Unit C.15 – Simulation: Segmenting the Ice Cream Market

Try It

We’ve been talking a lot about segmentation and targeting and discussing how they both work in real-life marketing. Now it’s time for you to give it a try.

Remember the ice cream shop you ran in a simulation earlier in the course? We’re going back to that scenario: you are an entrepreneur working to building your house-made ice cream business. This time you’ll explore how to use segmentation, targeting, and the marketing mix to grow the business.

Try the simulation a few times to see how different choices lead to different outcomes. In a simulation you should take the opportunity to try out choices you think are right and some you suspect are wrong, since you can learn from both. All simulations allow unlimited attempts so you can gain experience exploring and applying the concepts.

Good luck!

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CC LICENSED CONTENT, ORIGINAL
  • Simulation: Segmentation Sandbox. Provided by: Clark Aldridge for Lumen Learning. LicenseCC BY: Attribution

Unit C.17 – Putting It Together: Segmentation and Targeting

Putting It Together: Segmentation and Targeting

Remember Chumber, your new employer from the beginning of this module?

Now that you’ve learned something about segmentation and targeting strategy, let’s return to the request your boss made for recommendations about whom Chumber ought to target and why.

Remember that Chumber’s product is an automated, fully online system for checking the references of job candidates. Chumber’s customers are other companies. After learning about market segmentation, you know that “all companies” is too broad to be a useful target market. Even on your first day of work, you can guess that marketing to every company you can find isn’t going to be a smart strategy.

Instead, you do a little research. It stands to reason that Chumber will be most valuable to companies that do a lot of hiring. A Google search for “employment by industry” brings up U.S. Bureau of Labor statistics data to help you identify which industries are expected to post the biggest gains in employment in the coming years.

Table 1: Employment by major industry sector
Industry Sector Thousands of Jobs Change Percent Distribution Compound Annual Rate of Change
2008 2018 2028 2008–2018 2018–2028 2008 2018 2028 2008–2018 2018–2028
Total[1][2] 149,276.0 161,037.7 169,435.9 11,761.7 8,398.2 100.0 100.0 100.0 0.8 0.5
Nonagriculture wage and salary[3] 137,991.0 149,803.7 157,662.0 11,812.7 7,858.3 92.4 93.0 93.1 0.8 0.5
Goods-producing, excluding agriculture 21,277.9 20,661.3 20,872.7 −616.6 211.4 14.3 12.8 12.3 −0.3 0.1
Mining 709.9 683.3 727.9 −26.6 44.6 0.5 0.4 0.4 −0.4 0.6
Construction 7,162.5 7,289.3 8,096.8 126.8 807.5 4.8 4.5 4.8 0.2 1.1
Manufacturing 13,405.5 12,688.7 12,048.0 −716.8 −640.7 9.0 7.9 7.1 −0.5 −0.5
Services-providing excluding special industries 116,713.1 129,142.4 136,789.3 12,429.3 7,646.9 78.2 80.2 80.7 1.0 0.6
Utilities 558.8 554.6 537.2 −4.2 −17.4 0.4 0.3 0.3 −0.1 −0.3
Wholesale trade 5,875.0 5,852.5 5,754.0 −22.5 −98.5 3.9 3.6 3.4 0.0 -0.2
Retail trade 15,289.1 15,833.1 15,679.4 544.0 −153.7 10.2 9.8 9.3 0.4 -0.1
Transportation and warehousing 4,513.6 5,419.1 5,741.4 905.5 322.3 3.0 3.4 3.4 1.8 0.6
Information 2,983.8 2,828.1 2,833.7 −155.7 5.6 2.0 1.8 1.7 −0.5 0.0
Financial activities 8,206.1 8,568.8 8,849.4 362.7 280.6 5.5 5.3 5.2 0.4 0.3
Professional and business services 17,792.3 20,999.5 22,661.9 3,207.2 1,662.4 11.9 13.0 13.4 1.7 0.8
Educational services 3,039.8 3,727.5 4,201.0 687.7 473.5 2.0 2.3 2.5 2.1 1.2
Health care and social assistance 16,188.6 19,939.3 23,335.4 3,750.7 3,396.1 10.8 12.4 13.8 2.1 1.6
Leisure and hospitality 13,436.2 16,348.5 17,904.9 2,912.3 1,556.4 9.0 10.2 10.6 2.0 0.9
Other services 6,320.5 6,622.4 6,716.7 301.9 94.3 4.2 4.1 4.0 0.5 0.1
Federal government 2,762.0 2,796.0 2,670.2 34.0 −125.8 1.9 1.7 1.6 0.1 -0.5
State and local government 19,747.3 19,653.0 19,904.0 −94.3 251.0 13.2 12.2 11.7 0.0 0.1
Agriculture, forestry, fishing, and hunting[4] 2,071.4 2,310.0 2,320.6 238.6 10.6 1.4 1.4 1.4 1.1 0.0
Agriculture wage and salary 1,208.6 1,547.2 1,587.2 338.6 40.0 0.8 1.0 0.9 2.5 0.3
Agriculture self-employed 862.8 762.8 733.4 −100.0 −29.4 0.6 0.5 0.4 −1.2 −0.4
Nonagriculture self-employed 9,213.6 8,924.0 9,453.4 −289.6 529.4 6.2 5.5 5.6 −0.3 0.6

Segmenting by industry makes a lot of sense in this case because some industries clearly do more hiring than others. You decide that Chumber should focus on industries with the highest projected hiring increases in the next decade: health care; professional and business services; construction; leisure and hospitality; and retail. Companies in growth industries will definitely get the most value from Chumber.

