MARKET SEGMENTATION

WHAT IT IS AND HOW TO DO IT

Market segmentation is one of the cornerstones of strategic marketing and indeed of the marketing concept in general with its focus on target marketing.

Market segmentation is a process of dividing up a broad market (an aggregate of customers with ability to buy) into a number of smaller sub markets, or segments. These segments should be homogenous within and heterogeneous between. That is, segments should exhibit similar preferences and characteristics that determine to some extent their consumption behaviour. The organization should then develop alternative marketing mixes for each segment deemed suitable according to their likely responses. The point: to target your customers as precisely as possible.

Focus your resources effectively and efficiently

Many marketers believe this to be both a creative and analytical process. What variables can you use to segment the market?

• Demographic – such as age, income, education, company size etc.

• Geographic – location, population density etc

• Psychographics – this is the study of lifestyle, personality, values, etc.

• Behavioral – occasion, usage ratio, benefits, buyer readiness stage etc.

Most organizations will segment the market according to several dimensions (multi-attribute segmentation) and create a value proposition for one or more segments depending upon their objectives, resources and abilities.

Once it is decided which segment(s) an organization will target, they must decide whether to adopt a differentiated (distinct offerings for each segment) or undifferentiated (same offering for all) approach. Although a differentiated approach uses more resources it is probably more effective. The dangers of offering a one size fits all approach is that in trying to appeal to all comers, an organization ends up appealing to no one (just look at the airline industry and figure out who has a clear position and who is the most profitable).

EXAMPLES

Toothpaste – one of the first benefit segmentation users, toothpaste manufacturers have focused on fresh breath, whitening, cavity protection, and sensitive teeth among others.

Fast food – aside from the standard variables of age and income as well as family, fast food establishments such as McDonalds are really selling consistent product in a convenient way in a clean and welcoming environment.

Luxury cars – brands such as BMW and Mercedes sell much more than transport. Status and recognition are important needs for many of their customers.

Coffee shops – the explosion of this industry is living proof of the power of segmentation, particularly as Asia is not recognized as a coffee consuming culture. Lifestyle and association are as big a reason as drinking coffee for going to a Starbucks.