4.4: Segmentation in More Depth
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This form of marketing permits the operation to use scarce marketing resources effectively to reach those segments with the highest probability of purchasing the restaurant's products and services. Thus, it becomes important to understand ‘which’ customers are the heavy users of your products and services. At the same time, market segments that hold little potential for using an operation's products receive little or no attention so that marketing resources available are not wasted chasing after market segments with little revenue potential for the operation. For example, restaurants that cater to business traveler would usually be busy on Monday through Thursday nights, and if this is the restaurant's main revenue source, then the weekend is slower so the marketing approach would promote incentives for patrons to visit the operation on Friday, Saturday, or Sunday. The approach could target lunch or dinner or any other day part, what is important is that sales increase on those days and the way to achieve that goal is to move customers to action - the message is not come to our restaurant, more specific, come on Friday, Saturday, or Sunday and you will receive something of value.
Segmentation Criteria
There are many methods for dividing a marketplace in to segments, but the most important consideration is to know when to segment and how far the segmentation efforts should go in targeting specific groups. There is a point where a market segmentation process can go too far, with the resulting subset being too small to be profitable. It could also not be efficient to develop several different marketing programs for the various trading area segments when in fact one or more could reach the entire market - considering narrow or broad segments.
Table 4.1 begins a deeper discussion on the important aspects of using segmentation as an appropriate strategy to assess the advantages and disadvantages a particular marketplace may present to the operation.
| Table: 4.1 An ideal market segment meets all of the following criteria: |
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When any segmentation efforts are undertaken, Reid and Bojanic (2006), suggest four criteria that to evaluate the effectiveness of an operation's segmentation strategy. The criteria include:
- Substantiality
- Measurability
- Accessibility
- Actionability
Substantiality
Substantiality is concerned with whether the market segment is large enough. In market segmentation, the restaurant operation must adjustment the marketing mix (product, place, price, promotion, and so forth) to meet the needs of the individual segments and to achieve the marketing objectives of the operation. It is important that the size of each of these segments is large enough to warrant this form of special attention. A simple example would be to compare healthy eating to past trends. Twenty years ago, very few restaurants had sections of their menus dedicated to healthier foods because there were not enough customers justify the effort. When one considers current eating trends and the emphasis placed on healthy food, it is not surprising that even fast-food restaurants have added healthy menu items. Taking a step further, today many restaurants have items targeting segments of individuals following a particular popular diet currently trending.
Measurability
Each market segment must be able to pass the measurability test that assesses two perspectives: the overall size of the target segment and the projected total demand or purchasing power of the target market. A restaurant should initially establish and continuously maintain cutoff points relative to the size and projected demand of any target segments. If the number of consumers or the projected total demand within a given segment falls below these cutoff points, target market segments can more simply be combined.
Accessibility
The accessibility a market segment is another key criterion for establishing its feasibility. It must be possible to reach the target market segments through a variety of marketing communication efforts. Communicating with customers can vary from one marketplace to another, as such, a wide variety of approaches are appropriate including but not limited to advertising, promotion, direct marketing, telemarketing and personal selling. Without accessibility to your intended customers, there is little reason for segmenting a particular target market. For example, a common marketing problem for operations in suburban areas adjacent to large metropolitan cities is effective radio advertising. An operator many intend to reach a suburban market segment within a three mile area of the restaurant but to use radio marketing, commercial time on a radio station with large metropolitan coverage must be purchased - in essence, paying to reach people who are of little to no interest to your business. At the end of the day, the radio marketing may reach your intended audience, but the cost factor included the broad coverage of the surrounding metropolitan area with may not be cost effective to the operation. One of the major purposes of market segmentation is to isolate viable segments of potential business and to direct marketing efforts related to specific aspects of the product and service mix aimed at those segments. Without effective accessibility, this may not be possible to accomplish, and thus creating that segment can ultimately be of little value to the operation.
Actionability
The purpose of an operation's marketing effort is to cause consumers to take action. Companies must be able to create marketing schemes that are effective in attracting purchasers from the market segment. Stated differently, customers within a particular market segment should share similar characteristics, while those in different segments should vary in terms of their characteristics. For example, if a restaurant offers an 'early' dinner special it should appeal to certain target segments and not to others. Families and senior citizens might be willing to eat early to save money, and avoid crowds and traffic whereas consumers in other segments are not as price sensitive and are not willing to compromise on convenience for a discount. If all consumers reacted the same to a business's marketing strategy, then there would not be a need to segment the market.
Segmentation Variables
Market segmentation is typically centers on five basic types of variables for use when segmenting consumer markets: geographic, demographic, psychographic, behavioral, and another variable that does not always receive the attention it deserves, the benefits variable.
