Customer Segmentation Analysis for CarMax: A Marketing Approach

This assignment provides a customer segmentation analysis for CarMax, focusing on its potential expansion into the Canadian market. The report identifies and analyzes three potential customer segments: primary, secondary, and tertiary markets, based on geographic, demographic, behavioral, and psychographic factors. The analysis highlights cost-effectiveness, ease of service, and behavioral aspects such as aspirations and loyalty as key drivers for customer preferences. It then assesses the attractiveness of each segment, recommending a primary target market. The analysis uses a market segment attractiveness analysis matrix to evaluate the segments and provides recommendations for CarMax's marketing strategy to ensure effective customer base expansion. The report concludes by emphasizing the importance of customer segmentation for strategic advantage in the competitive automobile market.

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CUSTOMER SEGMENTATION ANALYSIS
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1CUSTOMER SEGMENTATION ANALYSIS
Table of Contents
Introduction......................................................................................................................................2
Potential target market.....................................................................................................................2
Primary market............................................................................................................................2
Secondary market........................................................................................................................3
Tertiary market............................................................................................................................3
Market segmentation.......................................................................................................................3
Geographic...................................................................................................................................4
Demographic................................................................................................................................4
Behavioural..................................................................................................................................5
Psychographic..............................................................................................................................5
Market segment attractive analysis..............................................................................................5
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................6
Reference.........................................................................................................................................7
Appendices......................................................................................................................................8
Appendix 1...................................................................................................................................8

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Introduction
Customer segmentation is considered to be the important aspect for any business
organisations irrespective of its size and industry. Based on the research of Colfax, Rivera and
Perez (2010) it can be stated that customer segmentation is the foremost step before an
organisation set its marketing strategy or making any decisions regarding the progress in
business. Therefore, for CarMax also customer segmentation plays a significant role in order to
set further strategy to expand business effectively. CarMax is the largest used car retailer in US
and persists the ambition to expand business in Canada. Therefore, customer segmentation is the
focal point of this report in addition to highlight the changes in decision making with the help of
customer segmentation.
Potential target market
Primary market
From the research of Armstrong et al. (2014) it can be found that cost effectiveness is
definitely an important aspect for the companies to attract middle class and lower middle class
customers. As a matter of fact, the research of Bal (2018) pointed out that the cost leadership
approach is very profitable for the business organisations. It helps to maximise all type of
customers based on their income status. For CarMax, most of the customers are associated with
low to medium disposable income. It means most of the customers are not fond of high
expenditure. Therefore, buying car in comparatively lower price is definitely a reason to buy
used cars.

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Secondary market
Keegan and Green (2015) articulated that easy solutions is the best option for the buyers
and purchasers because it will take less time but finish the process perfectly. For instance,
Lewrick and Link (2015) advocated that customers who got good experience in selling or
purchasing product will feel more loyal to the organisation. In case of CarMax, the customers
who will get easy solution to purchase or sell their car can be considered potential customers of
CarMax. Therefore, the company also facilitates a number of unique services to the customers
in order to maximise customers. The second hand car buyers will feel easy to purchase their
desired cars in a simple way and the car sellers are also get a flexible approach to sell car through
simple process.
Tertiary market
Behavioural factor is also responsible to facilitate a great deal of emphasis on the target
customers. Brito et al. (2015) opined that the behaviour of the customers are often driving by
their interests and choice of products. Henceforth, the business companies are taking behavioural
factors as an important component to identify the potential customer base. In case of CarMax,
most of the customers are intended to buy cars with a cheap price. They have high aspirations but
do not have enough money to buy a newly branded car. Therefore, purchasing second handed car
is definitely the best options for them. The Car market of Canada is also based on such measures
so that it will be effective for CarMax to figure out the potential target customer groups.
Market segmentation
The segmentation analysis of the customer is considered to be one of the important aspect
to identify the customers on the basis of four customer segments in terms of geographic,

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demographic, behavioural and the psychographic. As a result of that it becomes an important
aspect for the business organisations to set proper and effective analysis so that it can evaluate
the customers based on their preferences. Henceforth, the article of Seifbarghy, Nouhi and
Mahmoudi (2015) suggested that it is essential for the business organisations to emphasis on the
attractiveness and preferences of the customers so that project a promotional effort to maximise
more customers. In this regard, this section is trying to three group of customers of CarMax to
facilitate on the different segmentation so that it will portray effective result into the customer
maximisation.
Geographic
As far as the geographic segmentation is concerned, it can be stated that in Canada the
car market is diverse and full of volatility. Therefore, it is important for CarMax to set a better
framework where the organisation can identify the geographic segmentation. Based on this
understanding, it can be seen that the entire Canadian market is the target market where CarMax
is willing to penetrate in an extensive manner. Moreover, in terms of density, the urban
population is of high focus because of demand for used cars.
Demographic
As far as the demographic segmentation is concerned, age, gender, life cycle stage,
income are occupation are the main aspects that an organisation should deal with. For CarMax,
it will be effective to target the people from age 25 to 45. It is true that the age difference is huge
but in Canada, this age group are generally willing to buy cars both first hand and used cars.
Both male and female customers will be potential customers due to customer maximisation. In
the life cycle stage it can be stated that couples and married people are basically interested in