Next you want to understand more about which decision makers in these companies will be the best targets for Chumber. Having just come through the hiring process, you know who is interested in reference checking: human resources professionals, job recruiters, and hiring managers. You email Ken, the Chumber HR person who handled your hiring process, to see if he can answer a few questions about how decisions are made in HR departments.

Photograph of a man looking into the camera and smiling. He is standing with relaxed posture and his hands in his pockets.Ken is very helpful. Prior to Chumber, he worked in HR for a health care company and a consulting firm. He confirms that an HR manager or director of recruiting oversees the reference-checking process for new hires. This person would also be the primary decision maker for a product like Chumber.

Ken explains that the requirements for reference checking differ by industry. In health care, for instance, where people routinely handle life-and-death situations, reference checks are essential and thorough. Ken mentions a couple of features Chumber could add to fit the specific requirements of the health care industry. You take notes about product improvements that could be part of the marketing mix for this segment.

When you’re back at your desk, Ken sends you a list of Web sites, publications, and conferences where many HR recruiters go for professional information. This will be really useful when your boss wants to talk about promotion and place!

You invite Ken out for lunch to thank him for his valuable input.

You still have a lot to learn about Chumber and product marketing. But applying your knowledge about segmentation and targeting is giving you a good feel for how you might help the company succeed.


  1. Employment data for wage and salary workers are from the BLS Current Employment Statistics survey, which counts jobs, whereas self-employed and agriculture, forestry, fishing, and hunting are from the Current Population Survey (household survey), which counts workers. 
  2. ndividual sectors do not necessarily add to major sectors due to rounding. 
  3. Includes wage and salary data from the Current Employment Statistics survey, except private households, which is from the Current Populations Survey. Logging workers are excluded. 
  4. Includes agriculture, forestry, fishing, and hunting data from the Current Population Survey, except logging, which is from Current Employment Statistics survey. Government wage and salary workers are excluded. 

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Unit C.00 – Why It Matters: Segmentation and Targeting

Why determine market segments and target customers?

Suppose you have just accepted a product marketing job with a technology company called Chumber. You’re excited about the company and the team you’ll be working with. Chumber’s main product is an automated, fully online system for checking the references of job candidates and getting feedback from coworkers about their professional skills.

After a morning orientation session and a product demonstration on the first day, your boss gives you your first assignment: spend a half day doing research. Then come back to her with recommendations about whom Chumber should be targeting in its sales and marketing activities, and why.

After you give your boss a puzzled look, she adds, “Don’t look so worried. I already know who I think we should be targeting. But with you coming in fresh, I’d like to hear what you think. We can probably learn something from each other!”

As you sit down at your new desk, the wheels start turning in your head.

Q: What problem is Chumber’s product solving?

A: The hassle of checking references for job candidates and finding out who is really a good fit.

Q: Who has this problem?

A: Companies that hire people.

You recognize that this is a business-to-business marketing challenge, not a business-to-consumer issue. But “companies that hire people” covers a lot of ground. How effective will Chumber be if you try marketing and selling to every company in the world? And within any given company, which people would be most interested in using this product?

The question of whom to target is a foundational part of any marketing activity. Marketers use the tools of segmentation and targeting to answer this question. Segmentation helps you understand your market and divide it into groups that share common needs and characteristics. Targeting helps you figure out which of these groups to focus on in your sales and marketing activities.

As you work through this module, you will learn about segmentation, targeting, and how they work. You will also learn how these tools help you shape the marketing mix to reach your target audiences effectively.

Learning Outcomes

  • Explain the purpose of segmentation and targeting in marketing
  • Describe common segmentation approaches
  • Explain the process of selecting an appropriate segmentation approach and deciding which customer segments to target for marketing activities
  • Explain how targeting influences each element of the marketing mix

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Unit C.05 – Common Segmentation Approaches

What you’ll learn to do: describe common segmentation approaches

The next section of this module walks through several common approaches to market segmentation. Some approaches will probably seem familiar, or even obvious—like segmenting by gender or income level—but others, like “psychographic” segmentation, may not. These methods are common because they provide useful guidance to marketers about how to identify and reach prospective buyers.

