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Major Levels of Market Segmentation and Bases for Segmenting Consumer and Business Markets

Major Levels of Market Segmentation and Bases for Segmenting Consumer and Business Markets

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Published by Gagandeep Singh
market segmentation
market segmentation

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Published by: Gagandeep Singh on May 25, 2010
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11/12/2012

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Major Levels of Market Segmentation andBases for Segmenting Consumer andBusiness Markets
This discusses Three Major levels of market segmentationand bases for segmenting consumer and business markets.
Definition:
“Market segmentation is the process of splitting customers, or potential customers, in a marketinto different groups, or segments”
The Process of Market Segmentation:
Mainly there are three steps involve in market segmentation.
Identifying Target Markets:
First, it is necessary to define the markets the organization is in, or wishes to be in, and howthese divide into segments of customers with similar needs. The choice of markets will beinfluenced by the corporate objectives as well as the asset base. Information will be collectedabout the markets, such as the markets’ size and growth, with estimates for the future.
Understanding the Value required by Target Market:
Once each market has been defined, it is necessary to understand what value the customerswithin each of the segments it divides into are looking for. This value is most simply thought of as the benefits gained from the product or service, but it can also encompass the value to thecustomer of surrounding services such as maintenance or information. This step alsoencompasses what the customer is prepared to give in exchange, in terms of price and other criteria, such as loyalty. This step of “Understand value required” also includes predicting thevalue which will be required in the future.
Understanding Competitor Value Positioning:
‘Understand competitor value positioning’ refers to the process of establishing how well theorganization and its competitors currently deliver the value that the customers seek. Again itinvolves looking into the future to predict how competitors might improve, clearly a factor in planning how the organization is to respond.From these three processes, the relative attractiveness of the different markets and, within eachof them, their different segments can be evaluated. One tool of relevance here is Porter’s fiveforces model (1985), showing the forces which shape industry competition and hence theattractiveness of a given market, or of a given segment. The output will be some form of analysis, and one way of summing up much of the key information is in a portfolio matrix. Sucha matrix provides a sensible basis for prioritization amongst the many possible product/ segment
 
combinations which the organization could address.Levels and Basis of Market SegmentationThe following is a brief review of the “predetermined” approaches frequently used in marketsegmentation.
Products and services
The problem with segmenting markets according only to the products or services offered, or thetechnology type, is that in most markets, many different types of customers buy or use the same products or services. For example, if a mail company organizes itself around express packages,or around mail sorting, it is unlikely that the company will ever get to understand fully the realand different needs of, say, universities, banks, advertising companies, direct mail houses,manufacturing companies, retailers and so on. However, by understanding which particular features of the product or service appeal to different customers, along with features associatedwith all the other aspects of a purchase, such as the channel, we have a route for understandingthe motivations behind the choices that are made. This is because it is through these features thatcustomers seek to attain the benefits they are looking for. Once this is understood, the needs- based propositions required for different segments can be developed.
Demographics
Variables such as sex, age, lifestyle and so on, when used to define segments, are by implicationclaiming, for example, that every 30-35-year-old will respond to the same proposition.Just reflect for a moment on the students in my years at 
; would I expect them all to bewearing the same clothes, taking the same types of  
,pursuing the same interests anddriving the same cars? When someone wakes up on their birthday, do they become a stereotypeassociated with that age? For administrative convenience i would like the answer to be “yes”, butthe answer is “no”. In business-to-business markets, customers are frequently segmented around business classification lines, which implies that all the companies in a particular sector, such asfinancial services, have exactly the same requirements and will respond to a single proposition.This approach could well be ignoring one or more of the following:
Different divisions and departments existing behind the business descriptor may havedifferent
for the product or service you supply. For example, would the mail
 
company mentioned earlier find that the advertising and promotions department has thesame requirements and specifications for mail services as the sales ledger department?
The requirements of, say, advertising and
departments may well be the sameregardless of business type;
Even within a
division of a company, there may well be different applications for the product or service you supply which, in turn, may have different specificationsattached to them;
Segmentation along
classification lines assumes all the companies within theclassification employ identical people with identical values. Businesses, of  
, don’t buy anything; it’s their employees we have to sell to!Although demographics on their own cannot define a segment because they do not define the proposition a segment requires, they have an important role to play in a segmentation project.This background information about customers can be used to identify the particular profilingcharacteristics associated with the customers found in each segment. In other words,demographics helps identify who is found in each segment which, in turn, will help youdetermine how to reach them.
Geography
Rather like demographics, segments based on geographic areas, however tightly defined, assumethat everyone in a predetermined area can be expected to react to a particular offer in exactly thesame way. Even at the postcode level this does not appear to 
; simply if we look along our own street. Has everyone got the same furniture, do they buy from the same shops, eat the samefood? Once again, however, although geographic areas on their own cannot define the propositions required by segments and, therefore, cannot define segments, they, too, have auseful role to play in a segmentation project. This particular type of background informationabout customers can be used to identify the most likely locations the customers in each of thesegments may be found and, therefore, further help you determine how to reach them. A further consideration with respect to “geography” is its use in international market segmentation.
Channel
Routes to market are becoming more sophisticated and complex, and are also becoming anincreasingly important component of many winning customer propositions. Channels inthemselves, however, do not define segments as they are simply the means by which customersand companies connect with each other. It is only when you understand the motives behind thechannel choices made by customers that the channel component of a needs-based proposition can be developed. However, even if channel does not feature as a key component of a winning proposition, it is, along with demographics and geography, background information aboutcustomers that should be tracked during a segmentation project. It could well be that somesegments can be associated with particular routes to market; therefore it is the channel(s) theyuse that provides the means for reaching them with their specific proposition.
Psychographics
Here we have another customer insight that can contribute to a segmentation project but, on itsown, cannot define the entirety of a winning customer proposition. However, by identifyinginternal drivers of customer behavior that can be associated with specific segments, psychographics can help define the most appropriate promotional stance to take. This not only provides the means of catching the attention of target groups in an ever cluttered world of 

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