Market segmentation is one of the crucial steps in the STP (Segmentation, Targeting, Positioning) model of marketing. Many businesses suffer losses due to failure in segmenting consumers effectively. Since the needs of each consumer vary, we can classify consumers and markets through market segmentation to develop or adjust products or strategies that meet their needs. This segmentation can be based on various factors such as geographic location, age, gender, income level, interests, and hobbies. By understanding the needs and preferences of different segmented groups, businesses can more effectively position their products or services and develop targeted marketing strategies. In the following paragraphs, we will delve into four common market segmentation methods to better understand the importance of market segmentation.
Demographic Segmentation: Understanding Consumer Diversity
Demographic segmentation primarily categorizes consumers based on factors such as age, gender, income, and race. Different demographic factors have a significant impact on the market. For example, many Asians have a specific genetic condition where they lack the ABCC11 gene, resulting in no body odor under the armpits, leading some individuals to refrain from purchasing deodorants. Despite the annual growth in deodorant sales, statistics from statista.comLinks to an external site. show that by 2024, the sales in the populous Chinese market reached only $221.6 million, with a per capita income of only $0.15. Similar situations are observed in Korea, with a per capita income of only $0.76 and total sales of $39.55 million. In contrast, the per capita income in the United States and Germany is $16.92 and $13.08, respectively. Currently, in the Asian market, deodorants with higher sales often focus mainly on fragrance as their primary selling point. Therefore, businesses can consider this aspect to adjust their products to better meet the needs of local consumers.
Geographic Segmentation: Tailoring Products to Regional Needs
Geographic segmentation categorizes markets based on geographical locations. In this categorization, geographical features such as climate, terrain, and population density significantly influence consumer behavior. For instance, ice cream shops in cold regions are unlikely to have high sales, and sales of thick clothing such as down jackets may not be ideal in warm areas like Miami.
Apart from climate conditions, geographic location also affects product demand and consumer habits. For example, beach cities may have higher demand for waterproof sunscreens and beach products than inland areas. Similarly, rural areas may prioritize the purchase of agricultural supplies or home gardening equipment, while urban areas may lean towards buying ready-made fruits and vegetables.
Psychographic Segmentation: Understanding Consumer Preferences
Psychographic segmentation involves segmenting markets based on consumer lifestyles, personalities, and values. Failure to conduct in-depth research on consumer habits may result in misjudging market demand, ultimately affecting the market competitiveness and sales of products. One of the classic examples is the challenge Oreo facedLinks to an external site. when entering the Chinese market for the first time. They found very low sales, which stemmed from a misunderstanding of the lifestyle and taste preferences of Chinese consumers. Chinese people do not frequently consume sweets, making Oreos too sweet for their taste. To overcome this challenge, Oreo adjusted their product formula by reducing sweetness and introduced rich flavors such as Matcha and Sakura, tailored to the tastes of Asian consumers. Through these changes, Oreo successfully regained the favor of Asian customers.
Behavioral Segmentation: Aligning Strategies with Consumer Behavior
Behavioral segmentation divides markets based on consumer purchasing behavior, usage habits, and responses to products or services. By understanding consumer behavior patterns and preferences, businesses can more accurately meet their needs and improve marketing effectiveness.
One classic example is Amazon’s personalized recommendation system. Amazon provides personalized product recommendations to each user by analyzing their purchase history, browsing records, and similarities with other users. This behavior-based positioning not only enhances the shopping experience but also increases sales conversion rates and customer loyalty.
Similarly, many airlines offer various rewards and discounts based on passengers’ flight miles and consumption behavior, such as free tickets and upgrades. Through this approach, airlines can incentivize customers to increase flight frequency and spending while improving customer satisfaction and loyalty.
