad, or diverse markets. However, they can divide such markets into groups of consumers or segments with distinct needs and wants. A company then needs to identify which market segments it can serve effectively. This decision requires a keen understanding of consumer behavior and careful strategic thinking. To develop the best marketing plans, marketers need to understand what makes each segment unique and different. Identifying and satisfying the right market segments is often the key to marketing success.