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Market segmentation

Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires using media channels and other touch-points that best allow to reach them. Market segments allow companies to create product differentiation strategies to target them.

Criteria for segmenting

An ideal market segment meets all of the following criteria:


It is possible to measure. It must be large enough to earn profit. It must be stable enough that it does not vanish after some time. It is possible to reach potential customers via the organization's promotion and distribution channel. It is internally homogeneous (potential customers in the same segment prefer the same product qualities). It is externally heterogeneous, that is, potential customers from different segments have different quality preferences. It responds consistently to a given market stimulus. It can be reached by market intervention in a cost-effective manner. It is useful in deciding on the marketing mix.

Methods for segmenting consumer markets Geographic segmentation Marketers can segment according to geographic criterianations, states, regions, countries, cities, neighbourhoods, or postal codes. The geo-cluster approach combines demographic data with geographic data to create a more accurate or specific profile.[1] With respect to region, in rainy regions merchants can sell things like raincoats, umbrellas and gumboots. In hot regions, one can sell summer wear. In cold regions, someone can sell warm clothes. A small business commodity store may target only customers from the local neighborhood, while a larger department store can target its marketing towards several neighborhoods in a larger city or area, while ignoring customers in other continents. Behavioural segmentation Behavioural segmentation divides consumers into groups according to their knowledge of, attitude towards, use of or response to a product [2] Segmentation by occasions Segmentation according to occasions relies on the special needs and desires of consumers on various occasions - for example, for products for use in relation with a certain holiday. Products such as Christmas decorations or Diwali lamps are marketed almost exclusively in the time leading up to the related event, and will not generally be available all year round. Another type of occasional market segments are people preparing for a wedding or a funeral, occasions which only occur a few times in a person's lifetime, but which happen so often in a large population that ongoing general demand makes for a worthwhile market segment. Segmentation by benefits Segmentation can take place according to benefits sought by the consumer[3] or according to perceived benefits which a product/service may provide.

Using segmentation in customer retention The basic approach to retention-based segmentation is that a company tags each of its active customers with three values: Is this customer at high risk of canceling the company's service? One of the most common indicators of high-risk customers is a drop off in usage of the company's service. For example, in the credit card industry this could be signaled through a customer's decline in spending on his or her card. Is this customer worth retaining? This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer. What retention tactics should be used to retain this customer? For customers who are deemed worthy of saving, it is essential for the company to know which save tactics are most likely to be successful. Tactics commonly used range from providing special customer discounts to sending customers communications that reinforce the value proposition of the given service. Price discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices available to members of a lower price segment. This behavior is rational on the part of the monopolist, but is

often seen by competition authorities as an abuse of a monopoly position, whether or not the monopoly itself is sanctioned. Areas in which this price discrimination is seen range from transportation to pharmaceuticals. Algorithms and approaches Any existing discrete variable is a segmentation - this is called "a priori" segmentation, as opposed to "post-hoc" segmentation resulting from a research project commissioned to collect data on many customer attributes. Customers can be segmented by gender ('Male' or 'Female') or attitudes ('progressive' or 'conservative'), but also by discretized numeric variables, such as by age ("<30" or ">=30") or income ("The 99% (AGI<US $300,000)" vs "The 1% (AGI >= US $300,000)"). Common statistical techniques for segmentation analysis include:

Clustering algorithms such as K-means or other Cluster analysis Statistical mixture models such as Latent Class Analysis Ensemble approaches such as Random Forests

The process of defining and subdividing a large homogenousmarket into clearly identifiable segments having similar needs, wants, or demandcharacteristics. Its objective is to design a marketing mix that precisely matches the expectations of customers in the targeted segment. Few companies are big enough to supply the needs of an entire market; most must breakdown the total demand into segments and choose those that the company is best equipped to handle. Four basic factors that affect market segmentation are (1) clear identification of the segment, (2) measurability of its effective size, (3) its accessibility through promotional efforts, and (4) its appropriateness to the policies and resources of the company. The four basic market segmentation-strategies are based on (a) behavioral (b) demographic, (c) psychographic, and (d) geographical differences.

