Market segmentation — practice questions

Target segment B — professionals 30–45.

Why: Higher income for membership and personal training; time-poor — value convenience (early/late hours); large segment in urban locations; willing to pay for health and status benefits.

Positioning: "Premium efficient fitness for busy careers" — product: express classes, app booking; price: mid-high; promotion: LinkedIn, corporate partnerships; place: city centres near offices.

Students (A) may be price-sensitive; retirees (C) may need special facilities — viable as secondary segments later.

Step 1: Calculate potential customers for each segment.

• Freelancers: 500,000 (market size) × 2% (penetration) = 10,000 customers
• Small Businesses: 80,000 (market size) × 5% (penetration) = 4,000 customers

Step 2: Calculate total annual revenue for each segment.

• Freelancers: 10,000 customers × $15/month × 12 months = $1,800,000
• Small Businesses: 4,000 customers × 5 users/customer × $12/user/month × 12 months = $2,880,000

Step 3: Calculate total acquisition cost for each segment.

• Freelancers: 10,000 customers × $50 CAC =$500,000
• Small Businesses: 4,000 customers × $400 CAC =$1,600,000

Step 4: Calculate estimated annual profit for each segment.

• Freelancers: $1,800,000 (Revenue) - $500,000 (Costs) = $1,300,000
• Small Businesses: $2,880,000 (Revenue) - $1,600,000 (Costs) = $1,280,000

Recommendation: Based on the calculations, the Freelancer segment is estimated to be more profitable in Year 1 ($1,300,000 vs. $1,280,000). It also requires a significantly lower total marketing investment ($500k vs. $1.6m). Therefore, if the company's objective is to maximise initial profit and manage cash flow carefully, targeting freelancers is the recommended strategy.

Evaluation point: A firm might still choose the Small Business segment if its strategic objective is long-term growth, as this segment generates higher revenue and has a greater potential lifetime value (LTV) through upselling and expansion.