Market Segmentation

Market Segmentation

The final stage of the twentieth-century market in America has been characterized as "market segmentation." Fully developed in the 1970s and 1980s, firms sought competitive advantage through the use of demographics and psychographics to more accurately pinpoint and persuade consumers of their products. Price was determined not so much by how cheaply something could be sold, but more by the special value a particular market placed upon the goods, independent of production costs.

General Motors (GM) pioneered market segmentation in the 1920s, as it fought and beat Ford for the biggest market share of the booming automobile business. Henry Ford was an exemplar of mass marketing. He had pioneered the marketing of the automobile so that it could be within the reach of almost all Americans. Standardized models were produced quickly, identically, and only in black, which dropped the cost of car buying from $600 in 1905 to $290 by 1924. In nineteen years of production, his Model T sold to 15.5 million customers. By 1924, thanks largely to Ford, the number of cars produced in the United States was greater than 4 million, compared to 180,000 in 1910. Due to his methods, by 1921 Ford sold 55 percent of all new cars in America. In trying to compete with Ford, GM first tried merging with rivals to create a larger market force, but then embraced individuality. It was in the 1920s that annual modifications to automobile models were introduced. GM made not one model to suit all, but a number of different models to suit differing pocketbooks. It looked at the market not as an undifferentiated whole, but as a collection of segments with differing requirements and desires to be satisfied. GM made the ownership of automobiles both a status symbol and stylish. By 1927, Ford's market share had been cut to 25 percent, and Ford was forced to retool and try to catch up with GM.

By the 1960s, as consumer values shifted because of social change, marketers and advertisers sought ways to reach a more segmented society. Generational differences became much more important. Further changes, after 1970, meant that marketers needed to be much more sensitive to the differences between groups of Americans and their values. Serious foreign competition in American markets during the 1970s and 1980s also spurred innovation in market research, product design, and marketing generally. Television's Nielsen ratings offered one instrument, and more sophisticated polling techniques another. The ability to identify who watched what shows according to age, gender, and ethnic background led to more targeted advertising and a leap in TV advertising, from $12 billion in 1960 to $54.5 billion in 1980. By 1985, advertisers had developed eight consumer clusters for women alone, and over forty lifestyle groups.

By the 1990s, children, teens, and seniors were similarly analyzed. In 1997, it was estimated that "kid power" accounted for sales of over $200 billion per