What is Segmentation ?
Segmentation refers to a process of bifurcating or dividing a large unit into various small units which have more or less similar or related characteristics. Market Segmentation

Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference. A market segment is a small unit within a large market comprising of like minded individuals. One market segment is totally distinct from the other segment. A market segment comprises of individuals who think on the same lines and have similar interests. The individuals from the same segment respond in a similar way to the fluctuations in the market.

Basis of Market Segmentation

Gender The marketers divide the market into smaller segments based on gender. Both men and women have different interests and preferences, and thus the need for segmentation. Organizations need to have different marketing strategies for men which would obviously not work in case of females. A woman would not purchase a product meant for males and vice a versa.

The segmentation of the market as per the gender is important in many industries like cosmetics, footwear, jewellery and apparel industries.

Age Group Division on the basis of age group of the target audience is also one of the ways of market segmentation. The products and marketing strategies for teenagers would obviously be different than kids. Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels and so on

Income Marketers divide the consumers into small segments as per their income. Individuals are classified into segments according to their monthly earnings. The three categories are: High income Group Mid Income Group Low Income Group Stores catering to the higher income group would have different range of products and strategies as compared to stores which target the lower income group. Pantaloon, Carrefour, Shoppers stop target the high income group as compared to Vishal Retail, Reliance Retail or Big bazaar who cater to the individuals belonging to the lower income segment.

Marital Status Market segmentation can also be as per the marital status of the individuals. Travel agencies would not have similar holiday packages for bachelors and married couples.

Occupation Office goers would have different needs as compared to school / college students. A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters specifically to the professionals.

Types of Market Segmentation

Psychographic segmentation The basis of such segmentation is the lifestyle of the individuals. The individuals attitude, interest, value help the marketers to classify them into small groups.

Behaviouralistic Segmentation The loyalties of the customers towards a particular brand help the marketers to classify them into smaller groups, each group comprising of individuals loyal towards a particular brand.

Geographic Segmentation Geographic segmentation refers to the classification of market into various geographical areas. A marketer cant have similar strategies for individuals living at different places.

Nestle promotes Nescafe all through the year in cold states of the country as compared to places which have well defined summer and winter season. McDonalds in India does not sell beef products as it is strictly against the religious beliefs of the countrymen, whereas McDonalds in US freely sells and promotes beef products.

When the term market segmentation is used, most of us immediately think of psychographics, lifestyles, values, behaviors, and multivariate cluster analysis routines. Market segmentation is a much broader concept, however, and pervades the practice of business throughout the world. What is market segmentation? At its most basic level, the term market segmentation refers to subdividing a market along some commonality, similarity, or kinship. That is, the members of a market segment share something in common. The purpose of segmentation is the concentration of marketing energy and force on the subdivision (or the market segment) to gain a competitive advantage within the segment. Its analogous to the military principle of concentration of force to overwhelm an enemy. Concentration of marketing energy (or force) is the essence of all marketing strategy, and market segmentation is the conceptual tool to help achieve this focus. Before discussing psychographic or lifestyle segmentation (which is what most of us mean when using the term segmentation), lets review other types of market segmentation. Our focus is on consumer markets rather than business markets. Geographic Segmentation This is perhaps the most common form of market segmentation, wherein companies segment the market by attacking a restricted geographic area. For example, corporations may choose to market their brands in certain countries, but not in others. A brand could be sold only in one market, one state, or one region of the United States. Many restaurant chains focus on a

limited geographic area to achieve concentration of force. Regional differences in consumer preferences exist, and this often provides a basis for geographic specialization. For example, a company might choose to market its redeye gravy only in the southeastern U.S. Likewise, a picante sauce might concentrate its distribution and advertising in the southwest. A chainsaw company might only market its products in areas with forests. Geographic segmentation can take many forms (urban versus rural, north versus south, seacoasts versus interior, warm areas versus cold, highhumidity areas versus dry areas, high-elevation versus low-elevation areas, and so on). These examples also reveal that geographic segmentation is sometimes a surrogate for (or a means to) other types of segmentation. Distribution Segmentation Different markets can be reached through different channels of distribution. For example, a company might segment the tick and flea collar market by selling the product to supermarkets under one brand name, to mass merchandisers under another brand, to pet stores under another brand name, and to veterinarians under yet another brand name. This type of distributional segmentation is common, especially among small companies that grant each channel a unique brand to gain distribution within that channel. Other examples of distributional segmentation would be an upscale line of clothing sold only in expensive department stores, or a hair shampoo sold only through upscale beauty salons. Media Segmentation While not common, media segmentation is sometimes a possibility. It is based on the fact that different media tend to reach different audiences. If a brand pours all of its budget into one media, it can possibly dominate the segment of the market that listens to that radio station or reads that magazine. Media segmentation is most often practiced by companies that have some control over the media and can somehow discourage competitors from using that media.

