Segmentation is a term used so frequently that most people aren’t even sure what it means. To me, a market segment is a group of individuals that have a similar set of needs. Simple.
But, don’t confuse a segment and a sector. Let’s say, Acer Computers want sto target young high-income women. Well, some of these women may want a basic Dell, some might want a entertainment HP PC or some might want the latest Dolce and Gabana $5000 model. Young high-income women is a sector, not a segment. A segment is defined more accurately in the sense that a marketer had more data on what the segment is about like income levels, life habits, age etc.
It’s up to the marketing professional to “identify” critical segments and decide what products to offer to them.
So, how does the schmuck identify market segments? One method would be to classify consumers demographically. Problem with that approach is that you can over segment and drive yourself nuts. So, let’s be scientific about this.
Take Roger Best’s need-based market segmentation approach.
Needs-based segmentation is the clustering of customers according to common sets of needs and purchasing behaviors and then dividing these clusters into one or more segments, each consisting of a group of customers who share a common set of needs and ways of doing business.
In short:
1. Select the target audience.
Group the customers based on similar needs and benefits sought by them when they purchase your product. There may be just one group if you’re highly focused or heck there may be 100, if you don’t know what you’re doing.
2. Identify clusters of similar needs.
Use demographics, lifestyle and usage behaviors and patterns to distinguish between segments. e.g. 15-17 years of age, high school, plays soccer, owns an i pod, member of Facebook and Twitter.
3. Apply some sort of valuation approach like Attractiveness evaluation criteria
Use market growth, barriers to entry, market access, switching costs etc and assign a range of values from 1-10. Once you assign those values and add them up, you’ll get your attractiveness score.
4. Test the segments.
Don’t just dive headlong into the market and get burned like many of the marketing morons who forget that the itch in their gut is just the burger from lunch and not a ‘go for gold’ hunch. Get focus groups setup, provide samples, survey the heck out of these groups, get feedback from the field and once you get all that data together, put it in a snappy presentation and get ready for your beta launch.
5. Modify marketing-mix.
If you have 3 segments that you’re selling the same product to, work on the mix. Different strokes for different folks is the name of the game here. Work on the four Ps for each segment.
Some Forget-me-nots about good segmentation, they’ve gotta be :
1. Measurable : Know thy segments well. For e.g. This segment is worth $X million, typically rests in the $60 – $80K household income bracket and is typically aged between 45 – 50. It’s not too comprehensive but it’s a good start.
2. Substantial : Your segment had better be the largest homogeneous group worth going after in terms of size and profitability. Otherwise, you’re wasting everyone’s time.
3. Differentiability : There are clear distinctions between the segments you identify and each of them has a different marketing mix. Understand that there’s no one-size-fits-all approach that you can use here.
4. Actionable : Your segments are reasonable and can be addressed effectively. They are not little red men from Mars who just love carbonated drinks. Image the logistics of sending shipload of Pepsi to Mars.
In conclusion, market segementation is a tremendously rewarding exercise where you can get closer to your customers, optimize your product’s attributes to meet their needs and modify your marketing -mix to deliver the strongest impact. Do it right and you chart a winning course for yourself. Do it idiotically and get ready to be written down as a cast studt by Harvard.
