Geo-demographic Segmentation - Coursework Example

Geo-demographic Segmentation Executive Summary Basically, geo-demographic segmentation is defined as the approach or process that seeks to put into categories sections of the population of a small location or residential suburb that have similar demographic characteristics. It is against this background that different products are developed on the premise that people with similar interests and same levels of income tend to live in the same locations hence it would be easier to reach them. However, geo-demographic segmentation may not be all inclusive in some cases hence other techniques such as benefit, psychographic, usage segmentation among others may be used to bridge the gap that may exist. Introduction In attempting to fully understand the concept of geo-demographic segmentation, it is imperative to split the term into two and try to give a brief explanation of each as well as the meaning of segmentation. Strydom (2000), defines segmentation as the division of a heterogeneous market into fairly homogeneous subsets or segments of customers who normally have similar needs and likely to respond in a similar way to the market offering. Basically, geo-demographic segmentation converges geography and demographics of a particular group of people in an identifiable area. According to Charlie Nelson (2001), this process is concerned with grouping consumers according to characteristics such as age or household structures. Geography on the other hand is concerned with the location or area where people live. In most cases, people who live in the same area are assumed to have similar socioeconomic characteristics. In some instances, they use similar transport and shopping options hence they tend to live together in an identifiable geographical area. Therefore, geo-demographic segmentation can be summed up as the overall process or attempt to identify groups of small areas that have people with similar demographic characteristics. In most cases, different products are developed on the premise that people with similar interests income levels tend to live in the same areas hence it would be easier to reach them. Geo-demographic segmentation strategies In view of the definition of geo-demographic segmentation outlined above, it can be noted that the approach is mainly concerned with identifying geographical locations with people who share similar needs. According to Thomas Exter & Ian Mosley (2004), geodemographic segmentation or clustering involves classifying small geographic areas for example, block groups or neighbourhoods into relatively homogeneous market segments. Thus, the exercise produces a set of segments that are assumed to identify quite well with individual choice and tastes as well as same behaviour. The main goal of geo-demographic clustering is to classify places and neighbourhoods not the people who live in those places. Clustering has generally proved a useful tool in the segmentation of markets. Susan Mitchell (1995), in an article entitled “Birds of a feather flock together,” concurs with the notion that people with similar characteristics, preferences, and consumer behaviours tend to live in similar communities. Marketers use geodemographic clusters to reach new customers, choose new business locations as well as perform other tasks such as identifying other market elements that could be hidden. Cluster systems are based on the notion that birds of a feather tend to flock together. Similar things share a common identity. The neighbourhoods are divided into groups based on similarities in income, education, as well as their attitudes towards products and preferences. An example can be a suburb comprising of high income earning people who would be particularly interested in trendy and flashy cars. This cluster can as well comprise of affluent youths who spot clothing with expensive labels hence it would be easier for a marketer to target such segments. In most cases, it is easy to reach particular geo-demographic segments by using local newspapers outdoor advertising campaigns or direct mail in some cases but mass media is less effective. Marketers use cluster systems to find new customers as well as locate sites for stores. According to Mitchell (1995), “if a direct-mail campaign gets a strong response from one zip code, for example, a cluster system can locate other zip codes with similar characteristics.” Clusters are significant to businesses in that they provide a wealth of knowledge about the lifestyles of the consumers. One of the most powerful features of this type of segmentation systems is their ability to find customers. "There are two primary ways people use segmentation systems," says Strategic Mapping's Hammel cited by Mitchell (1995). "Some people know who their customers are and want to know where to find them. Others need to figure out who their customers are and then go find them." Therefore, geo-demographic segmentation comes in handy to provide with this kind of information about customers. While there are several geo-demographic segmentation methods available that aim to identify groups of small geographic areas that have similar demographic characteristics, they often tend to suffer from inaccuracies in some instances. Some areas may be nearer to homogeneity but many are not and this can be misleading to the marketers. Indeed people living in one cluster may not have purely similar needs and interests which may give a wrong impression on the information that would be gathered for marketing purposes. It should also be noted that cluster systems are dynamic and changeable. Mitchell (1995) argues that the 1990 census gave an enormous infusion of new data in