Price Segmentation Price segmentation is common and widely practiced. Variation in household incomes creates an opportunity for segmenting some markets along a price dimension. If personal incomes range from low to high, the reasoning goes, then a company should offer some cheap products, some medium-priced ones, and some expensive ones. This type of price segmentation is well illustrated by the range of automotive brands marketed by General Motors historically. Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac varied in price (and status) along a clearly defined spectrum to appeal to successively higher income groups. Demographic Segmentation Gender, age, income, housing type, and education level are common demographic variables. Some brands are targeted only to women, others only to men. Music downloads tend to be targeted to the young, while hearing aids are targeted to the elderly. Education levels often define market segments. For instance, private elementary schools might define their target market as highly educated households containing women of childbearing age. Demographic segmentation almost always plays some role in a segmentation strategy. Time Segmentation Time segmentation is less common but can be highly effective. Some stores stay open later than others, or stay open on weekends. Some products are sold only at certain times of the year (e.g., Christmas cards, turkeys, fireworks, cranberry sauce). Chili is marketed more aggressively in the fall, with the onset of cooler weather. Football is played in the fall, basketball in the winter and spring, and baseball in the spring and summer (or at least this used to be the pattern). The Olympics come along every two years. Department stores sometimes schedule midnight promotional events. The time dimension can be an interesting basis for segmentation. In addition to the foregoing, markets can be segmented by hobbies, by political affiliation, by religion, by special interest groups, by sports team loyalties, by

universities attended, and hundreds of other variables. You are only limited by your marketing imagination. Psychographic or Lifestyle Segmentation Lastly, we come to psychographic (or lifestyle) segmentation, based upon multivariate analyses of consumer attitudes, values, behaviors, emotions, perceptions, beliefs, and interests. Psychographic segmentation is a legitimate way to segment a market, if we can identify the proper segmentation variables (or lifestyle statements, words, pictures, etc.). Qualitative research techniques (focus groups, depth interviews, ethnography) become invaluable at this stage. Qualitative research provides the insight, the conceptual knowledge, and the consumers exact language necessary to design the segmentation questionnaire. Typically, verbatim comments from consumers are used to build batteries of psychographic or lifestyle statements (these two terms are used interchangeably). A large representative sample of consumers (generally, 1,000 or more) are then asked about the degree to which they agree or disagree with each statement. For example, if you were designing a market segmentation questionnaire for an airline, you might conduct a series of depth interviews to help design the questionnaire. You probably would include a behavioral section (frequency of flying, how purchased tickets, who traveled with, cities flown to, where sat, airlines flown, money spent on airline tickets, etc.). You would include a major section on attitudes toward air travel (motivations for air travel, fears related to air travel, positive emotions of flying, attitudes about airline employees, checking luggage, buying tickets, and so forth). You would also want to include a section on perceptions of the different airlines; that is, their brand images. You could go further and add a section on media consumption, or personal values, as well. It is at this point that you realize the questionnaire is too long, and you have to make some hard decisions about what questions or statements to include. The method of data collection is very important, because the questionnaire is so long (often 45 to 90 minutes in length). The telephone is not recommended for segmentation studies because of questionnaire length. Moreover, the various rating scales and attitudinal statements are difficult

