Speaker 1: 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, one 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 here today. And so we're going to discuss really the purpose of market segmentation, what it is and ultimately how marketers utilize it to generate what we call a target market. And so for starters let's talk about what market segmentation is. All market segmentation is, 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 a 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, let's say we have the, we'll call this the total market. And then we're going to take that total market and 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. Let's 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, voila, we have what we call the target market. I apologize for the poor drawings but I am certainly not an artist and do not pose to be one. So this is how we do that. And 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's 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 then 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 forms of segmentation so maybe this makes a little bit more sense. So the first thing and probably one of the most common is by engaging what we call demographic segmentation. And demographic segmentation is breaking a, dividing a larger market into smaller groups based upon such things such as let's say 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. And 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 maybe after that we segment based upon income. Maybe the product that we sell is geared towards a let's say kind of upper echelon clientele and so they 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 is 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 only, they only have a limited number of resources and so they can't necessarily target an entire state or nation. So it makes sense to focus on their specific local community, the 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's 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 the consumer that has the most use of your product in this case. And so what you'd 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's mainly the reason you would 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, you know, 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, 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 maybe a more 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're 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's 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, right, 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, right, things like income, education, where you live, but we're focusing on what do you really like, right? Facebook has gathered so much information just related to 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 kind of 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 and they can charge more for those. Because the idea being is that if you have an interest in something, you probably are going to purchase products related to that particular interest. Much more valuable than just your actual characteristics or things like age. Because even within a specific age range there's still a great degree of variability, right? Because you fall into one group on age or income, it doesn't mean you're going to behave the same way as all the other people within 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 interest there's going to be products related to that particular interest. And so with psychographic segmentation you look at things like stages of life and so married with kids obviously have different needs than people that are just simply married. Or students that are in college have different needs than singles 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 the last variable that businesses use is what we refer to as behavioral segmentation. And so with psychographic segmentation the kind of place where it falls short is we're assuming that based upon your interests and your lifestyles 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 let's say outdoor activities or outdoor water sports, well maybe you're going to like hiking because things are outdoors, maybe you have an interest in that. So maybe that translates to hiking. Well not necessarily. So what behavioral segmentation does is it doesn't just focus on things that you're interested in or your attitudes and different things because those are hard to obtain, right? 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 behavioral 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, right, but they've actually purchased it. Their behavior indicates that they like those products. And 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 behavioral segmentation, they're changing their marketing efforts based upon what you buy because they're trying to get a more accurate depiction over what are 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. If you go online and you purchase 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 are 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 whittling 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 out 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 very good idea of who your 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 any questions go ahead and leave a comment in the box below. 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.