How to Use Market Segmentation: Developing a Target Market - YouTube

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.