to communicate by phone, and the resulting phone data tends to be insensitive and rife with noise. In-person interviews or Internet-based interviews, or even mail surveys, are much better. Rating scales and attitudinal statements can be seen and fully comprehended by respondents. Seeing is much better than hearing, and it produces more accurate answers. The Internet is especially valuable for segmentation studies, since respondents can take the survey at a time of their own choosing, when they can give it their full, undivided attention. A mail survey offers some of the same advantages, but without the questionnaire controls, checks, and safeguards built into an Internet survey. Analytical Methods Most segmentation analyses are based upon various types of cluster analysis, a set of well-defined statistical procedures that group people according to the proximity of their ratings. Unfortunately, cluster analysis (regardless of its many types and forms) has inherent limitations and seldom yields coherent market segments. Cluster analysis routines ignore the pattern of respondent ratings and rely primarily upon the proximity of respondent ratings. Too often this leads to clusters, or market segments, that dont seem to make much sense when crosstabulated against the original segmentation variables. Another limitation of clustering approaches is that all statements are treated as equal; whereas, in truth, some statements might be much more important than others in explaining consumer behavior in a particular product category. A better way to achieve a good psychographic segmentation is to first identify the statements that are more important (i.e., the statements that tend to explain or cause specific consumer behaviors). Correlation analysis and regression can be used for this purpose. Factor analysis is also a powerful technique to identify the statements and groups of statements that account for much of the variance in the attitudinal data set. Directly and indirectly, these techniques can help you identify the most important statements (i.e., attitudes, perceptions, values). Then, these statements become the inputs to the final segmentation analysis. Many different methods can be used to cluster or group the statements at this point. The

final step is to attach a segment code to each market segment identified and then crosstab all of the questionnaire variables by the segments. You must then study the segments and the attitudes/statements that make up each segment to make sure they make sense and hang together. If the segmentation results dont make sense, then you have to go back, change some of your assumptions or methods, rerun the analysis, and repeat the crosstab exercise to apply the common sense validity check. Common Mistakes In Market Segmentation Segmentation studies tend to be large and complicated, so its easy for errors and mistakes to be made. Some of the most common mistakes: 1. Segmenting a segment. For example, someone might want to segment the market for widgets among 18- to 24-year-olds who live in Vermont and buy brand XYZ. As is evident, the client is asking that a tiny sliver of the market be segmented. True, this tiny sliver can be segmented, but rarely are the resulting segments of any value, because they are just too small. General rule: segment the whole market, including all age groups. The market should be broadly defined for a segmentation analysis to be most effective. In other words, dont preordain the results by sampling restrictions. 2. Overlooking the universals. Many attitudinal statements in the questionnaire will not show up in the final segments, because they tend to be the same across all segments. Statements that everyone agrees with, or everyone disagrees with (we call them universals) cannot explain much in the multivariate analyses. Variables have to move up and down for the multivariate analysis to work. The highest rated variables, and the lowest rated, are likely to fall out of the multivariate analyses. However, you should always look at these universal statements. Any one of them might be the basis for a positioning or a strategy that would appeal to everyone. If you find something unique that appeals to everyone, the heck with segmentation. Go for the whole hog.

3. Creating too many segments. There is a practical limit to the size of segments that companies can effectively target. If you create more than four or five market segments, you run the risk that the resulting segments will be too small to target, at least by mass media. This is not always true, but it is a good rule of thumb. 4. Targeting all segments. So you have carefully subdivided your target market into five mutually exclusive psychographic segments, and your boss tells you to develop a marketing plan to attack each segment. If all of your marketing is direct mail, and you can identify the addresses that belong to each segment, then you can attack all segments (assuming your product is relevant to all segments). But, if you use broadcast media in marketing your product, it is very difficult to target multiple segments because of media spillover. What you say to one segment will be muddled and confused by the different messages targeted to other segments. 5. Confusing the results. Segmentation studies are large and complicated, with enormous amounts of data. It is easy to get lost in this treasure trove of answers and come up with confusing and baffling results. 6. Overlooking the basics. The dazzle and glitter of the advanced, rocketscience multivariate analyses attract everyones attention. No one ever opens up the crosstabs and looks at the answers to the hundreds of questions asked. Often, hidden in plain view in the plain old crosstabs are tremendous findings that could form the basis for new or improved marketing strategies, advertising campaigns, or new products. Rarely does anyone analyze this basic data, however. 7. Targeting people instead of dollars. A market segment might represent a large percentage of the population, but a small part of the market. Always look at the dollar potential of market segments, not just the number of people in the segments.

