What you'll learn
Market segmentation and targeting are fundamental marketing tools that enable businesses to identify and focus on specific customer groups. This topic explores how businesses divide markets into distinct segments and select which segments to serve. Understanding these concepts is essential for analysing business marketing strategies and answering case study questions in your CIE IGCSE examination.
Key terms and definitions
Market segmentation — The process of dividing a market into distinct groups of consumers with similar characteristics, needs or behaviours who might require separate products or marketing approaches.
Target market — A specific group of consumers at which a business aims its products and marketing efforts.
Market segment — A sub-group of a whole market in which consumers share similar characteristics.
Demographic segmentation — Dividing the market based on population characteristics such as age, gender, income, occupation, education level and family size.
Geographic segmentation — Dividing the market according to different geographical units such as countries, regions, cities or neighbourhoods.
Income segmentation — Dividing the market based on consumers' level of disposable income or purchasing power.
Niche market — A small, specialised segment of a larger market, often with specific needs or preferences.
Mass market — A large, general market where products appeal to most consumers with little differentiation between segments.
Core concepts
Understanding market segmentation
Market segmentation recognises that not all consumers are the same. Businesses use segmentation to understand their customers better and develop more effective marketing strategies. Rather than treating all potential customers identically, segmentation allows businesses to tailor their approach.
The main reasons businesses segment markets include:
- Improved targeting — Resources can be focused on the most profitable customer groups
- Better product development — Products can be designed to meet specific segment needs
- More effective marketing — Promotional messages can be tailored to resonate with particular groups
- Competitive advantage — Businesses can identify underserved segments and specialise
- Increased customer satisfaction — Products and services better match consumer requirements
Effective market segmentation requires that segments are:
- Measurable — The size and purchasing power of the segment can be determined
- Accessible — The segment can be reached through marketing channels
- Substantial — The segment is large or profitable enough to be worth targeting
- Differentiable — The segment responds differently to marketing efforts compared to other segments
Methods of market segmentation
Demographic segmentation
This method divides markets based on measurable population characteristics. It is the most commonly used form of segmentation because demographic data is readily available and consumers with similar demographics often have similar needs.
Age segmentation divides consumers into groups such as children (0-12), teenagers (13-19), young adults (20-35), middle-aged (36-55) and seniors (55+). Different age groups have distinct purchasing behaviours and product preferences. For example:
- Toy manufacturers like Lego target children and their parents
- Fashion retailers like ASOS focus on teenagers and young adults
- Cruise companies often target older, retired consumers with disposable income
Gender segmentation recognises that males and females may have different needs and preferences. Many products are specifically designed for one gender, such as cosmetics, clothing and grooming products.
Income segmentation groups consumers by their purchasing power. Luxury brands like Rolex target high-income segments, whilst budget retailers like Primark focus on price-conscious consumers with lower disposable incomes. This segmentation method is particularly important for pricing strategies.
Family life cycle considers consumers' stage in family development — single, newly married, families with young children, empty nesters, etc. Insurance companies and housing developers frequently use this segmentation approach.
Geographic segmentation
Markets are divided by location, recognising that consumer needs vary by region due to climate, culture, population density and local preferences.
Examples include:
- Climate-based — Winter clothing sells better in colder regions; air conditioning units have higher demand in tropical climates
- Urban vs rural — City dwellers may prefer convenience stores and delivery services, whilst rural consumers may need different product ranges
- Regional preferences — Food and drink preferences vary significantly by country and region (curry sauces in the UK, jerk seasonings in the Caribbean)
- International — Multinational companies like McDonald's adapt menus to local tastes in different countries
Psychographic segmentation
This approach segments markets based on lifestyle, personality traits, values, attitudes and interests. Though harder to measure than demographics, psychographic segmentation provides deeper insight into consumer motivation.
Examples include segmenting by:
- Social class and lifestyle (budget-conscious, luxury seekers, environmentally conscious)
- Personality (adventurous, conservative, innovative)
- Values and beliefs (ethical consumers, health-conscious, traditional)
Businesses like The Body Shop successfully target environmentally conscious consumers who value ethical sourcing and cruelty-free products.
Target marketing strategies
Once a market has been segmented, businesses must decide which segments to target. There are three main targeting strategies:
Mass marketing (undifferentiated marketing)
The business ignores segment differences and targets the entire market with one product and marketing mix. This approach aims for maximum exposure and economies of scale through large-volume production.
