Should I Use Geographic Segmentation Bases?

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Given the choice of potential segmentation bases, should you use geographic segmentation?

This article explores the advantages and limitations of geographic segmentation. And although it is a segmentation approach which is somewhat dated (more likely to be used in the past) it still has relevant use, providing the geography changes the underlying needs of the consumers in the market.

 Covered in this article…

  • Introduction to geographic segmentation
  • Advantages of using geographic segmentation
  • Limitations of using geographic segmentation

Introduction to Geographic Segmentation

As you most likely know, geographic segmentation is just one approach to dividing an overall market into smaller segments. Different marketing textbooks will provide a slightly differing choice of segmentation bases, but will usually include:

  • geographic,
  • demographic,
  • psychographic,
  • behavioral,
  • benefits sought, and
  • hybrid (a combination of the above)

And remember that each of the above segmentation bases can be broken down further into smaller dimensions.

For example, with geographic segmentation, we can drill down to:

  • climate,
  • city or population size,
  • terrain = flat, mountainous, close to river or beach,
  • city, suburban, rural area
  • proximity to other cities/regions = isolated or quite close

And when using geographic segmentation, we can form very large or very small segments. For example, a very large segment could be a continent or a region of countries such as Western Europe or South-East Asia, or it could be a very small segment such as a local neighborhood.

 

Advantages of Using Geographic Segmentation

Geographic locations can influence consumer behavior

The underlying assumption of geographic segmentation is that consumer’s needs differ by their location. Although initially you might think what difference would it make? Geographic location can actually have a significant impact on consumers needs and lifestyles.

Here are some examples. Climate of the region/area will influence the choice of clothing, food and beverages, housing, energy usage, indoor/outdoor activities and sports, and so on. In cold climates such as Sweden and Norway, they are very large consumers of hot coffee, as opposed to consumers living in very hot and humid climates.

In addition, the geographic region can influence and drive culture and lifestyles. For example, in Québec in Canada they speak French as their primary language and are more likely to have traditional French customs, as opposed to the balance of Canada which is English-speaking.

Easy to define and understand

Geographic segments are usually more easily defined than other segmentation approaches. For example, a segment constructed around major cities is quite clear. For example, we might know that the market segment consists of people living in New York City, or in New York State.

It is very clear who is in and out on that market segment. This approach is also very easily understood by other non-marketing managers within an organization. Occasionally, especially when using behavioral or psychographic segments, there is sometimes confusion and misunderstanding of the construction of the market segment.

Great for effective logistics

Geographic segments are also very helpful for logistics. In this case, we are assuming that the firm is a manufacturer and needs to distribute and transport physical products.

If our target market is geographically based, then this is much easy to execute, as opposed to other segmentation approaches which may result in a broader geographic spread of target market consumers.

Good for targeting with physical retailers

Somewhat related to the above advantage is that we can easily target suitable retailers. Again, if our target market is geographically located together, then it is very clear which retailers are suitable for us to form relationships with and had them selling our product.

As you can see, this point and the prior point on logistics are related to the action-ability of the market segment structure. Although it may not be a clear indicator of consumer needs, it is certainly a major assistance when it comes to the execution of our marketing mix.

Easy to use traditional media, such as TV, radio, transit, outdoor

Traditional media tends to be structured around geographic locations. For example, you will have local TV stations, local radio stations, and local newspapers. Targeting geographic segments makes it very easy to identify suitable media channels to reach consumers.

In addition, the choice of potential outdoor advertising (such as billboards and transport hubs) and transit advertising (such as buses and taxis) is much simpler, as we can select these on a geographic basis quite easily.

Overall, in comparison to other segmentation bases, and geographic approach usually simplifies the choice of media. For example, targeting a particular income group and then considering potential media channels to reach them is not as straightforward.

Easy to use digital media

Most major online advertising platforms, such as Facebook and Google Ads, allow you geographically target consumers as well. This means that in addition to the effective targeting of traditional media, digital advertising can also be fine-tuned to a geographic area,

Ideal for local businesses

Many small businesses choose to compete in a local area only, often with no plans of expansion. These are typically small family businesses that do well and have built a good reputation locally.

Therefore, for these businesses geographic segmentation makes the most sense, as they want to operate in a region/area where they have built their brand and reputation.

Helpful for franchise and retailing expansion

Large, or expanding, retail chains (either owned independently or expanding through franchising) will look at geographic segments to help identify future store locations.

Usually, a key growth pathway for retailers is market development which is often executed through geographic expansion and entering new cities and regions. Therefore, these retailers will typically look at the attractiveness of various geographic segments (locations) and build their expansion plans from a geographic perspective.

This is a more effective approach than other forms of segmentation as they need to always look for another geographic area, so that they do not cannibalize existing areas where they already have stores located.

Limitations of using geographic segmentation

Relies on an assumption that consumers located together have similar needs

This point is related to the first advantage listed above, where there is an assumption that people living in a geographic area share similar needs and lifestyles. As indicated above, this is quite likely to occur where there are substantial differences in climate, culture, terrain, language, location, city/region size, and so on.

However, without these underlying differences, there may not be a substantial difference in consumer needs. For example, two cities within the same country, perhaps 1-2 hour’s drive apart, may not have any substantial differences in consumer needs and behavior.

Therefore, classifying these two cities into different segments, simply because they are different cities, may not be a helpful approach as they may have primarily the same consumer needs. In this case, these two cities would effectively form part of the same geographic segment and should be treated accordingly.

Most likely will need to segment the market further, using another base

Often geographic segmentation needs to be supplemented by an additional segmentation base to further drill down and segment the overall market.

For example, if we selected a very large city, such as London, to be our target market, then it is unlikely that we can rely on that segmentation approach alone. This is because it is a very diverse city with a broad range of population and consumer needs. To get a better sense of the needs of people, we would need to implement further segmentation, most likely using a non-geographic segmentation base.

However, geographic segmentation may form a good starting point, and then we overlay psychographic or behavioral segments underneath the overarching city/region geographic selection.

An older segmentation method, more appropriate for manufacturing

As identified in the advantages above, this segmentation approach is very beneficial for logistics and the selection of suitable retail partners. This means that it has several advantages that are primarily suitable for manufacturing.

As a result, many large-scale manufacturers would have built their business around geographic segmentation and it would have been a common approach to segmenting markets in the past.

And as also identified above advantages, it is a very simple and easy way of segmenting the market because it is so clear cut. However, in today’s data-driven world, we have access to a lot more consumer information and can segment markets more effectively with that data.

Limited insight into consumers

Continuing on with the above limitation, segmenting by geographic residential area tells us very little about the consumer themselves (other than they live in a certain area).

But in terms of our knowledge of them as a consumer, their needs, their preferences, their shopping behavior, and so on – we really know nothing about them.

Instead, we are reliant upon general assumptions based upon where they live. In most cases this will be quite stereotypical and quite limiting on how helpful it will be to the design of our marketing strategy and mix.

And as also mentioned above, we live in a data-rich world where we have access to a lot of information about consumers. Therefore, geographic segmentation, when used in isolation without the support of other segmentation bases, is a very limited approach and neglects the vast amount of information that we may be able to access about consumers.

As a result, it is likely that geographic segments will fail to fully understand customer needs and we will construct a less effective marketing strategy, as opposed to some of our competitors.

A Summary Video Outlining the Advantages and Limitations of Geographic Segments

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