Geographic
The geographic variable, as the name implies, relates to the consumers’ geographic area of residence. Marketers can segment according to geographic criteria—nations, states, regions, countries, languages, cities, neighborhoods, or postal codes. The geo-cluster approach combines demographic data with geographic data to create a more accurate and or specific profile (Kotler and Keller, 2006). With respect to region, in rainy regions merchants tend to avoid outdoor seating. In hot regions, dress codes can be more relaxed with an emphasis on beverage sales. A small foodservice operation may target only customers from the local neighborhood, while a larger operation can target its marketing towards several neighborhoods in a larger city or area, while ignoring customers in other outer communities. Geographic segmentation is important and considered the first step to a national marketing effort, followed by demographic and psychographic segmentation. The use of national borders is the institutional use of geographic segmentation, although geographic segments classifications are also identifable by geological regions.
Markets can also occur by dividing the country into regions such as Northeast, Mid-Atlantic, North-Central, Southwest, Northwest, and so forth. Further, segmentation can also occur by examining the population of a given area. Several different terms are useful to describe cities and metropolitan areas, but the following designations are the most popular in marketing.
The term metropolitan statistical area (MSA) refers to the smallest urban area with an urban center population 50,000 and a total metropolitan population of more than 100,000 inhabitants. Metropolitan statistical areas are normally urban areas that are self-contained and surrounded by rural areas. The next category of urban area is the primary metropolitan statistical area (PMSA). A PMSA is an urbanized county or multicounty area with a population of more than one million individuals. Finally, the very largest cities such as New York, Chicago, and Los Angeles are known as consolidated metropolitan statistical areas (CMSAs). A CMSA must include at least two PMSAs.
Even at the level of the region or city as a geographic variable, it is vital to know just where your business comes from. Segmenting a restaurant market based on the origin of the guests by using their zip codes is an effective way to identify those areas that merit the heaviest concentration of advertising and promotion.
Demographic
Markets often segment based on the demographics of a trading area such as age, gender, income and spending patterns, family size, state in the family life cycle, educational level attained, and occupational data. When utilizing these variables in defining consumers within the hospitality and tourism industry, certain trends begin to surface. For instance, as a family size increases, the number of times per week that a family tends to dine outside the home tends to decrease. When families do dine out, their choice of restaurant changes as the family makeup changes. This is an important consideration because the size of the average family has decreased over the years. In the United States, there is a trend toward smaller families and people living alone to later ages than before. This is important knowledge toward the segmentation efforts of operations in our industry.
Often demographic data must also combine in the process to construct an accurate picture of the trading areas specifics. Consider a newly constructed neighborhood. The homes are new, the families young, and there are new or relatively new automobiles in the driveways. What exactly are you observing? Is this a newly constructed affluent neighborhood with adequate disposable income or simply young family attempting to establish themselves with a large amount of debt to overcome and little disposable income? The visual observation will not truly indication the viability of these consumers. Thus combining information will typically produce a more accurate description of these consumers in terms of their capability to patronize your operation - as well as what type of operation would be most suitable.
Family life cycle
The family life cycle is a good example of how variables can combine to create categories that can be useful for segmentation purposes. The family life cycle uses age, marital status, and the number of children to create categories sharing common discretionary income levels and purchasing behaviors.
The traditional family life cycle proposes that as individuals become adults and enter the workforce, they tend to be single and have lower incomes, resulting in lower levels of discretionary income - income available after covering current expenses for necessity items such as food and housing. However, these young singles do not have many obligations or responsibilities and so are able to spend money on items that are not necessities. Individuals begin to increase their incomes as they age, and young married couples without children will have increasing amounts of discretionary income. However, once married couples have children, their discretionary incomes begin to decrease, until the children are older and move out. At this point, the couples assume the description of 'empty nesters' and discretionary income begins to increase again. Finally, as individuals reach their golden years, they retire and see their incomes start to decrease.
The traditional family life cycle has changed over time and now includes several extensions to the original model. First, many people are waiting longer to get married thus extending the single stage. In addition, more people are choosing not to marry, and some single adults adopt children. Second, the increased in the divorce rate has resulted in more single parents and second marriages that involve older parents and younger children. Third, there are more same-sex couples, and organizations are beginning to recognize this form of partnership for benefits and adoptions. Finally, people are living longer, resulting in a higher percentage of solitary survivors, many of whom form relationships later in life. Figure 3.1 indicates the more modern family life cycle.
