How to Use Market Segmentation: Developing a Target Market

How to Use Market Segmentation: Developing a Target Market

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.

Comments (54)

  1. thank you this was so helpful!! 

  2. I dont normally comment, this was great! Thanks 

  3. Hey man these tutorials really helped me coming up to exam time , any chance you do do one on consumer behaviour and seo for a company website ,

  4. Thank you a lot, now studying International Business Studies my Unit 3 is about segmentation. And I didn't know any thing about that, now I understand.

  5. very nice, subscribed and shared – thank you so much.

  6. Great way to simplify the concept.

  7. Great video- quick question what program do you use to make your videos? It was a new and interesting way to learn fro me.How can you  write your notes and record your voice and then upload as a video? thanks 🙂

  8. Your real-world examples are fantastic. THANK YOU!

  9. These video's were very help for me while I studied for my Marketing CLEP. I was wondering if you could upload a video on elasticity & inelasticity. Great job and please keep up the good work!

  10. great presentation, I need a segment of your brain lol  (terrible joke)

  11. Hiya great video helped me understand a lot. I am a little confused on something, do businesses have to do market research or use market research companies to find out information for example if I wanted to use psychographic segmentation would a company have to use market research to find people interested in the same things?- if that makes sense? thank you in advance 🙂

  12. Thanks for the video it really helped explain things.

  13. Good presentation but I still need some clarification. Regarding the target market, do u select one of the segments (i.e geographic, demographics etc) as your target market or do you select a target market with a combination of characteristic/variables that fall under all the segments if necessary. E.g Target Market being : A male (gender) of 35 yrs and above (age) living in Florida (location) with an annual income of $50,000 (income) who loves going on boat cruises (lifestyle). As you can see, the target market is a combination of gender (demographic) + age (demographic) + location (geographic) + income (demographic) + lifestyle (psychographic). Am I making any sense?

  14. Amazing presentation! You helped a lot for my exam preparation. Aiming for an A after this! 😉

  15. Bro this is awesome! Really! Im gonna go premium. Thank you 🙂

  16. Your video help my so much,thank you a lot !!!

  17. Hello there, first of all, thanks for the video. Secondly, how do I cross data using a chart with more than 2 variables. Let's say that I have the percentage of the population that I want to target according to their age and also the percentage of the population that I want to target according to their income, how do I do to put that in to a graphic to see what's the behaviour of the population according to those two variables?, can I add as many variables as a I wish?

  18. this is very useful, I have a project at uni
    message : becoming healthier
    client: 25-30 years old
    Target Audience Achievers (Vals)
    Advertisement: Entertainment & media
    I am focusing on helping people of this age group increase physical health, any advise when it comes to advertisement or research

  19. Thanks for explaining this .. 🙂
    Helped me prepare for an exam. You got one more like added.

  20. Thank you! I found this very helpful and useful!

  21. I wonder if most of the viewers realize that this information is GOLD!

  22. Awesome presentation. I was wondering if you may do, or if its already exist a presentation that is focusing on market segmentation and target marketing business to business as well! 🙂

  23. Grat video, simple but complete!

  24. Great information and explanation! Your video really put things in perspective for me.

  25. Great work! Well done thanks!! Keep it up bro

  26. Thank you for the vids. What a great vid recaps to watch. I love your voice! Very engaging. Keep up the great work.

  27. I am a marketing lecturer and I like the way you explain the concepts. May I know what software do you use to make these videos? And do you use Apple Pencil for writing these notes?

  28. To the person doing the lecture video for Alanis Business Academy. Are you an entrepreneur?

  29. Is there an order in doing Market Segmentation??

  30. sir what is the diffrence between psychographic segmentation and behavioural segmentation please elaborate

  31. I love the way you explain things. So easy to understand! Thanks!

  32. i couldn't understand, The Demographic . Can you give me more Example?

  33. really helped and interesting thanks

  34. Good presentation

  35. Thank you so much for you time and for sharing your knowledge. I`m an International Business`s student and I`m watching videos to remember what I learned in college… Your videos are amazing. I`m learning and remembering so much. Thank you once more. 🙂


  37. What is the real difference between Psychographic Segmentation and Behavioral Segmentation?
    I mean, your explanation is clear, if you can measure or observe, then its a behavior. I agree with this. But many other courses or articles putting 'attitudes' 'knowledge' or even 'values' into

    behavioral box.
    The other confusing thing is that we can extrapolate behavioral data into some psychometric construct.
    Eg. the frequency of switching sites (behavior) maybe correlates with impulsivity (personality trait). So…i don't get the logic behind this terminology.

    here is the same question on Quora if somebody wants to answer it.

  38. Just a note to the author/speaker. Solar panels work BETTER in areas that don't get too much sun such as Portland and Seattle than they do in especially hot sunny areas, where the panels overheat and break down quickly. Just thought you'd like to know….

  39. Very helpful thanks keep up the good work


  41. This information is very useful thank you.

  42. this is one of the best explainer videos

  43. This is a great explanation of market segmentation. It cleared my mind on how to apply these different segmentation concepts. Thanks!

  44. Awesome…very detail information.

  45. Learned more from this video than my textbook! Great video!

  46. Amazing informative video for those who are new to know about audience segmentation. Would you like to visit here to get some basic information regarding audience segmentation?

  47. thanks alot your video helped me alot

  48. How to Find target segment
    Watch below given Video

  49. Do you have any videos or can recommend any for customer segments ?

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