It’s important to remember that there may be more than one “right” way to segment a market. Certainly there are more-effective and less-effective approaches for different products or services. Sometimes a segmentation strategy is effective for a while, but then something shifts and a new approach is needed. In that way, segmentation is like a compass for marketers: when your position or direction changes, you revisit market segmentation to fine-tune where you’re heading and how to get there. Different segmentation approaches applied individually or together help refine a marketer’s understanding of the target market.

Common Approaches to Market Segmentation

Segmentation starts by identifying all the potential buyers for your product: individuals with the need and the means to buy what you offer. In most cases, this represents a large universe of people or organizations that are similar in some ways but different in many other ways. Segmentation is a process that helps marketers narrow their focus on the most promising groups within that universe.

There is no single correct way to segment a market. Defining a target consumer base can be performed using a variety of segmentation methods. Several common methods are discussed below. Marketers may apply a combination of these methods to provide greater insight into their target market and the customers they want to serve. In fact, good marketers generally try out different methods and combinations to figure out what approach is most successful to help them achieve their goals. Because people and their needs change, effective approaches for segmenting a market can also evolve over time.

The following is a list of common market segmentation approaches:

  • Geographic: nations, states, regions, cities, neighborhoods, zip codes, etc.
  • Demographic: age, gender, family size, income, occupation, education, religion, ethnicity, and nationality.
  • Psychographic: lifestyle, personality, attitudes, and social class.
  • Behavioral: user status, purchase occasion, loyalty, readiness to buy.
  • Decision maker: decision-making role (purchaser, influencer, etc.)

Geographic Segmentation

Photograph of seven surfboards leaning against a wooden fence on a beach.

You’re much more likely to sell surfboard in a location with a beach than in a landlocked location.

Geographic criteria—nations, states, regions, countries, cities, neighborhoods, or zip codes–define geographic market segments. Geography represents the oldest basis for segmentation. Regional differences in consumer tastes for products are well known, such as the affinity for barbecue in the southern U.S. or preferences for health-conscious menus in coastal California. Geographic segmentation suggests that in areas prone to rain, for instance, you can sell things like raincoats, umbrellas, and rubber boots. In hot regions, you can sell summer wear; in cold regions, you can sell warm clothes.

Geographic markets are easily identified, and large amounts of data are usually available. Many companies simply do not have the resources to expand beyond local or regional areas, so they must focus on one geographic segment only. There is very little waste in the marketing effort, in that the product and supporting activities such as advertising, physical distribution, and repair can all be directed at the customer. Further, geography provides a convenient organizational framework. Products, salespeople, and distribution networks can all be organized around a central, specific location.

The drawbacks of using a geographic basis for segmentation are also worth noting. There is always the possibility that consumer preferences aren’t dictated by location—other factors, such as ethnic origin or income, may be more important. The stereotypical Texan, for example, is hard to find in Houston, where one-third of the population has immigrated from other states. Another problem is that geographic areas can be defined as very large, regional locations. Members of a geographic segment may be too heterogeneous to qualify as a meaningful target market.

Demographic Segmentation

Demographics are statistical data that describe various characteristics of a population. Demographic segmentation consists of dividing the market into groups based on demographic variables such as age, gender, family size, income, occupation, education, religion, political opinions, ethnicity, and nationality. Demographic segmentation variables are among the most popular bases for segmenting customer groups because demographic data are plentiful and customer wants and needs often link closely to these variables.

For example, the youth market (roughly ages five to thirteen) not only influences how their parents spend money, but also how they make purchases of their own. Manufacturers of products such as toys, records, snack foods, and video games have designed promotional efforts directed at this group. “Tweens” are children between the ages of eight and twelve who are discovering what it means to be a consumer and are shaping the attitudes and brand perceptions they will carry with them as they grow up and gain more purchasing power. The elderly market (age sixty-five and over) has grown in importance for producers of products such as low-cost housing, cruises, hobbies, and health care.

DOVE SHAMPOO

The following advertisement illustrates how the advertising and marketing promotion of Dove’s Men+Care product line focuses on the unique needs and interests of the young to middle-aged male segment.

Life stage is another demographic trait associated with age, gender, marital, and family status. There is evidence that individuals and families go through predictable behavioral patterns associated with buying behaviors. For example, a young couple with one young child has far different purchasing needs than empty-nesters in their late fifties or single, middle-aged professionals.[1]

Income is perhaps the most common demographic basis for segmenting a market because it indicates who can or cannot afford a particular product. It is quite reasonable, for example, to assume that individuals earning minimum wage could not easily purchase a $80,000 sports car. Income is particularly useful as a segmentation input as the price tag for a product increases. It can also be helpful in understanding certain types of buying behavior, such which income groups are most prone to use coupons.

Similarly, other demographic characteristics can influence other types of consumer activities.

Despite the apparent advantages of demographic segmentation (i.e., low cost and ease of implementation), uncertainty exists about its effectiveness. The method can be misused. For example, it might be said that the typical consumer of Thai food is under thirty-five years of age, has a college education, earns more than $10,000 a year, lives in a suburban fringe of a moderate-size urban community, and resides in the West. While these characteristics may describe a typical consumer of Thai food, they also describe many other consumers and may paint an overly broad or inaccurate portrait of a supposed “segment.” When a segment is too broad, it loses its defining characteristics and there isn’t much to differentiate the target segment from the general population. In this situation, the segmentation approach does not provide much useful guidance to help marketers make effective marketing choices.