Nonmutually Exclusive Segments Virtually all segmentation work, historically, has been based upon the assumption of mutually exclusive market segments. The mutually exclusive model, however, does not always apply to psychographic or lifestyle segmentation (since most of us hold many overlapping and/or conflicting beliefs and attitudes). Therefore, it is wise to develop two distinctly different segmentation solutions: one based upon mutually exclusive segments and one based upon overlapping segments. Both of these segmentation solutions should be crosstabulated by the original questionnaire variables to identify which type of solution yields the most meaningful (and actionable) market segments. Final Thoughts on Marketing Segmentation The concept of market segmentation is sound. Its a way to apply greater marketing energy or force to a subset of the market. A great deal of money is wasted on psychographic segmentations that never lead to any marketing actions. If you segment the market by psychographics, there are several essential uses of the segmentation: first, target your brand to the largest segment with relevant brand fit (or even target two closely related segments) by media advertising and message. That is, the advertising message is the way to reach the psychographic segment (rarely can a psychographic segment be defined by demographics or geography). Second, segmentation can provide the guide rails for brand positioning. That is, positioning assumes, or takes place in relation to, a target market segment; you are positioning your brand in relation to a market segment. Third, the segmentation can define opportunities for new products targeted to each psychographic segment. That is, the market segments can be a template for new product development. For example, if you find that 15% of the U.S. population belongs to a safety first segment when it comes to buying cars, then you can design and build the safest car in the world to target this segment. So psychographic segmentations greatest value lies in positioning, targeting via advertising message, and defining new product opportunities. Go forth and segment.

Advantages of Segmentation

There are several advantages of segmentation. 1) Focus of the Company Segmentation is an effective method to increase the focus of a firm on market segments. If you have better focus, obviously you will have better returns. Numerous automobile companies have started focusing on small car segments. This is nothing else but a company changing its focus for better returns. Thus companies base their strategy completely on a new segment which increases its focus and profitability. 2) Increase in competitiveness Naturally, once your focus increases, your competitiveness in that market segment will increase. If you are focusing on youngsters, your brand recall and equity with youngsters will be very high. Your market share might increase and the chances of a new competitor entering might be low. The brand loyalty will definitely increase. Thus market segmentation also increases competitiveness of a firm from a holistic view. 3) Market expansion Geographic segmentation is one type of segmentation where expansion is immediately possible. If you have your market strategy on the basis of grography, then once you are catering to a particular territory, you can immediately expand to a nearby territory. In the same way, if you are targeting customers based on their demography (Ex reebok targets fitness enthusiasts) then you can expand in similar products (Ex reebok expanding with its fitness range of clothes and accessories). Segmentation plays a crucial role in expansion. You cannot expand in a territory when you have no idea of which segment of customers you will be meeting.

4) Customer retention By using segmentation, Customer retention can be encouraged through the life cycle of a customer. The best example of this is the Automobile and the Airlines segment. You will find major example of customer life cycle segmentation in the Hospitality segment whether they be hotels, airlines, or hospitals. In India, Titan is an example of products which are planned through the life cycle of a customer. From fast track to Sonata and the high range watches, Titan has them by price segment as well as life cycle segment. Thus a watch is available for any customer who enters a Titan showroom, whatever be his age. 5) Have better communication One of the factors of marketing mix which is absolutely dependent on STP is Promotions or communications. The communications of a company needs to be spot on for its TARGET market. Thus if you need a target market, you need segmentation. Communication cannot be possible without knowing your target market. Imagine if you had to make someone across a curtain understand what is politics. You would go on about ruling parties, states, countries and politicians. And when the curtain is taken aside, you find that the person across the curtain is a 5 year old kid. Is there any use talking to him about politics? This shows why communication needs segmentation. If you dont know your market segment, what is their demography, what is their psychology, where they are from, then how can you form a communication message. 6) Increases profitability Segmentation increases competitiveness, brand recall, brand equity, customer retention, communications. Thus if it is affecting so many factors of your business, then definitely it affects the profitability of the firm. Do you ever see people negotiating in a Nike, Gucci or BMW showrooms? You wont. One of the USPs of these brand is their segmentation. They are in fact targeting segments which have no need of bargaining or negotiation. Thus their profitability is high.

