Market Segmentation

Marketing segmentation is dividing a market into submarkets in which each submarket has different needs and wants and targeting these submarkets with different products. Sometimes products aimed at diverse segments are only slightly different, but enough to make buyers feel that they are purchasing products to satisfy their needs and wants better than an average product. For example, Tylenol, Advil, Bufferin, Aleve, and similar over-the-counter products are essentially the same, with some variations aimed at different target markets. Similarly, there are hospitals that specialize in different kinds of surgeries and treatments. Some hospitals target patients for treatment of cancer, general surgery, or eye and ear care and surgery, whereas others focus on internal medicine. This is also true for medical doctors specializing in many different areas of medicine. There are even hospitals and outpatient care facilities aimed at treating mentally ill patients and substance abuse patients.

In general, there are five major ways of segmenting markets, which include the following:

• 1.
  Demographic segmentation
• 2.
  Geographic segmentation
• 3.
  Psychographic segmentation
• 4.
  Usage segmentation
• 5.
  Benefit segmentation

Demographic segmentation is when firms utilize demographic variables such as age, income, gender, education, occupation, ethnic background, race, family size, and family life cycle. The goal is to satisfy the needs of market segments that have different needs and wants. For example, people in different age-groups such as young, middle aged, and old (seniors) need different kinds of medical care. Whereas many young people may need sports medicine, most elderly may need health care in internal medicine and age-related illnesses. Similarly, there are different types of over-the-counter medications or even hospital services aimed at children (for example, children' hospitals) and the elderly (such as nursing homes). Therefore, age is a very important and natural segmentation variable in the health care industry. Gender is also a good segmentation variable, because males and females differ in health care needs. Indeed, there are medical specialists serving each segment of the population. If patients have medical insurance, income may not be a good segmentation variable, but the types of insurance can be used for segmenting. Indeed, this classification mode is already being used by insurance companies offering different types of health insurance coverage. Family life cycle includes stages of life that people go through such as bachelorhood, new marriage, full nest, empty nest, and the final dissolution stage. This segmentation variable is related to age. Therefore, people in different life cycle stages have different types of health care needs. [Page 353]For example, in a full nest stage couples have one or more children and their health care needs increase for children as well as for mothers. Often, when marketers use the demographic segmentation dimension, they combine two or more of the demographic variables (such as age and gender).

Geographic segmentation includes neighborhoods, towns, cities, counties, states, or countries. The rationale for using such segmentation is that people living within various boundaries may share common income levels, cultures, climates, and values. A simple example is people living in the northern United States in colder climates, who tend to have more colds or episodes of flu than do those living in warmer climates.

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