market segmentation - geographic
segmentation
Geographic segmentation tries to divide markets into different geographical units: these units
include:
• Regions: e.g. in the UK these might be England, Scotland, Wales Northern Ireland or (at a
more detailed level) counties or major metropolitan areas
• Countries: perhaps categorised by size, development or membership of geographic region
• City / Town size: e.g. population within ranges or above a certain level
• Population density: e.g. urban, suburban, rural, semi-rural
• Climate: e.g. Northern, Southern
Geographic segmentation is an important process - particularly for multi-national and global
businesses and brands. Many such companies have regional and national marketing programmes
which alter their products, advertising and promotion to meet the individual needs of geographic
units.
Geographic Segmentation
It is well known that people with similar demographic and psychographic characteristics tend to
live nearby, for example, in suburbs, counties, shires, states, regions, countries, etc. People living
within the same geographical boundaries often exhibit similar buying patterns. This is in part due
to similarities in demographic and psychographic characteristics of residents. This phenomena is
further enforced by local weather, environment, and cultural differences. Segmenting markets
along geographical boundaries can lead to more specialized and focused marketing approaches.
Geographic segmentation can use the following information;
• National census data: National census includes various demographic and
psychographic information on residents of geographical segments: median
income, age, education, and so on. National census information is available
from;
o United States: http://www.census.gov/
o United Kingdom: http://www.statistics.gov.uk/
o Australia: http://www.abs.gov.au/
o New Zealand: http://www.stats.govt.nz/
o Canada: http://www.statcan.ca/
o India: http://www.censusindia.net/
• Geographic Information Systems (GIS): These are digital mapping
systems containing geographic data allowing manipulation of data. Certain
geographic information may be used in segmentation. For example, average
temperature, rainfalls, and so on. More important use of GIS system is
plotting results of geographic segmentation on a map so that important
geographical clusters can be identified.
• Customer behavioral information: Customer density, past purchasing
behaviors, and products they bought can be added to geographical
segmentation processes.
Examples of Geographical Segmentation
Geographical segmentation can be used for various purposes. The followings are geographic
segmentation examples;
• Shop outlets: Locations for new shop outlets can be identified.
• Advertising: Areas for advertisement can be identified. Segmentation can
also reveal information for advertisement media.
• Product selection: Different geographic segments have differing
consumption patterns. Introducing different products for different geographic
segment can bring more sales!
• Military recruitment: Military recruits have certain demographic attributes.
Focusing on geographic segments with such profiles, military can find new
recruits more efficiently.
• Catalog sales: In catalog sales direct marketing, generally demographic
information of customers is not available. Census information derived from
geographic data can be used to develop better customer segmentation and
predictive models.
Trend Analysis and Monitoring for Geographic Segmentation
Geographical segmentation can be applied to Trend Analysis and Monitoring. For example, the
following report shows segment trends for profits and revenues. Replacing the "Segment"
variable with geographic regions, sales revenue trends by geographic segments can be
monitored;
Geographic Segmentation Techniques and Methods
Geographic segmentation is mainly used for mass marketing, as opposed to one-to-one
marketing. (Note that one-to-one marketing techniques are described in Database Marketing
and Direct Marketing.) The sole purpose is to identify geographical segments that have similar
properties as the ones that sell well. To this end, customer profiling and neural clustering
techniques can be applied;
• Customer Profiling
Profiling customers (or equivalents) can be used to identify geographic
segments. First, develop profiles from customer profiles. If there is no
customer profile database readily available, survey may be used to collect
profiles. Then use the profiles to identify cities and suburbs from census and
GIS systems.
• Neural Clustering
Census and customer data can be merged along geographic variables, for
example, zip code. Then combined information can be used to neural
clustering tools to obtain geographic segmentation. Geographic segments
that belong to the same clusters with the ones that sell well, will be the
segments for marketing focus, since they have the similar properties as the
one that sell well!
For more, also read Customer Segmentation.
GIS and Geographical Segmentation
GIS (Geographic Information Systems) is essential in projecting result of segmentation. You will
need a GIS system that allows you to display segment labels (you developed) on maps! For
more, please read StarProbe Business Intelligence - SOA.
Why Geography Matters in Marketing Strategy - The Spatial Dimension to Customer
Communications and Marketing
By Duncan Houldsworth , Applied Geographic Solutions
June 10, 2003
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In my previous contribution to Directions on Data, I focused on why I believe geographic data is
still relevant in the Customer Relationship Management (CRM) age today.This article will
expand upon that argument and putting forward some ideas on the importance and utility of a
spatial or geographic dimension to your marketing activity. Specifically, the article will discuss
why geography has an important role to play in providing intelligence to a series of marketing
and business decisions.