Advantages:
- Lower production and marketing costs through economies of scale
- Wider potential customer base
- Simpler to manage with one marketing strategy
Disadvantages:
- Difficult to satisfy all consumers' needs
- Increased competition as many businesses target the same market
- Less customer loyalty as products are not specialised
Example: Basic commodities like sugar or salt are often mass marketed, as are some household staples like Coca-Cola.
Segmented marketing (differentiated marketing)
The business targets several different segments with separate products and marketing mixes tailored to each segment. This approach recognises diversity in consumer needs.
Advantages:
- Better meets specific needs of different consumer groups
- Can charge different prices for different segments
- Reduces risk through diversification across segments
- Increases total sales by appealing to more consumers
Disadvantages:
- Higher costs from producing multiple product variations
- More complex management and marketing campaigns
- Potential for brand confusion if not managed carefully
Example: Unilever targets multiple segments with different detergent brands — Persil for premium buyers, Surf for budget-conscious consumers and Comfort for those wanting fabric softener properties.
Niche marketing (concentrated marketing)
The business focuses exclusively on one small, specialised segment. This strategy suits smaller businesses with limited resources or those seeking to avoid direct competition with larger firms.
Advantages:
- Business becomes specialist with strong market position
- Better understanding of customer needs
- Can charge premium prices due to specialisation
- Lower marketing costs focused on narrow segment
- Less competition from large businesses
Disadvantages:
- Limited growth potential in small markets
- Higher risk if segment declines or consumer preferences change
- Vulnerable to larger competitors entering the niche
- May lack economies of scale
Example: Lush Cosmetics targets consumers wanting handmade, natural beauty products with minimal packaging. Vegan restaurants target plant-based eaters exclusively.
Factors influencing targeting decisions
Businesses consider several factors when selecting which segments to target:
Size and growth of segment — Is the segment large enough to be profitable? Is it growing or declining? Young adult gamers represent a growing segment, making it attractive to games developers.
Business resources — Does the business have sufficient resources to serve this segment effectively? Small businesses may lack resources for mass marketing but can succeed in niche markets.
Competition — How many competitors already serve this segment? Entering a highly competitive segment requires significant differentiation or cost advantages.
Compatibility with objectives — Does targeting this segment align with the business's overall goals and values? An eco-friendly business would target environmentally conscious consumers.
Product suitability — How well does the product meet the segment's needs? Sports equipment manufacturers naturally target active, sports-participating segments.
Market segmentation in different business contexts
Small vs large businesses
Small businesses typically adopt niche marketing strategies because:
- Limited marketing budgets restrict their ability to reach mass markets
- They can specialise and develop expertise in serving specific segments
- They can build close relationships with customers in smaller segments
- They avoid direct competition with larger businesses
Large businesses often use segmented or mass marketing because:
- They have resources to serve multiple segments simultaneously
- They benefit from economies of scale in production and marketing
- They can afford expensive mass media advertising
- Their brand recognition supports marketing to broader audiences
Developing vs developed markets
In developed markets like the UK, consumers have more disposable income and higher expectations, leading to more sophisticated segmentation strategies. Businesses segment by lifestyle, values and specific preferences.
In developing markets, income segmentation is often more significant, with wider gaps between wealthy and budget-conscious consumers. Geographic segmentation matters more where infrastructure varies significantly between urban and rural areas.
Worked examples
Example 1: Identify and explain (4 marks)
Question: Identify two methods of market segmentation and explain how a clothing retailer could use each method. [4 marks]
Model answer:
One method is age segmentation [1 mark]. The clothing retailer could design and market different clothing lines for different age groups, such as trendy fashion for teenagers and more conservative styles for older consumers [1 mark for explanation].
Another method is income segmentation [1 mark]. The retailer could offer budget clothing lines for price-conscious consumers with lower incomes and premium designer ranges for high-income customers willing to pay more [1 mark for explanation].
Mark scheme notes: 1 mark for identifying each method; 1 mark for applied explanation showing understanding of how it relates to a clothing business.
Example 2: Analyse (6 marks)
Question: Analyse the benefits to a small bakery business of using niche marketing rather than mass marketing. [6 marks]
Model answer:
One benefit is that niche marketing allows the small bakery to specialise [1 mark for knowledge]. By focusing on a specific segment such as gluten-free or vegan customers, the bakery can develop expertise and reputation in that area [1 mark for application]. This means customers seeking these specialised products are more likely to choose this bakery over competitors, increasing customer loyalty and allowing premium pricing [1 mark for analysis].
