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;
  • United States: http://www.census.gov/
  • United Kingdom: http://www.statistics.gov.uk/
  • Australia: http://www.abs.gov.au/
  • New Zealand: http://www.stats.govt.nz/
  • Canada: http://www.statcan.ca/
  • 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.

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.