Market segmentation

Introduction

With declining transit market share, increasing population, and swiftly evolving technology, transit agencies must begin thinking in innovative ways to find the balance between maximizing ridership and meeting the needs of those who depend most on transit. Transit agencies can use a market segmentation strategy to improve their competitiveness as well as better serve the needs of their customers. An effective strategy would:

• Increase ridership (both by increasing the frequency of riding and attracting new riders).
• Increase transit's share of mode choice in your market.
• Efficiently allocate resources to markets that represent the greatest potential for change in light of

changes to the marketing mix.

• Enhance the image and reputation of public transportation to increase support for public funding

While transit agencies typically do not generally think in terms of profits and sales, they can still benefit from market segmentation research. Researching the market can help agencies identify the needs and wants of individual customers and develop effective promotional strategies.

Market Segmentation

The definition of a market segments: groups of people or organizations that are similar in terms of how they respond to a particular marketing mix or in other ways that are meaningful for marketing planning purposes.

Bases for Segmentation

Predetermined segmentation

Predetermined segmentation involves defining groups based on known characteristics, such as: transit dependent vs. choice riders, student commuters vs. work commuters, and residents of high-density areas vs. suburban residents.

For example, in 1995, the San Diego Association of Governments (SANDAG) and the Metropolitan Transit Development Board (MTDB) developed a market-based strategy to target potential riders in specific transit corridors. By focusing on the State Route 94 corridor, the MTDB found that even though the demographics in the corridor were well-suited for transit, ridership was lower than expected. Further research identified perceptions of safety as a key concern affecting ridership in the corridor. The MTDB developed a ridership guide to increase awareness of routes and safety precautions, and mailed the guide to over 20,000 households in the corridor; the results were a success, with ridership up in the corridor. The MTDB has since applied the strategy to other corridors.

Market-defined Segmentation

Market-defined segmentation uses actual market investigations, notably analysis of survey results. There are many variables that can be used to classify segments, including usage rates, disliked modes, life style, ethnicity, etc. Through a post hoc analysis, agencies can gain a better understanding of their market. For example, an agency might want to conduct surveys in advance of offering a new rail service, which could show the different types of travelers who might use the service, such as those who care only about functionality or others who prefer rail over bus. The agency can then better prepare marketing strategies and estimate ridership and revenue.

Physical Attribute Segmentation

Demographics	Socioeconomics
Population	Education
Number of households	Occupation
Household size	Income
Age	Home ownership
Religion	Social class

Demographic, socioeconomic, and geographic segmentation bases and variables provide important information about individuals within specific markets. This type of data is relatively easy to collect and less expensive than other forms of segmentation research. It is an essential part of route planning and relatively inexpensive to collect. Data describing the entire U.S. population in terms of these characteristics are readily and cheaply obtainable from government sources (e.g., Censuses of Population and Housing) as well as from some business publications (e.g., Sales and Marketing Management Annual Survey of Buy Power).

Transit agencies use geodemographic information extensively, which is the description of demographics by geographic areas (such as by zip code). By looking at the variables shown in the table, transit agencies can identify areas with high transit dependence.

Psychographic Segmentation

Psychographic segmentation looks at behavioral aspects, such as lifestyle choices, attitudes, and interests, and how those affect a customer's decision-making process. Psychographic information can help explain a person's mode choice, commitment to transit, perceptions and preferences.

For example, as part of Caltrans' TDM effort in the 1980s, the agency developed a Strategic Statewide Marketing Plan, which included a psychographic study. The study segmented the market into different categories based on survey respondents' demographics, lifestyle attitudes, and desired benefits from travel. The following table describes the segments they identified:

Segment	Characteristics
The Bold Beginners	Very frustrated with commute Would like an easier way to get to work Wiling to try something new Most likely to have carpooled, taken the bus, or biked
The Very Independents	Pragmatic and self-reliant. Need to maintain control and schedule flexibility. Hate wasting time / want to get there quickly. Unlikely to use alternative modes / most likely to drive alone
The Efficiency Driven	Want an orderly, structured, and predictable life. Frustrated with the work commute. Hate wasting time. Most open to information about alternative modes
The Autopilots	Not frustrated with commute; see it as part of their daily routine. "Get the job done" mentality. More Caucasians and older. Most likely to drive alone, least likely to use alternative modes
The Easy Goers	Passive personality / easy going. Not concerned with mode image. Most likely to use alternative modes in future. Least likely to drive alone. Younger males, skilled labor and service workers

Based on this research, Caltrans found the "Bold Beginners" to be the largest group and most open to transit. The "Easy Goers" segment was also selected as a target, because they could be captured with some special effort.

Other Segmentation Strategies

• Product-usage segmentation involves identifying riders based on usage, especially frequency of usage. It can be used to develop strategies to retain frequent riders, attract infrequent riders, and focus on neglected areas of the market.

• Benefit segmentation focuses on the reasons why customers buy. Unlike the other segmentation strategie, it focuses on causal factors rather than descriptive factors. It can help agencies better understand market situations, such as specific motivations that cause a customer to ride transit.