Another benefit is lower marketing costs [1 mark for knowledge]. A small bakery has limited resources for advertising, so targeting a narrow segment means marketing can be more focused and cost-effective through specific channels [1 mark for application]. This allows the bakery to compete effectively without matching the advertising budgets of larger businesses like supermarket bakeries [1 mark for analysis].
Mark scheme notes: 2 marks for knowledge of benefits; 2 marks for application to context of small bakery; 2 marks for developed analysis showing consequences.
Example 3: Justify (8 marks)
Question: A soft drinks manufacturer is considering whether to use mass marketing or segmented marketing for its new product range. Justify which approach the business should use. [8 marks]
Model answer:
Mass marketing would allow the soft drinks manufacturer to achieve significant economies of scale [1 mark]. By producing one standard product for all consumers, production costs per unit would be lower, and the business could compete on price [1 mark]. However, the soft drinks market is highly competitive with many similar products, making differentiation difficult [1 mark]. Without targeting specific segments, the product might not stand out, limiting sales growth [1 mark].
Segmented marketing would enable the manufacturer to create different products for different consumer groups [1 mark]. For example, sugar-free versions for health-conscious consumers, energy drinks for young adults, and fruit-flavoured options for children [1 mark]. This approach would better meet varied consumer needs and preferences, potentially commanding premium prices for specialised variants [1 mark]. Although production and marketing costs would be higher with multiple product lines, the ability to appeal to more consumers and charge different prices should increase overall profitability [1 mark].
Therefore, segmented marketing is the better choice [justified decision] because the soft drinks market has diverse consumer preferences, and differentiation is essential to compete effectively against established brands like Coca-Cola. The higher costs are justified by increased market coverage and pricing flexibility [reasoned justification].
Mark scheme notes: Up to 3 marks for knowledge; up to 3 marks for application; up to 2 marks for analysis; up to 2 marks for justified recommendation with reasoned conclusion (maximum 8 marks).
Common mistakes and how to avoid them
Confusing segmentation with targeting — Remember: segmentation is dividing the market into groups; targeting is selecting which groups to serve. Use precise terminology in exam answers.
Listing segmentation methods without application — Don't just write "age, gender, income." Always explain how a business uses that method in context. For example, "The toy company uses age segmentation by designing products specifically for 3-5 year olds rather than teenagers."
Assuming all small businesses use niche marketing — Whilst common, some small businesses do target broader markets. Consider the specific context in the question before making assumptions.
Ignoring the command word — "Identify" requires naming; "Explain" needs reasoning; "Analyse" demands consequences; "Evaluate" or "Justify" requires judgement. Structure your answer accordingly to access all available marks.
Writing about market research instead of segmentation — These are related but different topics. Segmentation divides markets; market research gathers information. Don't confuse them in exam answers.
Forgetting to recommend — In "Justify" or "Recommend" questions worth 8+ marks, you must state which option you believe is best and explain why, considering both sides of the argument.
Exam technique for Market segmentation and targeting
Command word awareness — "Identify" questions (1-2 marks) need simple points. "Explain" questions (3-4 marks) require reasoning using "because," "this means," or "therefore." "Analyse" questions (6 marks) need consequences using "this will lead to" or "as a result." "Justify" questions (8+ marks) require a clear recommendation with two-sided analysis.
Context is essential — Always relate your answer to the specific business in the question. Generic answers about "a business" score lower than applied answers about "this soft drinks manufacturer" or "the clothing retailer in the case study."
Use business terminology accurately — Write "target market" not "customers they want," "niche marketing" not "focusing on a small group," and "market segment" not "type of people." Precise terminology demonstrates understanding and earns marks.
Structure longer answers — For 6-8 mark questions, use paragraphs to separate points. Each paragraph should make one clear point with knowledge, application and analysis. This makes your answer easier for examiners to mark and ensures you develop ideas fully.
Quick revision summary
Market segmentation divides markets into distinct consumer groups with similar characteristics using demographic (age, gender, income), geographic (location) or psychographic (lifestyle, values) methods. Businesses then select target markets using mass marketing (targeting everyone), segmented marketing (targeting several groups with different products) or niche marketing (focusing on one specialised segment). Small businesses typically use niche strategies due to limited resources, whilst larger businesses often pursue segmented or mass approaches. Effective segmentation improves targeting, product development and customer satisfaction, creating competitive advantage.