Psychographic Segmentation

In psychographic segmentation, consumers are divided according to common characteristics in their lifestyle, personality, attitudes, and social class. Evidence suggests that attitudes of prospective buyers toward certain products influence their subsequent purchase or nonpurchase of them. If persons with similar attitudes can be isolated, they represent an important psychological segment. Attitudes can be defined as predispositions to behave in certain ways in response to given stimulus.[2]

For market segmentation purposes, personality is defined as long-lasting characteristics and behaviors of a person that shape how they cope and respond to their environment. Consumption of particular products or brands relates to consumer personality. For example, risk-seeking individuals are attracted to extreme sports and travel, and extroverts tend to dress conspicuously.

Social class segmentation identifies individuals based on a combination of socioeconomic such as education, occupation, income, family background, and attitudes related to these factors.

Photo of two windsurfers.

Lifestyle segmentation refers to the orientation that an individual or a group has toward consuming products, work, and play and can be defined as a pattern of attitudes, interests, and opinions held by a person. Lifestyle segmentation has become very popular with marketers, because of the availability of consumer data, measurement devices and instruments, and the intuitive categories that result from this process.[3] As a result, producers target versions of their products and their promotions to various lifestyle segments. For example, U.S. companies like All State Insurance are designing special programs for the good driver, who has been extensively characterized through a lifestyle segmentation approach.[4]

Lifestyle analysis generally begins by asking questions about the consumer’s activities, interests, and opinions. If a woman earns $100,000–$150,000 per year as an executive, is married and has two children, what does she think of her roles as a professional, a wife, and a mother? How does she spend her spare time? To what groups does she belong? What does she read? How does she use electronic devices? What brands does she prefer, and why? AIO (activities, interests, opinions) inventories, as they are called, reveal vast amounts of information concerning attitudes toward product categories, brands within product categories, and user and non-user characteristics.

Overall, psychographic segmentation tends to focus on how people spend their money; their patterns of work and leisure; their major interests; and their opinions of social and political issues, institutions, and themselves. While it can create intuitive groupings and useful insights into consumer behavior, it can also take significant research and effort to inform a more complex and nuanced approach to defining market segments.

Behavioral Segmentation

Silhouette of a man in a suit walking in an airport pulling a small suitcase.Consumers are divided into groups according to common behaviors they share. Typically these behaviors link to their knowledge of, attitude toward, use of, or response to a product.

The most common type of behavioral segmentation is around user segments. In 1964, the market researcher Twedt made one of the earliest departures from demographic segmentation when he suggested that the heavy user, or frequent consumer, was an important basis for segmentation. He proposed that consumption of a product should be measured directly to determine usage levels, and that promotion should be aimed directly at the heavy user. This approach has since become very popular. Considerable research has been conducted on “heavy users” of a variety of products. The results suggest that finding other characteristics that correlate with usage rate often greatly enhances marketing efforts.[5]

Other behavioral bases for market segmentation include the following:

  • User status: Looking beyond “heavy users,” it can also be helpful to identify segments based on a broader set of use patterns, such as non-users versus ex-users, or one-time users versus regular users. Mobile phone service providers examine usage patterns to create optimal plans and targeting based on specific sets of user needs: family plans, individual plans, no contract plans, unlimited talk and data plans, and so forth. New car producers have become very sensitive to the need to provide new car buyers with a great deal of supportive information after the sale in order to minimize unhappiness after the purchase.
  • Purchase occasion: This approach tries to determine the reason or occasion for purchasing a product and how it will be used. For example, airlines typically segment customers based on the reason for a passenger’s trip: business versus personal travel. Someone traveling for business generally has different needs and wants from someone traveling for pleasure. A business traveler tends to be less sensitive about price and more focused on timing, location, and convenience.
  • Loyalty: This approach places consumers in loyalty categories based on their purchase patterns of particular brands. A key category is the brand-loyal consumer. Companies have assumed that if they can identify individuals who are brand loyal to their brand, and then delineate other characteristics these people have in common, they will locate the ideal target market. There is still a great deal of uncertainty about the most reliable way of measuring brand loyalty.
  • Readiness: Readiness segmentation proposes that potential customers can be segmented according to how ready they are to purchase a product: unaware, aware, informed, interested, desirous, and intend to buy. Using this approach, a marketing manager can design the appropriate market strategy to move them through the various stages of readiness. These stages of readiness are rather vague and difficult to measure accurately, but readiness may be a useful lens for understanding the customer’s mindset and how to nudge them toward buying, particularly when an education process is required prior to purchase.

