Market Segmentation Analysis
Step 1: Deciding (not) to Segment
Market segmentation is a strategic approach where an organization divides its broad
consumer or business market into sub-groups of consumers based on shared characteristics.
While widely adopted, evaluating whether to pursue this strategy is crucial as it involves
significant long-term commitments and investments. Based on the "Market Segmentation
Analysis" PDF, here is the detailed evaluation for deciding whether to proceed with
segmentation for McDonald's:
1. Data Collection and Preparation
Gather Relevant Data: Collect data on customer demographics, purchase behavior,
preferences, and any other relevant variables.
Data Cleaning: Ensure the data is clean by handling missing values, removing
duplicates, and correcting inconsistencies.
2. Exploratory Data Analysis (EDA)
Descriptive Statistics: Compute measures like mean, median, mode, and standard
deviation for different variables.
Visualization: Use visualizations (e.g., histograms, bar charts, box plots) to
understand the distribution of data and identify patterns or anomalies.
Correlation Analysis: Check for correlations between variables to understand
relationships within the data.
3. Segmentation Analysis
Clustering Techniques: Apply clustering algorithms (e.g., K-means, hierarchical
clustering) to see if distinct groups emerge within the data.
Evaluation of Clusters: Assess the quality of the clusters using metrics like silhouette
score, within-cluster sum of squares (WCSS), and between-cluster variation.
Segmentation Criteria: Determine if the clusters have practical and meaningful
differences in terms of demographics, behavior, or preferences.
4. Decision Making
Assess Homogeneity: If the customer base shows significant homogeneity with little
variation, segmentation may not be necessary.
Assess Business Goals: Align the segmentation findings with business objectives. If
distinct segments align with targeted marketing strategies or product offerings,
segmentation can be beneficial.
Cost-Benefit Analysis: Consider the costs and benefits of implementing segmentation.
If the benefits outweigh the costs, segmentation is justified.
5. Summary
Data Collection and Preparation: Gather and clean the data.
Exploratory Data Analysis (EDA): Understand data distribution and relationships.
Segmentation Analysis: Apply and evaluate clustering methods to identify potential
segments.
Decision Making: Assess the need for segmentation based on homogeneity, business
goals, and cost-benefit analysis.
Step 2: Specifying the Ideal Target Segment:
Specifying the ideal target segment for McDonald's involves identifying the group of
customers who are most likely to be profitable, have the highest growth potential, or
align best with the company's strategic goals. Here are the steps to specify the ideal
target segment:
1. Identify Segmentation Variables
Demographic: Age, gender, income, education, occupation, family size.
Geographic: Region, city size, urban/rural.
Psychographic: Lifestyle, personality, values, interests.
Behavioral: Purchase frequency, brand loyalty, usage rate, benefits sought.
2. Segment the Market
Use clustering algorithms (e.g., K-means, hierarchical clustering) on the chosen
variables to segment the market.
Ensure each segment is distinct, measurable, accessible, substantial, and actionable.
3. Analyze and Profile Each Segment
Demographic Profile: Describe the age, gender, income, etc., of each segment.
Geographic Profile: Describe where the segment is located.
Psychographic Profile: Describe lifestyle, personality, values, etc.
Behavioral Profile: Describe purchasing behavior, brand loyalty, usage rate, etc.
4. Evaluate Segment Attractiveness
Market Size and Growth: Assess the size and growth potential of each segment.
Profitability: Estimate the potential revenue and profitability.
Competitive Landscape: Analyze the level of competition within each segment.
Strategic Fit: Ensure alignment with McDonald’s brand values, mission, and strategic
goals.
5. Select the Ideal Target Segment
Based on the evaluation, select the segment(s) that are most attractive in terms of
profitability, growth potential, and strategic alignment.
Example of an Ideal Target Segment for McDonald's
Let's create a hypothetical example based on the above steps:
Segmentation Variables:
Demographic: Young adults (ages 18-34), middle-income, urban dwellers.
Geographic: Major metropolitan areas.
Psychographic: Health-conscious, tech-savvy, socially active.
Behavioral: High frequency of eating out, preference for quick service, interest in
innovative menu items.
Segment the Market:
Apply K-means clustering and identify a segment that fits the above criteria.
Profile the Segment:
Demographic Profile: Young adults, college students or early-career professionals,
with an average income range of $30,000-$60,000.
Geographic Profile: Reside in large cities like New York, Los Angeles, Chicago.
Psychographic Profile: Value convenience and speed, have an interest in healthy
eating options and sustainability.
Behavioral Profile: Frequent fast-food diners (3-5 times a week), show high
engagement with digital ordering apps, respond well to loyalty programs and
promotional offers.
Evaluate Segment Attractiveness:
Market Size and Growth: Large and growing population in urban areas.
Profitability: High disposable income, willingness to spend on convenient and healthy
options.
Competitive Landscape: Competitive but manageable with unique value propositions.
Strategic Fit: Aligns with McDonald’s goals of increasing digital engagement and
offering healthier menu options.
Select the Ideal Target Segment:
Young urban adults (ages 18-34) who are health-conscious and tech-savvy, as they
provide a significant growth opportunity, align with strategic goals and can be
effectively targeted through digital marketing and innovative menu offerings.
Step 3: Collecting Data:
To collect and prepare data for segmenting the McDonald's market, you would
typically follow these steps using Python. Below is a basic outline of how you might
collect, clean, and prepare the data:
Step 1: Collecting Data
Assuming you have access to a CSV file containing customer data, here's how you
might load and explore this data using Python.
Assigned Task
Step 4: Exploring Data
exploring data generally means performing exploratory data analysis (EDA) to analyze and
investigate data sets and summarize their main characteristics, often employing data
visualization methods. EDA helps determine how best to manipulate data sources to get the
answers you need, making it easier for data scientists to discover patterns, spot anomalies, test
a hypothesis, or check assumptions. It can also help in understanding data structures,
identifying patterns and relationships, detecting anomalies and outliers, testing assumptions,
and handling missing values.
Data cleaning, also known as data preprocessing, is an essential step in the data science
workflow. Here we perform data cleaning:
Descriptive Analysis: descriptive analysis is a fundamental tool for transforming raw data
into clear and concise information, making it easier to draw meaningful conclusions.
Pre-Processing : Two pre-processing procedures are often used for categorical variables. One
is merging levels of categorical variables before further analysis, the other one is converting
categorical variables to numeric ones, if it makes sense to do so.
PCA (Principal component analysis):
