Segmenting the Consumer Market: Geographic Segmentation

Geographic Segmentation
Subdividing markets into segments based on geographic distribution the regions, counties, cities, and towns where people live and work is widely used. The reason for this is simply that consumers’ wants and product usage often are related to one or more of these subcategories. Geographic characteristics are also measurable and accessible  two of the conditions for effective segmentation. Let’s consider how the geographic distribution of population may serve as a basis for segmentation.

Regional Population Distribution. Many firms market their products in a limited number of geographic regions, or they may market nationally but prepare a separate marketing mix for each region. Supermarket chains such as Alpha Beta and Winn-Dixie concentrate their marketing efforts in specific geographic regions. Even supermarket giants such as Kroger and Safeway are unknown in some parts of the country. Campbell Soup Company has altered some of its soup and bean recipes to suit regional tastes, and General Foods uses different methods to promote Maxwell House coffee in different regions.

The regional distribution of population is important to marketers because people within a given region generally tend to share the same values, attitudes, and style preferences. However, significant differences do exist among regions because of differences in climate, social customs, and other factors. Thus bright, warm colors are preferred in Florida and the Southwest, while grays and cooler colors predominate in New England and the Midwest. People in the West are less formal than Easterners, and they spend more time outdoors. Consequently, in the Western region there is a large market for patio furniture, sports clothes, and outdoor recreation equipment.

Marketing executives should understand current patterns and projected trends in regional population. Figure 5-1 shows the population distribution in 1980, the projected growth from 1980 to 2000, and the percentage change in population by regions according to projections by the U.S. Census Bureau. The biggest markets are in the East North Central, South Atlantic, and Middle Atlantic regions. These three regions together account for a little over half of the nation’s population. However, the greatest rate of population growth over the past four decades has occurred in the “Sun Belt” the Southern and Western regions. By the year 2000 the three most populous states will be California, Texas, and Florida, in that order.

Urban, Suburban, and Rural Distribution. Many organizations segment their markets on the basis of city size or population concentration; that is, they utilize an urban-suburban-rural distribution. Toys “R” Us, the largest chain of toy stores in the U.S., initially located stores only in metropolitan areas with populations exceeding 250,000 to ensure a sufficiently large customer base. In contrast, Wal-Mart’s initial strategy was to locate only in towns of less than 35,000 people in order to minimize the amount of competition.

The U.S. farm population has been declining for many years, and this trend is expected to continue. This decline has led some marketing people to underestimate the potential of the rural market. Both as a business market for farm equipment and supplies and as a consumer market with significant buying power, however, the farm market still is substantial.

Metropolitan Area structure. As the percentage of the U.S. population living on farms declined, the percentage living in metropolitan areas that is, living in or near cities has increased. Recognizing this population shift, the federal government established a three-part classification of metropolitan areas that serves as an excellent market measurement tool. Together the metropolitan areas included in this breakdown account for about 75 percent of the nation’s population and retail sales. Obviously, for many products, these areas are attractive, geographically concentrated target markets. They also provide a means of identifying growing and declining areas. The three categories are as follows:

  • The Metropolitan Statistical Area (MSA) is the basic unit. An MSA has an urban population center of at least 50,000 and a total MSA population of at least 100,000. The boundaries of an MSA are drawn along county lines and may cross state borders. But the counties must be socially and economically integrated, and virtually all employment must be nonagricultural. There are about 325 MSAs.

 

  • A Primary Metropolitan Statistical Area (PMSA) is an MSA that has a population of at least 1 million. About 80 of the largest MSAs are categorized as PMSAs.

 

  • A Consolidated Metropolitan Statistical Area (CMSA) is a giant urban center consisting of two or more adjacent PMSAs. The hub of each of the approximately 25 CMSAs is a very large city such as New York, Los Angeles, Chicago, or Philadelphia.

Suburban Growth. As metropolitan areas have grown, their composition has also changed. The central cities are growing very slowly, and in some cases older-established parts of the cities are actually losing population. The real growth is occurring in fringe areas of the central cities or in suburbs outside these cities. As middle-income families have moved to the suburbs, the economic, racial, and ethnic composition of many cities (especially the core areas) has changed considerably. The changes in these areas have had striking market implications.

First, retailers have followed consumers from the cities to the suburbs. Since a great percentage of suburban people live in single-family residences, there is a vastly expanded market for lawn mowers, lawn furniture, home furnishings, and home repair products. Suburbanites are more likely to need two cars than are city dwellers. They are inclined to spend more leisure time at home, so there is a bigger market for home entertainment and recreation items.

Second, service organizations typically locate close to their markets. That’s why personal service firms such as banks, fast-food establishments, florists, and travel agents open branches or start new ventures in the suburbs. In addition, many investment and insurance brokers, realtors, physicians and dentists, and other professional services firms have left the central cities. Some theaters, sports arenas, and other entertainment centers have closed their downtown sites and relocated in the suburbs.

Third, the slow but steady migration of large retailers to the suburbs has created a void in the inner cities. Dissatisfied with the limited selection and higher prices of the remaining small independent stores, inner-city residents make long shopping trips to the suburbs. Large retailers such as Woolworth’s, Tops (a New York supermarket chain), and Smart & Final (a West Coast food distributor) noticed this development and are now experimenting with outlets in inner-city areas.3

An example of how refined geographic segmentation can become is ZIP code (or geodemographic) clustering. This procedure was pioneered by the research firm, Claritas, with a system it calls PRIZM (short for Potential Rating Index for ZIP Markets). Using U.S. Census data on education, income, occupation, housing, ethnicity, urbanization, and other variables, Claritas grouped the 36,000 U.S. ZIP codes into 40 clusters or segments. Each cluster then was examined for similarities in life-styles and consumption behavior and given descriptive names such as “towns and gowns,” “grey power,” and “shotguns and pickups.” Marketers use this information to identify ZIP codes for direct- mail promotions, to select locations for retail outlets, and to determine the best mix of products and brands to offer in a particular store.4

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