Decision-Maker Segmentation

This segmentation approach groups people according to who makes the purchasing decision in an organization or household. Typically there is a “primary buyer”: the individual who makes the final decision about what to buy and allocates the budget for the purchase. Many purchasing decisions also involve “influencers.” These are people who do not make the final purchasing decision, but they can influence the final choice about what to buy.

Toddler adds a box of crackers to a kid-size grocery shopping cart.

In families, for example, young children may be influencers in whether a parent buys Cheerios, Chex, or Fruit Loops. In companies, a department manager may be the primary buyer for a software product, but that manager’s work team may influence product selection by helping evaluate options to determine which choice best fits their needs. Segmentation by decision-making role helps marketers understand who truly matters in the purchase process and home in on the individuals who matter most.

Segmenting Business-to-Business Markets

All of the segmentation approaches above apply to consumer markets. There are many similarities between consumer and business behavior, and therefore similar segmentation bases and variables apply. Common business segmentation approaches include:

  • Organization size: segmentation according to large, medium, and small customers by revenue, by number of employees, by geographic reach, etc.
  • Geography: organizing segments based on geographic location
  • Industry: segmenting by the industrial sector an organization operates within—for example manufacturing, retail, hospitality, education, technology, health care, government, professional services, and so forth
  • User status: usage frequency, volume used, loyalty, longevity, products already in use, readiness to buy, etc. For example, longtime loyal customers with “strategic” relationships are often handled differently and receive preferable terms compared to newer customers.
  • Benefits sought: grouping customers by common elements they look for in a product or purchasing experience
  • End use: identifying segments based on how they plan to use the product and where it fits into their operations and supply chain. For example, an electric motor manufacturer learned that customers operated motors at different speeds. After making field visits and confirming these uses, he thought to divide the market into slow-speed and high speed segments. In the slow-speed segment, the manufacturer emphasized a competitively priced product with a maintenance advantage, while in the high-speed market product, superiority was stressed.
  • Purchasing approaches: organizing the market according to the way in which organizations prefer to make purchases; those preferences, in turn, determine how the seller builds the relationship with the customer and works the deal.

Combining Multiple Bases for Segmentation

Marketers may find it most useful to combine different bases for segmentation in order to create a richer picture of their target market. For example, a “geo-cluster” approach combines demographic data with geographic data to create a more accurate profile of a specific consumer. Geographic data combined with behavioral data can point companies toward locations where customers are clustered who demonstrate behaviors that make them a good target for a company’s product. Overlaying demographic data onto lifestyle or behavioral segments helps marketers understand more about their target customers and how to reach them effectively with the marketing mix.

Any of these approaches may be the “right” approach for a given company and product set. It is also important for marketers to continually evaluate what’s happening in their target market and to adjust their segmentation approach as customer attitudes, behaviors, and other market dynamics evolve.


  1. William R. Darden, W.A. French, and R.D. Howell, “Mapping Market Mobility: Psychographic Profiles and Media Exposure,” Journal of Business Research, Vol. 7, No.8, 1979, pp. 51-74. 
  2. Martha Farnsworth, “Psychographies for the 1990s,” American Demographics, July 1989, pp. 25, 28-30. 
  3. William D. Wells, “Psychographies: A Critical Review,” Journal 0f Marketing Research, May 1975, pp. 196-213. 
  4. Joseph T. Plummer, “The Concept and Application of LifeStyle Segmentation,” Journal of Marketing, January 1974, p. 33. David J. Reibstein, Christopher H. Lovelock, and Ricardo de P. Dobson, “The Direction of Causality Between Perceptions, Affect, and Behavior: An Application to Travel Behavior,” Journal of Consumer Research, Vol 6., March 1980, pp. 370-376. 
  5. Ronald J. Frank, William Massey, and Yoram Wind, Market Segmentation, Englewood Cliffs, N.J.:Prentice-Hall, 1972. II. 

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Unit C.09 – Case Study: eHarmony Targets Women

Segmentation Success: A Dating Web Site for Women

Photo of a frog on a lily pad.

When it was launched in 2000, eHarmony quickly made its mark as a new brand and new category in the online dating landscape: a dating site for the serious relationship seeker, particularly women. By focusing on women as its target segment, eHarmony made wise, profitable choices about its product and user experience to address this group’s unique needs.

eHarmony entered an online market dominated by two well-established brands, Match.com and Yahoo, and it seemed to violate all the standard practices and conventional wisdom of the industry at the time. Unlike other dating sites, eHarmony decided not to allow users to search and browse their Web site for potential mates. Instead, it requires participants to complete an exhaustive questionnaire before they can receive any information about prospective suitors.

This process creates a much better user experience for eHarmony’s target demographic in a couple ways. First, women don’t feel like they are being judged solely on their looks. They perceive that they are being matched according to a complex array of compatibility criteria—not just superficial markers like age or income. Second, the entire eHarmony process is very time-consuming. It takes at least forty minutes to fill out the initial questionnaire, and users must court their potential mates through a series of essay questions and then write reviews of any contenders. By making the process so time-consuming, eHarmony has the natural effect of weeding out non-serious users and helping women to feel less vulnerable. This makes the product much better for the serious female relationship seeker who doesn’t want to waste time on or take a chance with casual dating.