the clusters and this has been mainly attributed to racial and ethnic diversity which is a key point of difference between cluster systems of the 1980s and 1990s. "The emergence of larger numbers of Latinos across a variety of neighbourhood types shows that this group is not monolithic in its settlement patterns, lifestyles, and product preferences," says Michael Reinemer, former director of communications for Claritas cited in an article entitled “Birds of a feather flock together.” The extent of diversity, whether socio-economic, ethnic, cultural, lifestyle or other dimensions especially within and across America’s neighbourhoods is such that a careful geodemographic cluster system must necessarily take into account the unprecedented levels of differences in lifestyles as well as increased diversity among the members of a cluster. This would mean that the consumers may decide to shift which would result in the reduction of profits. This may be one major disadvantage of geodemographic segmentation. Reasons for using other segmentation In view of the above argument, it can be noted that such risks have led companies to prefer multi segment marketing knowing that if one segment’s profits weakens, the firm’s fortunes can be sustained by other segments. These segments are determined by many factors and can be sub divided into many categories such as benefit, occasion, psychographic as well as usage segmentation among others. Thus, according to Kotler (1999), markets are broken into a number of segments to give the marketer chances of recognizing unmet needs that might represent a profitable market opportunity. Benefit segmentation means grouping people who are seeking a similar benefit from one particular product such as low prices or high quality products. This would give the marketer the opportunity to design a product that would meet the needs of the people and is a very powerful basis for segmentation. On the other hand, usage segmentation is another preferred method that groups people into whether they are heavy, light users or non users of the product. Kotler (1999) posits that psychographic segmentation deals with characteristics such as personality, attitudes, opinions as well as life styles. These characteristics have some relationship to behaviour and provide insight into how to communicate with chosen segments to the marketers. Such segments are indicators though they may not be perfect, of behaviour such as lifestyle, price sensitivity and brand preference. Basically, other methods would be preferred in the event that geo-demographic segmentation does not meet other needs of the consumers. These other techniques highlighted above would serve the purpose of bridging the gap that may exist through identifying other characteristics such as benefits and psychographics mainly. Other techniques other than geo-demographic segmentation, deal with a wide array of factors that are often overlooked by this particular method of segmenting the market. Conclusion Over and above, it can be noted that geo-demographic segmentation is the most popular form used to segment markets by virtue of its ability to identify the geographical location as well as the characteristics and needs of the customers which form the basis of market segmentation. However, in the event that geo-demographic segmentation does not meet the expectations of marketers or consumers such as changing trends of lifestyles and diversity, other techniques of segmentation would be preferred to bridge the gap that may be created by the void caused by these above mentioned trends within the clusters. Bibliography Reference Books Philip Kotler, (1999), Kotler on Marketing: How to create, win and dominate Markets, Free press, London. Johan Strydom (2004), Introduction to Marketing, 3rd Edition, Juta Press, RSA William R. Dillon et al, (1990), Marketing Research in a Marketing Environment, 2nd Edition, Mosby College Publication, Boston. J.W Strydom (2000), Marketing Management, 4th Edition, Juta & Co. LTD, RSA. Online Journals/essays Thomas G. Exter and Ian Mosley, Geodemographic Segmentation: New Methods, New Results, MapInfo Corporation Toronto, Canada A paper presented to the Annual Meetings of the Population Association of America, Boston, Massachusetts Vol I April 2, 2004. Susan Mitchell (1995) Birds of a Feather http://www.andreas.com/faq-geodemo2.html [accessed 23 November 2008] Bennett, PD (ed). (1988) Dictionary of Marketing Terms, Chicago, Illinoise: American Marketing Association. Newspapers Albert Scardind (1988), New Yorkers & Co.; The Ad Man Who Mastered Market Segments http://query.nytimes.com/gst/fullpage.html?res=940DE2D71E3BF937A35757C0A96E948260 [Viewed 25 November 2008] Websites Geodemographic Segmentation: New Methods, New Results http://paa2004.princeton.edu/download.asp?submissionId=42142 [Accessed 23 November 2008] Insightful geo-demographic segmentation tool http://www.eepublishers.co.za/view.php?sid=1897 [Accessed 23 November 2008] Charlie Nelson (2001), Market Segmentation http://www.foreseechange.com/mktseg.htm [Accessed 24 November 2008] An empirical test of a geodemographic segmentation system-Part ii http://www.zonalatina.com/Zldata363.htm [Accessed 23 November 2003] Geo-demographic segmentation tool improves insights for marketers http://www.themarketingsite.com/live/content.php?Item_ID=4720 [Accessed 23 November 2008] Latest release of geo-demographic segmentation tool reveals fresh insights http://www.bizcommunity.com/PressOffice/PressRelease.aspx?i=119722&ai=19995 [Accessed 23 November 2008] Laura Lake 2003, Market Segmentation for the Small Business http://marketing.about.com/cs/sbmarketing/a/smbizmrktseg.htm [Accessed 24 November 2008] Read More