HUL: Hindustan Unilever Limited


COMPANY - HUL INDUSTRY - FMCG MARKET CAP - 48571 Cr Average daily volume - 431633 Face Value - Rs 1 ORGANIZATION STRUCTURE
VP GM Sr sales manager Area sales manager Territory sales manager Team Leader Sales executive

PRODUCTS
LUX

FOODS
KISSAN

DEODRANTS
AXE

LIRIL DOVE PEARS LIFEBUOY

ANNAPURNA KNORR KWALITY WALLS

REXONA

HAIR & CARE


SUNSILK CLINIC PLUS

MARKET SEGMENTATION OF HUL


Key remaining elements of the segmentation process With the scope of the project clearly defined (project parameters Step 1 in the process) and the individuals identified for whom it is essential you understand their buying criteria (market mapping Step 2 in the process), uncovering the segments can now begin. The key remaining elements of the process are outlined below: 1. Establish a sample of customers which will represent the different decision-makers found in the specified market (referred to as 'microsegments'), with the difference between them being the key features they use to discriminate between competing offers and the importance of these features (Step 3 in the process). 2. Record personal details about the decision-makers (including their company details if appropriate) which can be used to identify them (also part of Step 3 in the process).

3. Understand the real needs of customers and list the benefits they are seeking, along with the importance of these benefits, for each microsegment (Step 4 in the process). 4. Bring together those micro-segments that illustrate similar patterns of importance for the benefits in order to form clusters (Step 5 in the process). 5. Verify that the concluding clusters can be regarded as segments (also part of Step 5 in the process). A diagrammatic summary of the process to this point can be found in the Process Examples section of this website. With the segments uncovered it is time to identify which of them you should be targeting: 6. Establish the attractiveness of each segment to your company based on how well each of them meets your requirements (Step 6 in the process). 7. Determine the relative competitive strength of your company for each segment based on how well you, compared with your competitors, meet their requirements (Step 7 in the process). By combining segment attractiveness and relative company competitiveness you can construct a strategic picture of the specified market. This will help you select the segments that will enable your company to achieve its corporate objectives. Further details Additional information about each of these key elements appears below. Full details can be found in Chapters 6 through to 10 of Market Segmentation: How to do it and how to profit from it (2012 edition published by John Wiley & Sons, ISBN 978-1-1184-3267-9). Techniques that can be applied to each step, worked examples, exercises and worksheets can be found in the relevant chapter.

1. Establish a sample of customers which will represent the different decision-makers found in the specified market (referred to as 'microsegments'), with the difference between them being the key features they use to discriminate between competing offers and the importance of these features (Step 3 in the process). This can be achieved as follows: Divide the specified market into identifiable groups of customers and, taking each group in turn, develop it into a micro-segment by carefully listing what the customers in the group regard as their key features for discriminating between competing offers (referred to as Key Discriminating Features KDFs). When meaningful differences are known to occur within a group, capture these differences as separate micro-segments. It is not appropriate to include price at this stage of the process. Price is better covered in the next step of the process. Identifying key discriminating features from the customer's point of view will provide the link to understanding the needs that customers are trying to satisfy (looked at in Step 4 and used as the basis for forming segments in Step 5). This is because customers seek out specific features not for their own sake but for the particular benefits that they deliver. It is all based on the well established principle that customers don't buy features, they buy the benefits delivered by the features. For this sequence to be successful, however, you need to think of features as consisting of both the tangible and intangible components of an offer. Now indicate the relative importance of the key discriminating features to each micro-segment and when further meaningful differences are known to occur within a micro-segment, develop additional micro-segments to accommodate them.

