A market that is classified by geographical segmentation is a geographic market. Geographical segmentation seeks to identify marketing strategies accounting for variations within geographical markets in regard to language, climate, and lifestyle. Geographic markets can range in size or in market definition. Three geographical units that distinguish geographic markets are regions, countries, and population density; each of these units can be split into subunits.
A regional geographic market can be segmented in various ways. Countries, counties, and metropolitan areas all represent various geographical regions. Regions can also vary in size and population density. Examples of regions in the U.K. include Scotland, Wales, and Northern Ireland.
Geographic markets separated by country are often subdivided by development level, size, or their membership in a particular region. Various development levels can include status, industrial level, and speed of growth. Size segmentation can be based on population or financial capacity; this can include marketing to countries with a certain gross domestic product. Geographic markets based on country membership may refer to continents, countries with similar systems, or with similar languages.
Geographic segmentation by population density can include splitting areas into urban, suburban, or rural areas. Marketing by population density often splits larger geographic regions or countries into smaller subunits. The smaller the subset, the more precise the marketing mix can become, but the smaller the market, the higher the cost for implementing individual marketing plans.
Geographical segmentation is most frequently used by global and multinational businesses. Operating over a large geographical subset often means that companies need to alter their marketing mix for various regions. These businesses can choose to alter a product based on market segmentation or to keep a generic product. Both options must take geographic differences, languages, and lifestyle preferences into account.
Elements that businesses consider when choosing the parameters for a geographic market are transport costs, geographic competition, and demand. High transport costs can dissuade businesses from entering into distant geographic markets. High competition and high entry barriers can also deter organizations from pursuing a particular geographic market.
A geographic market with high entry barriers, for example, might be an unprofitable investment despite other favorable factors. Many barriers to entry may exist, including predatory pricing and high advertising spending by incumbent firms, making it difficult for new industries to enter the market. Very high or absolute barriers to entry can indicate a monopoly that, depending on the location, could be subject to international anti-trust scrutiny.