The aim of this article is clear; to provide some simple reasons as to why physical location is not
only relevant, but instrumental in improving performance of marketing communications.
I am often reminded of a conversation I had many years ago with a nameless catalog manager for
a major home shopping catalog back in the UK.It was in the mid-to-later 1990's and the internet
boom was just beginning.I spent some time explaining how useful geo-demographic
segmentation would be in predicting the likelihood of their customers to be shopping online in
the future, and as I got towards the end of my presentation he stopped me and asked; 'What has
geography got to do with the internet?'.This question surprised me on quite a few levels, but
what sticks with me today is that it showed that there was a misunderstanding of the role and
relevance of location in helping refine and improve the marketing communications of
organizations.
Since that time, I have seen that kind of compartmental thinking prevalent in a number of
situations.It's almost as if many business practitioners, including the direct marketers, the internet
marketers and so forth do not see the part physical geographical location has to play in their
business strategy.However, before I continue, I have seen many great utilizations of spatial
information, so it's not all bad, but I do believe that through the understanding of the utility of
location and the application of a few simple concepts we could see noticeable improvement in
performance across a wide variety of scenarios.
What I want to do in this article is outline some reasons why spatial information and location can
be highly useful in a wide number of situations. The examples I have used primarily come from
the retail or business-to-consumer world, but the concepts are equally applicable to other
situations.
4 Reasons why location matters in your strategy;
1.As a predictor of characteristics
The last 20 years have clearly shown that the location of an individual, a family or even a
business play an important role in the prediction of the characteristics of that individual.From
analyzing information from complied household databases or from the Census Bureau statistics,
a detailed picture of the demographic characteristics of an area or location can be developed.This
area profile has been proved to be very accurate in predicting the characteristics of the make-up
of those areas.The key point to note is that much of this area demographic profile is built on the
basis of where those individuals or families are - so its through knowing where they are we begin
to know something of WHO they are.
In the analysis and understanding of customer characteristics, and behavior as we shall see in a
moment, determining the location can be highly useful in simply knowing more about the
customer than you did previously.This knowledge can then be applied in a manner of ways to
improve the vendor/customer touch point and increase the performance of the transaction to
mutual benefit.
2.Determining and predicting past, current and future behavior
As a development from the prediction of neighborhood characteristics, analytics have also been
used to predict the potential or future behavior of an area.Using the methodologies developed to
predict character of an area, behavioral predictions can be made to peer into the future likelihood
of an area to behave in a certain way.Central to this calculation is the location in question and the
characteristics of this location.
Behavioral predictions and understanding of character of locations have been extensively utilized
by location specialists for store placement and real estate development.Point 3 below is very
closely linked to this concept, but due to the nature of the market and world in which we live in
today it warranted a more detailed mention.
3.The Timing and mechanics of action - extension of behavior prediction
Location can also play an important role in the timing and mechanics of the purchase decision,
for example, the weather patterns dictating at what point purchase becomes likely.In addition to
this, there are the mechanics of the purchase that can be influenced by location; highly urbanized
areas see high levels of delivery services used.
As an extension of timing the purchase the actual products purchased is closely related to
location, weather patterns, proximity to store, product range carried by location.Different
physical locations need to stock a different product range to ensure appropriateness to the local
conditions and local population.
In the multi-channel world in which we live the understanding of a customer's preference and
likelihood to respond via a specific channel, like telephone or mail, is crucial.Location plays an
important role in not only predicting behavior, as I mentioned above, but in determining the most
practical means of utilizing channels to suit a consumers needs based on where they live. A very
basic example is that rural customers are less likely to have access to a wide range of retail
locations so they might be more likely to utilize mail or telephone services.Urban customers may
have limited ability to bring large items home to their city apartment so may use combined
internet/delivery services and so on.
4.Extrapolation of the known to the unknown
The final justification of the relevance of location is possibly the most crucial.Geographic
location is the key factor in being able to extrapolate known information onto persons,
households or areas that up to that point had little or no information.Through the extrapolation of
information we are able to know, or more accurately infer, intelligence that can be crucial to
business growth and organizational performance.It is through this extrapolation of information
that location becomes one of the most valuable, yet under utilized, tools available to business and
organizations.
Summary
This is only a very cursory look through why location is relevant in the marketing mix.It is
necessary that once an organization understands the value in location that it takes the actions to
ensure that the necessary pieces of locational information and intelligence are applied at the right
points within the organization to ensure benefit.
The key next step is to determine some practical means of implementing location in your
marketing strategy and assessing the benefits of that strategy to the organization, and that is
something I shall look at in a future contribution to DirectionsMag.com.
