Segmentation

Segmentation can be simply summarised as dividing a market by a set of pre-determined criteria. But in doing so we are overlooking the key fundamental of what segmentation should actually be used for - and that is to gain customer insight. Truly understanding the needs of potential and actual customers in a market allows a company to segment along the lines of needs-needs it can serve, needs it cannot, needs it wants to serve. The concept is to segment only using variables that having meaning in the context of the company and the market it is operating in, not to just jump feet first and use the tried and trusted geo-demographics.

It cannot be stressed too much that correct segmentation is the fundamental bedrock of any marketing strategy and that if it is poorly conceived or executed, your strategy is a house of cards waiting to collapse. It is made harder in practice because there may be a large number of variables that can be used to differentiate consumers of a given product category; yet, in practice, it becomes impossibly Cumbersome to work with more than a few at a time.

This then means some hard choices about which variables will be most useful in distinguishing different groups of consumers, i.e. we need to establish a rank order of the variables by relevancy and that means the choice needs to be made in context each time, rather than relying on a generic standard approach. As such it is worth examining the common kinds of variables can be used for segmentation.

• Geographic variables refer to location and include region of the World, continent or country, East/West/North/South/Central/Coastal Upland etc, country size, area size & type; urban, rural, semi-urban, town, village, city and importantly climate, Hot, Cold, Humid, Arid, Rainy
• Demographic variables essentially refer to personal statistics such as income, age, gender, education, occupation, ethnicity, religion, nationality/race, language and family size.
• Psychographic variables take this a step farther, to segment on lifestyle, attitudes, personality and values.
• Another basis for segmentation is behaviour. Some consumers are brand loyal", they tend to stick with their preferred brands even when a competing one is on sale. Some consumers are heavy users while others are light users; classic examples for this are smoking and alcoholic drinks. Buying status, buying role, user type are other common behavioural segmentation variables. 
• Segmentation by usage occasion is similar to behaviour but focuses on when the product is used, e.g. Wedding dresses. 
• Segmentation on benefits sought, is a special form of behavioural segmentation essentially bypassing demographic explanatory variables, e.g. soap powder on better whitening or nonrun of colours.

Effective segmentation is achieved when customers sharing similar patterns of demand are grouped

together and where each group or segment differs in the pattern of demand from other segments in the market. Theoretically, the base(s) used for segmentation should lead to segments that are:

1. Measurables/identifiable Here, the base(s) used should preferably lead to ease of identification in terms of who is in each segment. It should also be capable of measurement in terms of the potential customers in each segment.
2. Accessible Here, the base(s) used should ideally lead to the company being able to reach selected market targets with their individual marketing efforts.
3. Meaningful The base(s) used must lead to segments which have different preferences or needs and show clear variations in market behaviour and response to individually designed marketing mixes.
4. Substantial The base(s) used should lead to segments which are sufficiently large to be economically and practically worthwhile serving as discrete market targets with a distinctive marketing mix.

The third criterion is particularly important for effective segmentation, as it is an essential prerequisite when attempting to identify and select market targets.