The senior demographic for example, is growing faster than any other market in America. By the year 2050, it is expected that one in three Americans will be 55 years of age or older. The senor market has been expanding and is becoming more attractive because older Americans have a good deal of free time, there are healthier and live longer than past generations, and they have more discretionary income than ever before. For example, if a firm chooses to target the senior market, it should determine the attributes that are important to this market segment in purchasing its types of products and services. Then products and services are designable and marketable ‘specifically’ to seniors. For instance, restaurants should provide menus with larger print, meals that are healthy and have smaller portions, and adequate lighting so seniors can read the menus. They also like to travel in groups for safety concerns thus the four-top table or two-tops able to join would help with dining room arrangements. One should approach each segment from this perspective to accommodate the members of different segments.
Psychographic
Psychographic variables are also commonly both useful and applicable in market segmentation strategies. As discussed in a previous chapter, psychographics refers to segmentation based on lifestyle, attitudes, and personal traits. The development of psychographic segmentation is an extension of lifestyle profiles normally derived from survey responses to attitudes, interests, and opinions (AIO) statements from consumers. Psychographic has characteristics that differ from the numerical data associated with demographic data.
In general, one should consider psychographics to be the practical application of the behavioral and social sciences to marketing research. More specifically, psychographics makes use of research procedures that are indicative when demographic, socioeconomic, and user-nonuser analyses are not sufficient to explain and predict customer behavior. Thus, psychographics seeks to describe the human characteristics of consumers that may have a bearing on their response to products, packaging, advertising, promotion, and public relations efforts. Such efforts may range from self-concept and lifestyle to attitudes, interests, and opinions, as well as perceptions of product attributes.
Figure: 3.1 Modern Family Life Cycle
Psychographics considers how people spend their leisure, and which external influences they are most responsive to and positively respond. Psychographic is highly important to segmentation, because it identifies the personal activities and targeted lifestyle the target subject endures, or the image they are attempting to project. Mass Media has a predominant influence and effect on psychographic segmentation. Lifestyle products may pertain to high involvement products and purchase decisions, to specialty or luxury products and purchase decisions. Lifestyle segmentation reflects on how the target subject identifies themselves, or how they desire to identify themselves in society. By identifying and understanding consumer lifestyle, operations can develop promotional mixes and product lines, which tailor to their needs (Reid and Bojanic, 2009).
While psychographics is used primarily to segment markets, it can is also useful for other purposes as well. It is quite useful when selecting the most effective advertising vehicles, in that the vehicle(s) selected can match with the actual interests, attitudes, opinions, and personalities of the target market segment. They are also helpful when designing advertising and promotion messages. Illustrations, pictures, and the actual copy is easily designable with the needs of a specific segment in mind. By accurately pinpointing the target market in this manner, the advertising and promotional messages and images are more likely to be effective, resulting in increased sales and profits.
Behavioral Variables
Another type of variable often used in conjunction with others to segment markets is the behavioral variable. Behavioral segmentation focuses on the behaviors that consumer’s exhibit in the marketplace. For instance, are consumers loyal or are they easily persuaded by competitors' marketing messages and promotional efforts? How frequently do they dine out? Would you consider them light, medium, or heavy users of various types of hospitality products? What restaurant segment do they prefer - QSR, casual, or fin dining? When they travel for pleasure, what types of lodging facilities would they prefer?
One of the best uses of the behavioral variable is to identify those individuals who are heavy users, meaning that they dine out frequently than the average person, or account for a large percentage of hospitality use. If these individuals are identifiable, then one can consider a marketing plan formulation to increase loyalty and frequency of use. The key aspect of such programs is that 'rewards' are commensurate with 'use.' The real strength of the behavioral variable is that it represents an excellent segment tool because the data collected concerns the manner in which consumers actually behave in a marketplace - quite valuable knowledge when it comes to the construction of an operation's product and service mix.
Benefits to the Consumer
Market segmentation can center on the benefits that consumers are seeking when they purchase foodservice products and services. Once an operation has determined which benefits consumers prefer, it can utilize this information to design their products and services and to create promotional materials that focus on these benefits. Market research can be useful to identify not only the benefits customers prefer, but also which of those benefits are of the greatest importance to various types of consumers. This marketing information allows the foodservice operation to segment the market based on benefits sought, as well as by demographic, psychographic, and behavioral variables. Therefore, for example, which is more important to your customers. Is it the table with the view, or the price of major concern? Said differently, do they expect to a greeting by name, or does ‘value’ trump personal attention? With this type of scenario, the question is essentially: Do we market the customer's ego, or do we appeal to their pocket? As illustrated in Figure 3.2, the process should begin with the identification of the segmentation bases, the development of profiles for each segment, the market demand of each segment should receive evaluation, and then the best market segments complete the selection.