In the following eHarmony ad, notice how the company differentiates itself from competitors:

The result of creating a product suited to women seeking marriage or long-term relationships has had two huge financial benefits for eHarmony. First, they can charge much more and enjoy much better margins than competitors. Because the customer perceives more value in being matched with a “soul mate” than in just being helped to “find a date,” eHarmony is able to charge more than other dating sites ($50 per month versus $20 per month). Second, eHarmony is able to generate revenue from women users much more effectively than other dating sites (many of which make most of their money on men): almost 60% of eHarmony’s paying users are women.

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Unit C.07 – Segmentation Decisions

What you’ll learn to do: explain the process of selecting an appropriate segmentation approach and deciding which customer segments to target for marketing activities

Now that you’ve learned about common segmentation approaches, how do you know when to apply them? When is geographic segmentation a better fit than demographic segmentation? When should you consider using both at the same time?

It comes down to your marketing goals: What are you trying to achieve?

The following section explains the process of aligning your goals with your segmentation approach and target market.

Conducting a Market Segmentation

Photo of three young women dressed in Goth outfits walking outside in a city.As you have seen, there are many different ways a company can segment its market, and the optimal method varies from one product to another. Good market segmentation starts by identifying the total market for the product: all the individuals who might conceivably need a product and have the means to purchase it. The total market for accounting software, say, is different from the total market for Lego building sets or the total market for chewing gum.

The next step is to identify marketing goals you want to achieve with the segmentation strategy. Do you want to generate awareness and sales in a local community that has never heard of your company? Do you want to get occasional customers to buy your product regularly? Do you want loyal supporters to dig deeper into their pockets and spend more of their money on your goods or services? Your segmentation approach should offer the best fit for your specific marketing goals.

Your marketing goals point you toward the segmentation criteria that will be most useful to achieve your marketing objectives. For example, if your goal is to build loyalty or increase frequency of purchase, behavioral segmentation is important to consider. If your goal is to broaden your customer base within a given region, geographic segmentation may be useful.

As you identify segmentation criteria that will help you understand the total market and meet your marketing goals, you’ll develop the basis for your segmentation approach. Next, you conduct research to collect segmentation data. Analyzing the market data can tell you whether your segmentation approach makes sense and where you may need to adjust the criteria to yield useful, valid market-segment data.

After conducting research and analysis of segmentation data, you should be able to diagram and profile different segments within your total market. A typical segmentation diagram could look like this:

Chart titled Sample Market Segment Profiles: Family Life Stages Segments. Left-most Column is Young Singles (10%). Frequency of going out for fun: 4 outings per week. Preferred destination: bar, clubs, movies, restaurants. Common reasons to go out: Happy Hour, weekend, dating, see friends. Average expenditure per outing: $25. Second column is Young Couples, No Kids (8%). Frequency of going out for fun: 2 outings per week. Preferred destination: Restaurants, movies, live music. Common reasons to go out: weekend, anniversary, birthday, see friends. Average expenditure per outing: $43. Third column is Young Families (28%). Frequency of going out for fun: 3 outings per month. Preferred destination: parks, movies, museums, family-friendly restaurants. Common reasons to go out: birthday, anniversary, date night. Average expenditure per outing: $57. Fourth column is Families with older kids (31%). Frequency of going out for fun: 4 outings per month. Preferred destination: movies, restaurants, sporting events. Common reasons to go out: birthday, anniversary, date night, kids’ performances. Average expenditure per outing: $64. Fifth column is Empty nesters (23%). Frequency of going out for fun: 3 outings per week. Preferred destination: movies, restaurants, cultural events. Common reasons to go out: birthday, change of scenery, see friends. Average expenditure per outing: $12.

Evaluating Your Segmentation Approach

An ideal market segment meets all of the following conditions:

  • It’s possible to measure. If you can’t measure it, you can’t collect data to know who the segment is or how to reach them.
  • It’s profitable. Segments must have the resources to purchase the product and be large enough to earn a profit for the company; otherwise they aren’t worth pursuing.
  • It’s stable. Segments need to stick around long enough for you to execute your marketing plan.
  • It’s reachable. It must be possible for marketers to reach potential customers via the organization’s promotion and distribution channel(s).
  • It’s internally homogeneous. Potential customers in the same segment must prefer the same product qualities and exhibit similar characteristics that are pertinent to the segmentation approach.
  • It’s externally heterogeneous. Potential customers from different segments have different product quality preferences and characteristics that affect their purchasing decisions.
  • It’s responsive. Segments should respond consistently to a given market stimulus or marketing mix. If they do not, then marketing efforts directed at them will not be well spent.
  • It’s cost-effective. Worthwhile market segments can be reached by marketing activities in a cost-effective manner. If too expensive to reach, then serving this segment will negatively impact profits.
  • It helps determine the marketing mix. Ideally, when you have identified a market segment, you’ll have insight into ways of shaping the combination of product, promotion, price, and place to fit that segment’s needs.

