Market Segmentation consists of viewing a heterogeneous market (one characterized by divergent demand) as a number of smaller, more homogenous markets.
Benefit of segmentation:
1- Enables costs to be reduced via a closer matching of company resources with market requirements.
2- Customer satisfaction can be enhanced by meeting customer requirements more accurately.
3- Focusing efforts on narrower target, enables the company to gain a specialized knowledge of the needs and requirements of that target.
4- More understanding of customers while migration from existing segment to another, as well as, projecting known segment characteristics onto new potentials.

Proxy variables: are variables which are assumed to have a correlation or association with behavior “segmentation bases”.
Segmentation bases: are characteristics or group of characteristics of consumers used to assign consumers to segments.
Segmentation bases can be broadly divided into two groups: ‘Customer-specific’ bases and ‘situation specific’ bases. These two groups can be classified further according to whether they can be measured objectively (Observable bases) or whether they must be inferred (unobservable bases) Figure 3.1 page 68.

Geographic bases: segmenting markets to nations, regions, local. Many financial services like building societies segment the markets on geographic bases by default. Advances in IT have achieved a broadening of customer base out side the local geographic area for many small institutions.
Demographic bases: grouping people according to gender, age, family life cycle, etc. Demographic variables have been used widely since customers are placed on definite scales of measurements which are easily understood, information is easily interpreted, relatively easily gathered, and easily transferable from one study to another.

- Traditionally men were the targets of financial institutions.
- Despite the findings discussed in Ch.2 that women roles have changed more homemakers toward breadwinners, researches indicate that there has been a tendency for women to feel less confident than men in dealing with financial services.
- Maybe women are less knowledgeable than men in dealing or making a wise decision with financial services. Leaving the responsibility to men who rarely admit lack of knowledge due to cultural pressures.

One of the simplest methods of segmenting a market. Assuming that individuals with similar ages have similar needs and requirements.
Younger customers generally have a larger demand for loan facilities than their older counterparts who are more likely to deposit rather than borrow funds.
Financial Institutions have developed a number of different accounts to respond to various age segment:
Student accounts aimed at school leavers going into further education. “Students are very loyal and brand conscious”  or school children because they constitute a large proportion of society and possess significant discretionary purchasing power through pocket money, monetary gifts and earned income, and they save extensively.
“Greys or Third agers” Financial institutions should avoid viewing ‘the old’ as a single homogenous segment.
Five attitudinal segments among the 50-70 year old segment: Astute cosmopolitans, thrifty traditional, temperate xenophobes, apathetic spenders, outgoing fun lover

Life Cycle: If financial institutions target only young customers, they may lose them as they age if the company doesn’t meet their changing requirements as they move into more mature segment.
A key aspect of the life cycle approach is that it enables financial institutions to develop a relationship with their customers and also retain them by offering the right product at the right time as and when the customer requires.
In an intense competition, it’s hard to financial institutions to attract new customers. Thus, retaining of existing customers is crucial to the long-term prosperity of the organization.
Youth: is important for the income it may generate in the future.
Independent: School leavers who are entering employment or undertaking training.
Empty Nester

- Social class: is a measurement of the type of educational background, occupation, income level that a person has.
Traditionally, an individual’s belonging to a particular social class may have been determined by parentage, in modern society it is relatively easy to upscale as well as downscale.
- The social class premise implies that individuals in a certain class will behave like and exhibit similar preferences and values to the other members in that class.

Income: is money received through wages, rents, investments, pensions, and other sources for a given period.
Disposable income (or after-tax income) is used for spending or saving. It is affected by wage levels, rate of unemployment, interest rates, dividend rates, and tax rates.
Discretionary income is disposable income available for spending and saving after an individual has purchased the basic necessities of food, clothing, and shelter.
High income families often have high financial commitment for housing cost, school fees and support for dependents, that they have little discretionary income to spend.
Associated with income is the affluence or ‘worth’ of the person. Wealth can be liquid and illiquid.

- In an attempt to overcome some of the inabilities of single variable bases and social class grouping to sufficiently differentiate consumer requirements have led to the development of geo-demographics
- Systems combine geographic with demographic information, and more recently also including consumption patterns of a wide range of products and services and lifestyle.
- The system is based on the premise that individuals living in neighborhoods with similar social and economic characteristics will exhibit similar lifestyle features and patterns of behavior.
- Burglars already know: The areas in which people live tell something about the products they buy and the things they own

Demographic bases are descriptive and not casual and that individuals with the same external characteristics (such as age, gender, income, occupation) can exhibit very different behaviors and lifestyles. The psychographic premise argues that this result from different internal characteristics such as attitude, beliefs, preferences and motives.
Attitude segmentation: A study made by Midland Bank used attitude segmentation to group its customer base.
The bases for the segmentation was two attitudinal dimensions. ‘confidence’ and ‘respect for the banking authority’.
Research identified four segments:
1- New Bankers- low levels of confidence and high respect for the authority of banking system.
2- Traditionalists- Use the full range of banking services.
3- Minimalists- low respect for the authority of the banking system and make only infrequent use of the services.
4- Opportunists- high level of confidence and are most likely to take the opportunity to avail themselves of the best offers, willing to switch financial institutions to obtain them.

It considers the dimensions of individual perceived knowledge of financial services, attitudes towards financial services and level of involvement (Interest) in financial services in the segmentation of financial consumers.
Use of financial services was measured in terms of the degree of financial maturity.
Segmentation along this basis produced four segments (figure 3.3) page.81
1- Financially confused
2- Apathetic minimalists
3- Cautious investors
4- Capital accumulators

1- Segments should exhibit measurability- size and purchasing power of the identified segments.
2- Substantiality of the segment in volume and value terms.
3- Accessibility of the segment- it should be possible to reach them effectively and serve them
4- Actionability- effective marketing programs can be designed and implemented to attract and serve segments
5- Differentiability- the segments should be conceptually distinguishable and should respond differently to the different marketing variables.
6- Stability- Although segments are not static they should possess a certain degree of stability over time in order that marketing programs can be designed and implemented before the segment has shifted.

1- Single segment concentration: Occurs when the organization targets just one segment to the exclusion of all others; the total marketing effort is aimed solely at this one segment.
2- selective specialization “multi segment coverage”: Occurs when a firm choose a number of segments. This may be as a result of a variety of offerings or an attempt to minimize the effects of competition.
3- Product specialization: Occurs when a firm concentrates on marketing a certain product to several segments.
4- Market specialization: is when a firm concentrates on serving the many needs of a particular customer group.
5- Full market coverage: is when a firm attempts to serve all customer groups with all the products that they might need within the range of the company.

- The ability of segmentation to identify casual relationships or associations between variables depends to some extent on the methods used to classify or partition the data.
- Method of segmentation fall into two broad categories:
- A priori segmentation: is planned in that the researcher chooses some segment-defining characteristics in advance, such as age or income, and respondents are classified into segments. (driven by theoretical expectations)
- Post hoc segmentation: is driven by empirical concerns and occurs after seeing the data. Hence, respondents are grouped according to the similarities.
In addition two statistical methods are to be used:
1- Descriptive methods: ‘structural interdependence methods’ since they analyze the mutual association across a set of segmentation variables, with no distinction between dependent and independent variables.
2- Predictive methods: ‘functional dependence techniques’ since they analyze the relationships between two sets of variables.