An alternative to the above can be to list the customers found in your market (only suitable for markets with a small number of total customers). A further alternative is to obtain a sample through a market research exercise using a carefully designed sample frame (though this is best deferred until an internal segmentation project has developed a view of how the market splits into segments). In many in-company workshops, participants have been surprised at how much they know about their markets when this stage has been conducted rigorously. As best as possible, attribute a size to each micro-segment (volume, value or percentage) which reflects how much of the specified market each micro-segment represents. Please note that it is better to be approximately right than precisely wrong. 2. Record personal details about the decision-makers (including their company details if appropriate) which can be used to identify them (also part of Step 3 in the process). For each completed micro-segment, add some details about who it represents using applicable profiling characteristics. As these may not apply to every customer in the micro-segment, indicate the proportion each characteristic represents. Knowing how to identify and reach the members of each concluding segment will be a crucial element to the success of a segmented approach to marketing. The standard categories for profiling customers are:
o o o

demographic/firmographic; geographic; geodemographic;

psychographic.

('Firmographics' is often used to describe 'demographics' in businessto-business markets.) Also note the outlet and channel preferences of each micro-segment. This may be how you reach specific segments. 3. Understand the real needs of customers and list the benefits they are seeking, along with the importance of these benefits, for each microsegment (Step 4 in the process). Help for this step can be obtained by talking with a cross-section of people within the organization who have customer contact and by referring to sales (and lost sales) reports and appropriate past market surveys. Do not forget, however, that the project is looking at the specified market as a whole, not just your customers. Benefits are identified by taking each micro-segment in turn and determining the needs that are being satisfied by its key discriminating features (KDFs) both individually and as a package (refer to point 1 for key discriminating features). These are the buying criteria that customers regard as being decisive when choosing between alternative offers (and are referred to as Decisive Buying Criteria DBCs). Price is included as a decisive buying criteria for every micro-segment. WARNING: 'Price' on its own is rarely the real reason for a particular purchase: what it may be is the final decider between two competing offers that match each other in all other respects (with the lower priced offer providing better value for money).

Now indicate the relative importance of the decisive buying criteria to each micro-segment and when meaningful differences are known to occur within a micro-segment, develop additional micro-segments to accommodate them. 4. Bring together those micro-segments that illustrate similar patterns of importance for the benefits in order to form clusters (Step 5 in the process). Depending on the number of micro-segments you are working with, this may be possible to execute manually. The simplest approach is to represent the importance levels for each segments decisive buying criteria (DBCs) in a way which enables you to look for matching patterns across the micro-segments, such as by using stars ' (refer to point 3 for decisive buying criteria). It is also possible to form clusters mathematically which requires importance levels to be indicated numerically. Once the clusters have been formed the information associated with each clusters micro-segments (size, decisive buying criteria importance levels and profiling characteristics) should be consolidated. 5. Verify that the concluding clusters can be regarded as segments (also part of Step 5 in the process). The three most important questions are: (a) Is each cluster large enough to justify the development and marketing of a specific offer? (b) Is the offer required by each cluster sufficiently different from that required by the other clusters? (c) Can you identify which customers are to be found in each cluster so that you can target them with their appropriate offer?

If the answer to all three questions is 'yes', then the clusters can be regarded as segments. Market segment definition A market segment consists of a group of customers within a market who share a similar level of interest in the same, or comparable, set of needs. It is also important to check your own companys ability to focus on the new segments, structurally and in its information and decisionmaking systems. 6. Establish the attractiveness of each segment to your company based on how well each of them meets your requirements (Step 6 in the process). Here you list the factors that are important to your company when having to decide where it should focus its resources, along with their relative importance to each other. Each segment is then assessed against these factors in terms of how well it can met your requirements and by taking the relative importance of these factors into account an attractiveness score is determined. The results are then transposed onto the vertical axis of a portfolio matrix as this is a useful tool for constructing a strategic picture of your market (an example appears in point 7). 7. Determine the relative competitive strength of your company for each segment based on how well you, compared with your competitors, meet their requirements (Step 7 in the process). The ability of your company to deliver against the buying criteria of each segment is assessed from the segment s perspective and by taking the relative importance of these criteria into account a

competitiveness score is determined. This is also determined for each of your main competitors. A relative competitiveness score for your company is then calculated for each segment by comparing your competitiveness score with the highest score of the competitors. The results are then transposed onto the horizontal axis of the portfolio matrix containing the segment attractiveness scores and the points of intersection for each segment are identified on the matrix. A circle can then be drawn at each intersection to represent the size of the segment it relates to. An example containing two segments appears below.