If your segmentation approach fails to meet any of these conditions, you should go back to the drawing board to refine it. If any one of these factors is not in place, your market segmentation may actually undermine the effectiveness of your marketing and business. But with all these factors in place, market segmentation will point you toward the most promising customer groups in your target market.

For example, if you’re trying to launch a print services company in a large city, targeting “all business owners” isn’t cost effective, and the individuals within this group are actually quite different. That means that no single marketing mix will be effective with everyone in this segment. Instead, you would be better served by researching types of businesses (by industry, size, etc.), geographic locations, and other relevant factors to help you identify and target logical segments with shared characteristics.

Keep in mind that market segmentation is an ongoing activity that needs periodic evaluation to ensure that the approach still makes sense. Since markets are dynamic and people and products change over time, the basis for segmentation must also evolve.

Selecting Target Segments

Photo of Rolex wristwatch

Rolex focuses on a single market segment—those who want a luxury watch—and is thus a prime example of the concentration strategy of market segmentation.

Once an actionable segmentation approach is in place, marketing organizations typically follow one of two major segmentation strategies: a concentration strategy or a multisegment strategy.

In the concentration strategy, a company chooses to focus its marketing efforts on only one market segment. Only one marketing mix is developed: the combination of product offerings, promotional communications, distribution, and pricing targeted to that single market segment. The primary advantage of this strategy is that it enables the organization to analyze the needs and wants of only one segment and then focus all its efforts on that segment. The primary disadvantage of concentration is that if demand in the segment declines, the organization’s sales and financial position will also decline.

In the multisegment strategy, a company focuses its marketing efforts on two or more distinct market segments. The organization develops a distinct marketing mix for each segment. Then they develop marketing programs tailored to each of these segments. This strategy is advantageous because it may increase total sales with more marketing programs targeting more customers. The disadvantage is the higher costs, which stem from the need for multiple marketing programs that may include segment-specific product differentiation, promotions and communication, distribution/delivery channels, and pricing.

How do you choose?

Selecting the target segments boils down the following questions, which connect to the “ideal segment” conditions listed above:

  • Whose needs can you best satisfy?
  • Who will be the most profitable customers?
  • Can you reach and serve each target segment effectively?
  • Are the segments large and profitable enough to support your business?
  • Do you have the resources available to effectively reach and serve each target segment?

As you answer these questions with regard to the different market segments you have defined, you will confirm which segments are most likely to be good targets for your product(s). These segments become your target market—the object of your targeting strategy, marketing mix, and marketing activities.

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Unit C.11 – Targeting and Marketing Mix

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Unit C.13 – Case Study: Red Bull Wins the “Extreme” Niche

Background

Photo of a can of Red Bull "energy drink."Red Bull is an Austria-based company started in 1987 by Dietrich Mateschitz that sells one product: an energy drink containing taurine (an amino acid) that’s sold in a slim, silver-colored 8.3-ounce can. The drink has been an enormous hit with the company’s target youth segment around the globe. In the year 2018, Red Bull boasted sales of $1.06 billion USD in the United States alone[1], and has held the majority of the energy-drink market share for years, with a 35.3% market share in 2019 (Monster Energy, their closest competitor, held 25.4%).[2] From Stanford University in California to the beaches of Australia and Thailand, Red Bull has managed to maintain its hip, cool image, with virtually no mass-market advertising.

Red Bull’s Targeted Approach to Marketing

“Red Bull. It gives you wings.” Over the years, Red Bull has organized extreme sports events (like cliff diving in Hawaii and skateboarding in San Francisco), parties, and even music festivals to reinforce the brand’s extreme, on-the-edge image. In 2012, they sponsored Felix Baumgartner’s record-setting freefall from 128,000 feet:

Their grass-roots approach to reaching the youth market worked: “In terms of attracting new customers and enhancing consumer loyalty, Red Bull has a more effective branding campaign than Coke or Pepsi,” said Nancy F. Koehn, author of Brand New: How Entrepreneurs Earned Consumers’ Trust from Wedgwood to Dell. Red Bull’s success has also gained attention (and concern) among beverage-industry giants, and some have tried to follow its lead: For a time Coke ran a stealth marketing campaign, packaging its cola in a slim can reminiscent of Red Bull and offering it to customers in trendy bars and clubs in New York City.


  1. “Red Bull Energy Drink Sales U.S., 2015–2018.” Statista. Accessed September 25, 2019. https://www.statista.com/statistics/558082/us-sales-of-red-bull-energy-drinks/
  2. “Energy Drink Market Share in the US in 2019.” Statista. Accessed September 25, 2019. https://www.statista.com/statistics/306864/market-share-of-leading-energy-drink-brands-in-the-us-based-on-case-volume-sales/

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Unit C.03 – Segmentation and Targeting Rationale

Segmentation and Targeting Rationale

What you’ll learn to do: explain the purpose of segmentation and targeting in marketing

Segmentation and targeting are essential building blocks of marketing because they help marketers answer a basic question: Who am I trying to reach?