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buying used cars. One of the major facets is that most of this customers are belonged to middle
to lower middle income barrier with professional and freelance activities.
Behavioural
Based on the behavioural perspective, it can be stated that the people are hard-core loyal
and they believe in honesty and trust. As a matter of fact, they want more proficiency in
warrantee and flawless services that CarMax provides. High ambition and using the used cars
for both professional and personal are the basic characteristics of the people.
Psychographic
Mainly the middle class and lower middle class people can be possible customers of
CarMax who lead the life of an aspirer and explorer. Those customers are generally optimistic
in life so that purchasing the used car can fulfill their dreams.
Market segment attractive analysis
Based on the analysis, it can be stated that there are three types of customers who are
willing to get services from CarMax. For instance, people who are searching for cost effective
cars with a high aspiration can be primary target customers for CarMax. The primary customers
are generally belonged to mid-level income with both bachelors and married couples. Therefore,
it is essential for CarMax to focus on the demographic aspects. It will help the company to get
adequate information regarding the customers, their age, income and the intention to buy the
product. Therefore, based on the demands and intention of the customers, CarMax sets its
primary target customers.
Apart from that for the secondary market decision to purchase the used car is to get easy
service while buying a car. The paperwork and insurance for a new car is huge and it costs

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enough money for the lower mid-income people. The used car companies help them to get car
quickly and fulfill their dreams effectively. As a result of that it is obvious to focus on the
behavioral practices that the secondary target customers are persisting and analyse the behaviour
of the secondary customers properly.
For the tertiary customers using the used cars for professional purposes leads the
customers to get adequate measure in workforce. As a result of a high aspiration among the
tertiary customers can be seen that helps them to drive towards using the second hand cars for
professional purposes.
Recommendation
It is recommended that people with high aspiration with a age barrier between 25-45 can
be identified as the primary customers of CarMax. Moreover, most of those customers have a
mid-level income potential and they are belonged to professional or freelancing jobs. There are
huge understanding regarding their personal life as they are couple or bachelor with a honest
behaviour.
Conclusion
Based on this understanding, it can be argued that entering into the Canadian automobile
market is definitely a challenging part for CarMax to expand business properly. The company is
trying to establish a unique and effective customer segmentation procedure so that it will
facilitate strategic advantage in the business. Based on this understanding, it can be stated that
the customer segmentation is an important aspect that the business organisations should follow in
order to ensure and embolden the customer base.

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Reference
Armstrong, G., Kotler, P. T., Trifts, V., & Buchwitz, L. A. (2014). Marketing: An Introduction.
Pearson Education, 5, 238-276
Bal, P. (2018) Why design thinking is marketing's best friend [Marketing]. The Economic Times.
Retrieved from https://ezproxy.royalroads.ca/login?url=https://search.proquest.com/
docview/2065507157?accountid=8056
Brito, P. Q., Soares, C., Almeida, S., Monte, A., & Byvoet, M. (2015). Customer segmentation in
a large database of an online customized fashion business. Robotics and Computer-
Integrated Manufacturing, 36, 93-100.
Colfax, R. S., Rivera, J. J., & Perez, K. T. (2010). Applying emotional intelligence (EQ-I) in the
workplace: Vital to global business success. Journal of International Business
Research, 9, 89.
Keegan, W. J., & Green, M. C. (2015). Global marketing (Ed. 8th). Pearson, NJ: Prentice Hall.
Lewrick, M., & Link, P. (2015). Design thinking tools: Early insights accelerate marketers’
success. Marketing Review St. Gallen, 32(1), 40-51.
Seifbarghy, M., Nouhi, K., & Mahmoudi, A. (2015). Contract design in a supply chain
considering price and quality dependent demand with customer
segmentation. International Journal of Production Economics, 167, 108-118.

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Appendices
Appendix 1
Evaluation criteria Weight
Attractiveness
Primary Secondary Tertiary
Rating Score Rating Score Rating Score
Geographic 20% 4 2.2 3 1.25 3 .50
Demographic 45% 5 3.0 4 .98 3 1.80
Behavioural 20% 4 1.75 4 2.30 3 .5
Psychographic 15% 2 .58 1 .30 1 .15
Total 100% 15 7.53 12 4.83 10 2.95
Table 1: Market segment attractive analysis
(Created by the author)