Market Segmentation

See http://www.success-matrix.com/research/market/ for the latest.

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Segmentation should always be needs-based segmentation, rather than ‘company in love with its own product’ based segmentation…

Providing segmentation is based on consumer needs, not management fantasies, the first step is to nail the basic 4 key criteria for needs-based segmentation presented by Kotler, P. (1991). Marketing management: Analysis, planning and control (7th ed.). London: Prentice Hall.

Segments must be:

Homogeneous
- Similar needs and wants, and will be motivated by the same types of propositions (e.g. people who want to get specialty coffee drinks quickly on their way to work)
Distinct
- Needs and motivations from this group are different than those of other groups (e.g. This group is different from people who drink non-coffee drinks or who prepare coffee drinks at home or who do not drink coffee while commuting)
Accessible
- This segment can be identified and distinguished from other segments (E.g. Quick coffee consumers can be reached by lists that define coffee-drinking commuters)
Viable
- Segment can be reached and addressed at a profit (There must be enough people who drink coffee and commute within an area to justify building and promoting a coffee outlet)

Now:

We must then consider the preferences of the potential customers to begin cleaving unique segments, and I find adapting the traditional 4 P’s of marketing to work like a charm:

Product: Think ‘utility’. Â What are the practical benefits and useage of the product for the potential customer segments?
Price: Think ‘budget’. Â What different price points exist in the market category that can be exploited?
Place: Think ‘convenience’. Â How easy does it need to be for customers to ensure maximum purchase frequency / volume
Promotion: Think ‘perspective’. Â What are the beliefs or views about that product that can be divided out into different market categories, including perceived value (benefits) and perceived risk (performance, quality, time, etc).

From that analysis you can create a Features / Offer Matrix as well as perception maps for your segmentation research.

Buying Process

We must also consider the buying process to develop our market segmentation

What is bought? Features.
Who buys? How is it bought, demographics, socio-economics, brand loyalty, heavy/light users, personality, lifestyle
Why is it bought? Benefits, attitudes, perceptions, preferences

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