If you can’t answer this question with a reasonable amount of certainty and detail, your marketing efforts will probably not have much impact. You’ll spend a lot of time and money with little to show for it because you’re not choosing marketing tactics that fit your audience.

However, when you know your target audience, you can make smart decisions about your marketing activities: why they need your product, where and how to get their attention, what to say to generate interest, and what types of offers will attract them.

In this module, first we will focus on why segmentation and targeting are so important. Then we will discuss how to conduct segmentation and targeting and use these tools to guide marketing activity.

What Is Market Segmentation All About?

Segmentation helps marketers answer the following set of fundamental questions:

  1. To whom should I be marketing?
  2. Why them?
  3. How can I reach them most effectively?

Because marketers have finite resources, they have to make decisions about how and where to focus their efforts. Market segmentation provides useful information about prospective customers to guide these decisions and to ensure that marketing activities are more buyer focused.

Market segmentation is the process of splitting buyers into distinct, measurable groups that share similar wants and needs. Once different segments are identified, marketers determine which target segments to focus on to support corporate strategy and growth.

Action shot of Dennis Brown on the tennis court at the U.S. Open

Professional tennis players are a specific segment of the market.

For example, suppose your company produces high-performance athletic clothing. The market segmentation first identifies everyone with an interest in and need for this type of clothing. Then it identifies groups within the market that share common needs. These could include groups associated with different sports, levels of athletic activity, brand loyalty, fashion consciousness, price sensitivity, etc. As a marketer, you analyze the groups to determine which ones you want to focus on and why.

Defining a Market

In order to understand the purpose and benefits of segmentation, it’s helpful to step back momentarily and look at markets as a whole and how segments help us understand a market. A market is a group of potential buyers with needs and wants, as well as the purchasing power to satisfy those needs and wants. These buyers might be individuals, groups, businesses, or organizations. The “total market” constitutes all the potential customers for a given product. Potential customers share a common problem or business need that your product can address, and they share other characteristics as well.

In order for a market to exist, the following five criteria must be met:

  1. There must be a true need and/or want for the product, service, or idea; this need may be recognized, unrecognized, or latent.
  2. The person/organization must have the ability to pay for the product via means acceptable to the marketer.
  3. The person/organization must be willing to buy the product.
  4. The person/organization must have the authority to buy the product.
  5. The total number of people/organizations meeting the previous criteria must be large enough to be profitable for the marketer.

If these criteria aren’t met, there probably isn’t a viable market for your product(s).

Segments within a Market

Markets are generally large entities that require significant investment to serve effectively. In fact, markets may be so large that it isn’t feasible for a marketing organization to market their products effectively to all potential customers at the same time. A product provider might ask, “Given that my product will not be needed or wanted by all people in the market, and given that my organization has certain strengths and weaknesses, which target group(s) should I focus on?”

The answer to this question comes through market segmentation. Segmentation is a twofold process that includes:

  1. Identifying and classifying people into homogeneous groupings, called segments
  2. Determining which of these segments are viable target markets.

In essence, the marketing objectives of segmentation are:

  • To improve an organization’s understanding of who their prospective customers are and how to serve them
  • To reduce risk in deciding where, when, how, and to whom a product, service, or brand will be marketed
  • To increase marketing efficiency by directing effort toward designated segment(s) in ways that are consistent with that segment’s characteristics
Sample Market Segmentation: Family Life Stage. Graphic shows a circle segmented into the following groups: 31% Families with Older Kids; 28% Young Families; 23% Empty Nesters; 10% Young Singles; 8% Young Couples, No Kids

While, in theory, there may be “ideal” market segments for any given product, in reality, every organization engaged in a market will develop different ways of imagining market segments and create product differentiation strategies to exploit those segments. With a refined understanding of market segments, companies can differentiate their products to fit the needs of a particular segment. They can also use segmentation analysis to identify and create competitive advantages with their target audiences. A deeper understanding of their target audiences can guide marketers’ choices in how they develop and promote products, how their products are delivered and priced, and so forth.

Focusing on the Target Market

It is rare that any single product will be an ideal fit for every member of an entire market. For example, no single shampoo is perfect for everyone on the planet. No single printer or cleaning service is ideal for every organization in the world. Buyers have different sets of needs. Segmentation acknowledges that different people and groups have different needs. Successful marketers use segmentation to figure out which groups (or segments) within the market are the best fit for the products they offer. These groups constitute their target market.

The target market should include only those segments of a market that are both profitable to serve and likely to be receptive to the products a company provides. Time, money, and effort spent on marketing will be most effective when it focuses on these target audiences. When organizations don’t identify a target market, they dilute the impact of their marketing resources because they are spending money and effort trying to attract people who are unlikely ever to become profitable customers.

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