Market segmentation identifies and targets the groups of customers most likely to purchase the products and services being offered.
Customers are grouped using a variety of techniques and descriptors. Traditionally market segments are identified using characteristics such as demographics, psychographics, behavioral activities, technical knowledge, different usage and purchase situations, benefits sought from the product, usage rates, and even geographic area.
The purpose of market segmentation is to classify groups of customers by product usage rates, or the likelihood of purchasing the product or service in the future. However, simple identification of these groups does not guarantee that this information is meaningful in a business sense. Effective segmentation places requirements on the market. The market segment must be
- Measurable - We must be able to identify segmentation variables that are related to purchase of the product and develop a descriptive profile of the market segment using a combination of variables.
- Accessible - In addition to being able to identify the market segment, we must be able to reach them in an efficient and cost-effective manner. Do they belong to specific chat groups, newsgroups, or subscribe to online publications? Perhaps they subscribe to one or more computer magazines, or have purchased from a specific catalog.
- Substantial - The market segment must have the ability to purchase. Almost all college seniors want to have a new Porsche or Corvette, but few have the ability to purchase such an expensive two seat sports car.
- Actionable - The market segment must produce the differential response when exposed to the market offering. That is, they must be willing to purchase.
Which method market segmentation is most effective? Of course it depends on the specific product or service being considered. The preparation of content for advertisements or web pages would rely heavily on benefit segmentation. The design of an economical automobile for a young single woman would of course rely heavily on demographics as well as psychographics.
Many market segmentation studies focus on understanding the tangible and intangible meanings attached to a product or service, or providing a descriptive analysis of past, current, or potential purchasers of the product.
- Country Ties - geographic area, country of origin
- Competitive Analysis
- Product Class Perceptions
- Life Style - personality, psychographics
- Product Identity: celebrity identity, personality
- User - customer demographics
- Use Occasion - application
- Relative Price Comparisons and Sensitivity
- Customer Benefits
Market Segmentation Questions and Measures
What are the external characteristics of the segment?
- Family Life Cycle
Do they have the ability to buy?
What are the internal characteristics of the segment?
- Activities, Interests, Opinions
What do the segments like and dislike?
What product or service attributes made a difference in their purchase?
How do members of each segment make decisions or behave?
- Situational Decision Making
- Decision-making Style
- Information Processing Style
How do members of the segment intend to behave?
- Intention to Purchase
How have they acted in specific situations in the past?
- Past Purchases
- Brand Loyalty
- Information Search and Evaluation
- Decision-attribute Trade-offs
Most market segmentation studies use variants of standard segmentation questions. The combination of question purpose, approach, and format for question and response creates an endless set of options to be considered when designing a market segmentation questionnaire.
A variety of concepts, such as demographics, are commonly measured in many market studies. If you were to examine some of the customer satisfaction questionnaires to which you have been asked to respond, you would find that many contain the same concepts. You would also observe that many questions have minor variations in the response scales used.
One important key to maximizing the effectiveness of survey research and measurement is to establish and maintain comparable response scales. This comparability, if present, is useful in linking the current study to previous research, be it of primary or secondary source. For example, in the United States, researchers often match demographic scales with those of the Census of Population. Other applications may require standards that are industry or company based. Comparability between data sources and study results is much easier when scales are similar.
Your project consultants will work closely with you and your staff to determine the best approach by developing research tools customized for your particular application.