Market segmentation

Introduction

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.

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 the use of market segmentation research and the resulting strategies. Researching the market can help agencies identify customers' preferences and effective promotional strategies.

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

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).

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

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.